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NYSE BULLISH PERCENT

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January 25, 2022 ~ Bill Spencer

This Recent Change Is: A reversal from an X-column to an O-column.

Date of Change:  January 20, 2022.

Number of Days Since Previous Change: 22.

Interpretation: The market should now be considered weak in the short term as well as weak over the intermediate- to longer-term.

******

And the beat goes on...

After spending just 22 days in a column of X’s, the NYSE BPI on January 20th flipped to a column of O’s.

This was the shortest stay in an X-column since the period from February 10 to February 26 when this indicator spent just 16 days in an X-column before flipping to O's.

The flip came on January 20, and over the subsequent two trading days the BPI managed to fill four additional boxes and to extend this newest bearish O-column into the "48 box."

Let me explain what that number means...

The New York Stock Exchange Bullish Percent Index (NYSE BPI) is what technicians call an "oscillator." It can move up and down between zero percent and one hundred percent.

What the BPI displays, at any moment in time, is the percentage of stocks trading on the New York Stock Exchange that are currently on point-and-figure Buy signals on their own respective price charts.

The more stocks on Buy signals, the more justified we are in considering the market to be strong. The fewer stocks on buy signals (which is the same as "the more stocks on Sell signals) the more justified we are in considering the market to be weak.

Right now, out of a possible 100 percent, just 44% of NYSE stocks are on Buy signals. By contrast, consider that in February of last year that number got as high as 76%.

Let's go deeper...

For a particular stock to go on a Buy signal, there has to be a lot of buying of that stock. So much so that the price (driven higher by that buying pressure, a.k.a "Demand") is able to penetrate above a historical resistance level.

Deeper still...

A resistance level is a price where, experience has shown, sellers of the stock will step in and distribute their shares. Those sellers/bears will distribute/sell so much of the stock at that price that they are able to overwhelm the buyers/bulls -- thus stopping the upward price movement in its tracks.

So when a stock's price, after failing to get past that resistance price so many times, is able -- finally -- to break above it... that means that the bulls/buyers are strong enough, or have enough conviction, that they overwhelm the bears. The bulls keep buying until the bears run out of shares to supply... or, defeated, throw in the towel and step aside.

Often, those former bears, realizing the truth of the old maxim "if you can't beat 'em join 'em" become bulls themselves. They begin buying, adding even further upward pressure to that stock's price.

The foregoing applies as much to support levels as it does to resistance levels.

A support level is a price where, experience has shown, buyers of the stock will step in and begin to accumulate shares. Those buyers/bulls will accumulate/buy so much of the stock at that price that they are able to overwhelm the sellers/bears -- thus stopping the downward price movement in its tracks.

So when a stock's price, after failing to fall below that support price so many times is able -- finally -- to do so... that means that the bears/sellers are strong enough, or have enough conviction, that they overwhelm the bulls. The bears keep selling until the bulls run out of cash to buy with... or leave the arena.

Often, those former bulls become bears themselves.

Most of the buying and selling these days is carried out by computers working with algorithms that automatically buy or sell once particular, pre-set support or resistance levels have been pierced. This phenomenon is one of the things that makes technical analysis and technical trading so reliable.

The point of all this is: Buy and Sell signals on price charts are a very big deal.

The NYSE BPI is shown on this page in point-and-figure style. This chart will not switch from an X- to an O-column unless the chart can fill three O-boxes. And it won't switch from an O- to an X-column unless it can fill three X-boxes.

There are about 2,800 stocks traded on the NYSE. Six percent of 2,800 is 168. So 168 separate stocks would have had to have put in Sell signals for that January 20 switch to have occurred.

That's a lot of selling of a lot of stocks.

There's more...

Notice also that the current O-column has gotten lower than the previous O-column. This means that more stocks are participating in the current down move than participated in the previous one.

In fact, if you follow the current lowest O to the left (the dotted red line), you'll see that the last time the NYSE BPI was this low was back in May of 2020. (The '5' where the dotted line ends means the fifth month of the year -- May. Calendar years are marked along the bottom of the chart.)

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The market will not be considered "oversold" until the BPI falls below 30%. So we still have a way to go. But as you can tell from looking at the right hand side of the chart, the BPI has been putting in one lower high and one lower low after another. The market is clearly in a sustained downtrend.

This downtrend has been a feature of the market/BPI since last February. The reason you didn't see it reflected in the Dow or the S&P is because those indices are dominated by a handful of gigantic firms, mostly tech. The Apples and Facebooks and Googles were advancing higher and dragging the averages with them.

But, again, the NYSE represents 2,800 tickers. It's a much more realistic picture of the "internal" stock market. And based on that view of the market internals, there has been more and more weakness "under the hood."

None of this means you should sell out of all your bullish positions and go to cash. It does mean that, if you aren't hedging your bullish bets with, say, 10% of your account devoted to bearish position, you should consider doing so.

If you're not ready or able to sell stocks short, you can always buy put options which will gain in value as the underlying asset -- as stock or sector ETF or even an ETF that tracks the market -- falls in value.

Now is the time to start laying in some dry powder against the day (which will come; it always does) when the market forms a true tradable bottom. On that day, you'll want to be able to swoop in and grab shares of companies that look good at prices that look even better.

And speaking of time, the NYSE BPI is not really a device for timing the market. That's not its primary purpose. It's a barometer of risk. And right now it's telling us that risk is to the bulls. So act accordingly.