NYSE Rate of Change (ROC)©

What is the NYSE Rate of Change (ROC)©?

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. (See Below for Current NYSE Analysis)

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) so we can avoid the 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 a short-term trader or simply 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.

Updated 2/13/2018

Current NYSE-ROC Analysis:

Hold Signal- Whipsaw?

The NYSE index has entered the “Whipsaw period” being above its moving average in November, below in December, above in January and below in February. In December we said, “However at this point in the cycle we could very well be seeing a whipsaw and with the annual rate of return at 14% we wouldn’t jump to sell too quickly.” Which is why we have labeled it “Hold”. Even with the current sell-off in February the annual rate of return on the NYSE is 10.36% with a monthly rate of return at -4.78%.

History: A buy signal was generated in July 2016. In April 2017 we switched to a HOLD signal as the ROC peaked and neared its moving average. In May rather than cross below the moving average it bounced upward remaining above and keeping the hold signal intact. In July the NYSE fell below the moving average giving us a Sell Signal. But I said that, “a rebound upward from here would take us into whipsaw territory. At this point in the cycle a whipsaw is very possible as we saw from 2004-2008. As we saw in the two previous whipsaw periods although it is more difficult to predict direction the annual returns remained good for several years.”

Well, the whipsaw is here as predicted. The NYSE rebounded 2.25% in October but fell -0.58% in November and even though it regained 3.4% in December the ROC moved below its moving average, thus generating a technical sell signal but it moved back above again in January with a monthly gain of 4.04% and an annual gain of 17.99%. The monthly return as of February is -4.78% but the annual return is still 10.36%.

Click for larger Image


Inflation Adjusted NYSE

Inflation Adj NYSE Oct 2017

NYSE in Inflation Adjusted Terms

To get a true picture of the state of the market it helps to look at the inflation adjusted NYSE chart so you can see how the NYSE has performed based on the real purchasing power of your dollars. Although the NYSE appears to be making new highs every few years,and the news media made a big deal when the “nominal” price finally exceeded the 2007 highs, if you look at the Inflation-adjusted returns on the NYSE you will get an entirely different picture. When we adjust for the depreciating value of the dollar we find that the NYSE has not made new highs in recent years until September 2017. The market peaked in July of 2007 at 12,072 in inflation adjusted September 2017 dollars and hit 12,080 in September 2017. It has risen further to 12,352 on October 13, 2017 but fallen back a little in November.

See Inflation Adjusted NYSE for more information. You might also like Every Market has a sunrise and a Sunset and keep in mind when CNN starts saying that “This market could go on forever” it’s time to start scoping out the exits.


Length of Stock Market Rallies

The chart below by Chart of the Day considers a 30% sell-off the end of a “Bull Market”. While the second chart considers the results of a smaller 15% decline.

Our friends at Chart of the Day have published several charts on the length and magnitude of rallies over the years. This chart of the Dow rallies since 1900 was published on May 21, 2015 so the market is considerably older now!

Dow RalliesAs you can see the Dow performance is not spectacular and there are only 5 of the 13 rallies that lasted longer so we could easily be nearing the end of the rally. Dow is made up of “cherry picked stocks” so it doesn’t really represent the overall market. The Dow peaked at 182.93 on May 19th 2015 and bottomed at 156.49 on August 25th 2015 and again at 156.80 on February 11th. The August bottom was a decline of 14.45% from the peak so it has not yet reached the “15%” decline level depicted in this chart.

The following chart of the S&P 500 was published on September 3, 2014 so the rally has now lasted another 3 years longer.

chart of the day stock market rallies2

The chart plots “major rallies” since 1932 i.e. an average of one every 3.7 years. In this case, a major rally is defined as an advance of 30% or more that follows a 15% or greater decline.  There have been 23 major rallies using this definition during this period. The current rally began with the 2011 correction of 19.4% and started counting at the September 2011 low of 6770.73. From there through May 2015 the market has increased about 66% up slightly from the 62% it registered in this chart so the only difference is a sliding toward the right another 350+ trading days but still below the 2002 rally. By looking at the chart we can see that the current rally was a bit anemic in that it is below the linear regression average line but lasted a bit longer than average.

Since the creation of this chart we saw another 19% correction from May 2015 through February 2016, so using the 15% guideline we can mark the previous rally finished by this definition. So we began another rally in February 2016 and as of August 2017 the index is up 31%.

Back in May 2014 Chart of the Day published the following chart (once again of the DOW) with slightly different parameters. In this one, the rallies followed a decline of 30% or more (rather than only 15% in the above chart). So in this chart the rally began after the 2008 crash and the 2011 drop was just a “correction”. Looking at it this way there are fewer points of reference (only 13) and since this chart was created we have moved a bit closer to the average point on this chart.


chart of the day stock market rallies-May 2014

NYSE Rate of Change (ROC) History:

In August 2012 the NYSE ROC generated a definite buy signal, not quite as dramatic as the one in 2009 but a good buy signal none-the-less. And the rate of return shot up considerably. Then the rate of return bounced around above 10% coming close to the moving average but not crossing below. In the Summer of 2013, FED chairman Bernanke spooked the markets with his talk of backing off the accelerator but then he decided to take it back, so the markets picked up again. Up until September 2013, the red moving average line was trending up and the index remained above the moving average.

But in September, possibly out of concern over what would happen when Bernanke retired, the black line crossed below the moving average generating a sell signal. At that point, we asked, “Is this “the sell signal” that signals the end of the bull market? Or will it just be another whipsaw?” We said, “Only time will tell, we are at the end of the summer and the market may be picking back up again for the winter months.” In October, it seemed that the market had accepted that the new FED chairman Yellen will continue on the easy money path so the market picked up again moving the NYSE once again in buy territory. Then for the next month, the market went basically nowhere so the annual rate of return dropped from 25.8% to 20.23%. But a 20% annual return is still excellent. Unfortunately, 20% is generally unsustainable and high returns like that generally indicate overbought conditions and the making of a bubble.”

In February 2014, the rate of return line crossed below its moving average generating a sell signal at around 10,250. And as we saw above the market lost 19% from May 2015 through February 2016. The ROC then gave another buy signal in July 2016. With the rally actually beginning in February 2016 and as of August 2017 the index is up 31%. So the ROC indicator follows the old adage of getting out early and getting in late for the safest returns. We don’t try to get the first 10% or the last 10% we are happy to get the 80% in the middle.


Is there a correlation between inflation and the stock market ? This chart compares decade inflation and stock market returns during the decade. Also see the Inflation Adjusted NYSE Stock Index – how has the NYSE fared when inflation is taken into consideration?

For more information see:  NASDAQ Rate of Change

Tim McMahon, Editor
Financial Trend Forecaster

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