Tuesday, August 16, 2016 12:46 PM EST
A tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market “breadth” indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Like many of the market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving higher as more and more stocks are purchased.
As evidenced in the BPCOMPQ chart below Nasdaq stocks have been leading the stock market higher since the post-Brexit crash. Strength in technology and small cap stocks are primarily propping up the market. As long as the BPCOMPQ remains in an uptrend expect the overall stock market to remain near the current highs. However, just as these shares have led the market higher, if they start to falter that will probably signal the next significant price pullback.
We are keeping an eye on the Nasdaq Composite Bullish Percentage Index (BPCOMPQ). If there is a break in the current uptrend line that should be a clue to begin taking a look bearish trades.
Compared to Nasdaq Index, the NYSE Bullish Percentage Index is basically moving sideways. The DOW Industrial index reached all-time highs primarily driven by a few large names. The rise in the DOW does not include a wide enough “breadth” of stocks to form an uptrend in the BPNYA Index.
Similar to the BPNYA Index, the S&P 500 Bullish Percentage Index is trending sideways. Like the DOW, the S&P 500 reached new highs without the full range of stocks in the index going higher.
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