A financial blog on investing in stocks, commodities and the gold bull market.
Wednesday, August 22, 2007
Bullish Percentage Charts
I like to keep tabs on the Bullish Percentage charts. I know many of you are familiar with my 5th year scenario. All that amounts to is that normally bull markets can't make it passed a fifth year without a large decline. One of the things I was going to be looking for to indicate that the fifth year decline was playing out was an oversold reading on the Bullish percentage chart. Something in the 30 or lower range. Well the NYSE so far has bottomed at 30.99 and has now turned up and is back above 40. All this means is that only 30% of the stocks on the NYSE were in bullish trends on the point and figure charts. That's an incredibly small amount of stocks in bullish trends. If this rises back above 50 it will be just another positive sign for the market. Now notice the second chart of the Nasdaq 100. It was much stronger than the rest of the market and never even came close to oversold. That should not be happening in any serious decline. The Nasdaq should be leading the charge lower. Notice how it lead last year. It is entirely possible that we just got the 5th year decline and the pitiful 10% is all the market is going to give back. This seems hard for me to believe but a great many indicators other than just the BPNYA also signaled extreme oversold levels rarely seen and usually only at very important lows. Of course we still have the fact that the commercials are at historic long positions. Oh and in case anyone hasn't noticed the current long signal is still profitable so far. As a matter of fact everyone just got a second chance to get in at a lower level than the original signal and you still have a chance to get in at a level very close to the original even at today's close. Ah but after experiencing what we just went through will you now be able to pull the trigger? Buffett did. Lambert did. Gates did. Soros did. Altucher did. Ah what the hell do they know anyway.
BTW if you do pull the trigger here will you immediately sell for a loss if the market drops to test the lows?
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T1. A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move. Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected. T2. Reversal or resistance to a move is likely to be encountered: - 0n reaching levels at which in the past, the commodity has fluctuated for a considerable length of time within a narrow range - On approaching highs or lows T3. Watch for good buying or selling opportunities when trend lines are approached, especially on medium or dull volume. Be sure such a line has not been hugged or hit too frequently. T4. Watch for "crawling along" or repeated bumping of minor or major trend lines and prepare to see such trend lines broken. T5. Breaking of minor trend lines counter to the major trend gives most other important position taking signals. Positions can be taken or reversed on stop at such places. T6. Triangles of ether slope may mean either accumulation or distribution depending on other considerations although triangles are usually broken on the flat side. T7. Watch for volume climax, especially after a long move. T8. Don't count on gaps being closed unless you can distinguish between breakaway gaps, normal gaps and exhaustion gaps. T9. During a move, take or increase positions in the direction of the move at the market the morning following any one-day reversal, however slight the reversal may be, especially if volume declines on the reversal.
General Trading rules
G1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move. G2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases. G3. Limit losses and ride profits, irrespective of all other rules. G4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. G5. Seldom take a position in the direction of an immediately preceding three-day move. Wait for a one-day reversal. G6. Judicious use of stop orders is a valuable aid to profitable trading. Stops may be used to protect profits, to limit losses, and from certain formations such as triangular foci to take positions. Stop orders are apt to be more valuable and less treacherous if used in proper relation the the chart formation. G7. In a market in which upswings are likely to equal or exceed downswings, heavier position should be taken for the upswings for percentage reasons - a decline from 50 to 25 will net only 50% profit, whereas an advance from 25 to 50 will net 100% G8. In taking a position, price orders are allowable. In closing a position, use market orders." G9. Buy strong-acting, strong-background commodities and sell weak ones, subject to all other rules. G10. Moves in which rails lead or participate strongly are usually more worth following than moves in which rails lag. G11. A study of the capitalization of a company, the degree of activity of an issue, and whether an issue is a lethargic truck horse or a spirited race horse is fully as important as a study of statistical reports.
Investing in the financial markets can involve considerable risk. Past performance is not necessarily an indication of future performance. The information included in The Smart Money Tracker and The SMT subscribers daily updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. G.D.S L.L.C., nor Gary Savage, do not represent themselves as acting in the position of an investment adviser or investment manager for funds that are not under their direct control and fiduciary responsibility. GDS L.L.C., Gary Savage, will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. From time to time, GDS L.L.C., Gary Savage, may hold positions in securities mentioned, but are under no obligation to hold such positions.