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Would You Bet Against an 87% Success Rate?By Jeff ClarkTuesday, January 25, 2011 It's the same old story… Another day, another sell signal from yet another technical indicator.
The New York Stock Exchange Summation Index (NYSI) has joined the party. It rolled over to a sell signal on Friday. Take a look…
 NYSI is a momentum indicator with an excellent track record of identifying short-term turning points in the stock market.
The indicator generates "buy" signals when the short-term moving average convergence-divergence (MACD) indicator – the black line on the bottom graph – crosses up and over the longer-term MACD line – the red line. Buy signals are marked by the blue circles on the chart.
"Sell" signals occur when the short-term MACD line curls down and crosses below the long-term line. Sell signals are marked by the red circles.
How it works, why it works, and what it all means aren't important. All that matters for short-term traders is to buy when you get a blue circle and sell when you get a red circle.
Here's how the S&P 500 performed after each signal over the past year...
 Eight of the last nine trading signals were profitable. The only exception was the sell signal in mid-October 2010. That trade lost 4% before the indicator reversed and generated a buy signal. The sell signal in late March was a bit early. However, it paid off pretty well. Now we've gone back to a sell signal.
Of course, the market has so far ignored the plethora of sell signals from many other technical indicators. Why would this one be any more important?
Maybe it's not. Maybe the market will roll right over this one too. But previous NYSI signals have been quite accurate. Eight of the last nine signals have been profitable, and it was five of the last six before that. That's an 87% success rate.
It's hard to go against that kind of track record.
Best regards and good trading,
Jeff Clark
Further Reading:
"Is anyone listening?" Jeff asked last week. The market is about to trigger a sell signal, but investors are still over-the-top bullish. See what you can do to protect yourself from a potential flash crash here: Wall Street Is Lying to You, These Warning Signs Are Not.
"Periods of low volatility in the stock market are always followed by periods of high volatility. Always," Jeff told us. " You can bet on it." See how you can profit off a correction in the Volatility Index here: When This Stock Market Signal Flashes, It's Time to Get Short.
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