What is the NYSE ROC©?

Updated 5/15/2012

The NYSE Rate of Change (ROC) chart is helpful in getting the “big picture” of the stock market very quickly. The old saying “a picture is worth a thousand words” is very applicable to this chart. Once you understand how to read the ROC chart you can easily spot the direction of the market which makes it easy for you to know whether you want to be invested in the market or not.

Click for Larger Image

The NYSE Rate of Change (ROC) chart shows the annual rate of return along the left axis and the years since 1990 along the bottom.

Since this chart shows the rate of return rather than the current price it is much easier to see performance, we don’t have to guess if we are up or down from last year. If we are below the zero line… we are down, if we are above the zero line… we are up. The key is to exit positions while we are in positive territory (with a gain) rather than waiting until we have a loss and then we can reenter when we get a buy signal.

The red line is the 12 month moving average. As with most moving averages a buy signal is generated as the index crosses above the moving average and a sell signal is generated as the index crosses below the moving average. (See Current Analysis Below)

Another helpful way to use this chart is to look at the slope of the red moving average line. If the slope is down the market is trending down (gains are getting smaller) if the slope is up the market is moving up (gains are getting bigger). And obviously if the line is basically flat the market is not trending at all.  But a flat line at say the 10% level is not bad it means the market is gaining a steady 10% a year which would be very good.

Just because this chart is not moving higher does not mean we should sell. In the period from May 2005 – May 2007 the red moving average line was basically flat, although it had a bit of wiggle, but it was still flat at around 12% rate of return so holding during that period would have produced returns above the long term average.

If you are looking for big gains, the best buy signals come from a movement from below the 0% line. This allows you to capture the greatest up move.

Note: While viewing this chart we must remember that it represents the rate of return we would have earned if we had invested in the entire NYSE for the previous 12 months. Which can be achieved through the use of an index fund. Is there a correlation between inflation and the stock market ? This chart compares decade inflation and stock market returns during the decade.

Current Analysis:

The NYSE ROC is down  -5.03% for the month after being down -1.78% last month…  bringing it back to the 7600 level.  This brings the NYSE back into negative territory for the last 12 months with an annual -9.70% loss. Thus if you had held the entire NYSE (or a fund that emulated the NYSE) for exactly one year you would be down -9.70% . This is primarily because April of last year had such a big gain going from 7900 to 8400.  So the current 7635 is down almost 800 points compared to last April.

Two months ago I said,

At this point, it looks like we could be entering a new “Whipsaw” range if  we cross above the moving average. We have already crossed back above the zero line giving us a preliminary buy signal. A move above the moving average will confirm it while a move below the zero line will negate it.

Unfortuantely, we never crossed above the moving average line. Instead we bounced below and moved back below the zero line negating the buy signal (or actually never generating one). We are nearing the Summer doldrums and as the old saying says “Sell in May and go away”.  Last summer the NYSE fell from around 8400 in April and May to below 7100 by the time August rolled around. This it might be sell in March and go away.

Tim McMahon, Editor
Financial Trend Forecaster

Subscribe to our Free E-zine and we will notify you when this chart is updated

We issued a buy signal in March ’03 catching the absolute lowest risk entry point and a sell signal in October 07 before the big drop! Don’t miss our next Signal! Subscribe to our Free monthly E-zine.
Subscribe NOW!

Market Commentary:

Stock Market Commentary on GOLD, Silver, S&P 500, US Dollar and Commodities by Adam Hewison. Every weekday at 1PM

Adam shares his decades of trading and investing knowledge plus he even records weekly updates on Saturday to help you make sense of where the market is going.

FREE Commentary Click Here