NYSE Bullish Percent Primer
Many of the indicators I look at are based on the Bullish Percent concept, so I'm going to go through exactly what this concept is and how it might be used.
The Bullish Percent concept was actually created by a guy named Earnest Staby in the 1940s. One of the criticisms often leveled against technical analysis is that charts, in a very general sense, look best at the top and worst at the bottom. Obviously, it would be far more valuable if charts looked their worst at the top and their best at the bottom.
The Bullish Percent concept was created to help solve this problem. It was actually A.W. Cohen who took Staby's insights and created what is called the New York Stock Exchange Bullish Percent in the mid 1950s. Bullish Percent charts are simply charts that measure the percent of "something" doing "something." As point and figure chartists we plot these charts in Xs and Os. We use Xs to display when demand is in control, Os to display when supply is in control.
A Bullish Percent chart goes from 0 to 100%. We use 2% increments to eliminate noise. Bullish Percent charts can measure almost anything. Remember, they simply measure the percent of "something" doing "something." One of the cool things about them is that we have the flexibility to specify both "somethings." For example, we can chart the percent of stocks trading above their 200-day moving average where our "somethings" are stocks and the 200-day moving average. We can also chart the percent of stocks on point and figure buy signals. That's what I want to talk about here.
(illustration courtesy Dorsey Wright)
The NYSE Bullish Percent is one of our main indicators. It simply measures the percent of stocks on the NYSE that are on point and figure buy signals. The Bullish Percent tells us two important things: what team is on the field and what the field position is so we know what kinds of plays to run. When the NYSE Bullish Percent is in a column of Xs it tells us that the offensive team is on the field and when the NYSE Bullish Percent is in a column of Os it tells us the defensive team is on the field. When the offensive team is on the field, I focus on wealth accumulation strategies. When the defensive team is on the field, I focus on wealth preservation strategies. The field position is important. Think in terms of our football analogy here. Where you are on the field will have a great influence on what plays you choose to run.
There are two lines of demarcation on the Bullish Percent chart that help us determine what type of plays to run. The 30% level and below is the Green Zone, or low-risk area. When the Bullish Percent gets down to this level it tells us that most everyone who wants to sell has already sold. The availability of supply to continue to push the market lower is limited. Conversely, when the NYSE Bullish Percent gets to the 70% level and above we are in the Red Zone, or high-risk area. When the indicator gets near the 70% level or higher, it tells us most everyone who wants to be in the market has already bought. Here, the availability of demand to continue to push the market higher is limited. The NYSE Bullish Percent does not move above 70%, or below 30%, very often. In fact, since 1955 the NYSE Bullish Percent has only been above 70% 26 times, and below 30% 19 times. The most recent instances where the NYSE Bullish Percent moved below 30% were July and October of last year.
Check back later for more on the NYSE Bullish Percent: How it measures risk, but isn't a quick trigger.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.