Further to yesterday's look at the NYAD line, I'm looking today as far back as the StockCharts data allows, which is 1993.
So what can we see?
Well, NYAD and the index may get out of whack, but they always come back together sooner or later and the market is stable so long as they are so. Interesting to note the take-off of NYAD in the mid-90's that foreshadowed the explosive blow-off of SPX into the 2000 top.
Also, the monster divergence of NYAD in the 2 years previous to the top - anyone looking at this chart would have known there was something rotten in the state of Denmark - but it's also a salutory lesson in not cashing out too early. After all, as already stated, this divergence lasted for 2 whole years, and you would have missed the most profitable bit of the move, had you cashed out in 1998, or - God forbid - gone short.
Likewise, NYAD bottomed (perversely) as the SPX topped, setting up an equally monster bullish divergence into the 2003 low. We then have a period where the market was in a stable bull phase, right up until a small divergence of NYAD dropping off gave a very nice signal right at the 2007 top.
So now to the interesting bit - what of since then? It looks as if the market has gotten way ahead of itself to the downside by this measure - and indeed, NYAD has just made a new high. From the RSI and MACD divergences, it appears that this may well be a lasting top in NYAD, which would be good, as it's going to have to come down some to get back in sync with the SPX.
The other points to note would be that as long as the NYAD is so far above SPX, might it exert an upwards attraction as the two eventually move back in sync? And also, that we have no divergence here at the May SPX high short-term - there is of course the monster divergence between 2007 and 2009 - NYAD up, SPX down. This could resolve itself with NYAD crashing faster than SPX.
We may not see one shorter-term of course, but it's food for thought when considering the perennial "is this it - yet?" question.
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