A Rare Buy Signal on U.S. Stocks

There are lots of reasons to be bearish right now. But one of my favorite trading indicators says it's time to buy.

The New York Stock Exchange Summation Index (NYSI) is an intermediate-term measure of overbought and oversold conditions. Stocks are "officially" overbought when the NYSI rallies above 1,000. And they're oversold when it drops below zero. The indicator triggers a buy signal when the MACD momentum indicator (the bottom box) extended below -200 and then turns higher.

We've only had four buy signals over the past three years. NYSI pegged the exact bottom of the market twice. In the other two cases, stocks drifted slightly lower for a couple more weeks before starting to rally. Six months after each of these buy signals, stocks were between 18% and 50% higher.

As you can see in the chart below, we're on the brink of another buy signal today. There's no telling for sure what we'll get this time around. But based on this NYSI buy signal, it's a good time to buy stocks on weakness.

You can follow this trade with my on my Direct Line blog, where I provide real-time market commentary to subscribers of the S&A Short Report newsletter. To learn more about a subscription to the S&A Short Report and to get access to the Direct Line, click here.