Trader’s Narrative

Yes, today’s decline was yet again another Lowry’s 90-90 day and it took us perilously closer to the ledge. Or over the ledge, depending on which index you’re looking at and how thick you draw your support lines. Weinstein’s support level is still not breached, for whatever that’s worth. Is everything lost? I turned to an ancient way of looking at the health of a market.

You already know how to use bullish percent indices to time the stock market. Although they are usually shown in point and figure charts (those X’s and O’s), I prefer to look at a line chart because it moves in tandem with time and the market proxies like the NYSE index, Dow Jones and S&P 500.

But the original way that bullish percent charts were interpreted was to gauge where we were along a continuum of bull or bear market. The short version is that when the NYSE bullish percent index moves up above the 70% line and closed below it, the market is on notice. Similarly, when the NYSE bullish percent index moves lower than 30% and then breaks above it, there is an indication of underlying health, and a portent of a nascent bullish rally.

Looking at a very long term chart of the NYSE bullish percent index, it is easy to see the efficacy of this measure of market internal health:

Recently though, the NYSE bullish percent index has been breaking down through the 30% level not only often but to such a degree that it has fallen lower than it did after the Black Monday crash of 1987.

Here’s a chart zooming into the past two years to show more detail:

Each successive piercing of the 30% “maginot line” brings about a weaker and weaker counter rally from the market. Until in July, the market barely manages to plateau before falling again. So what’s up? Why is this once solid indicator start to sputter and fail so badly?

My hunch is that what changed over time was the inclusion of non-equity securities on the big board. Right now half of the securities traded on the NYSE are closed-end funds, ETFs, ADRs, municipal bond funds and other funny pieces of paper that do not represent fractional ownership of a public company as it used to when traders started pushing paper under the Buttonwood tree.

This is why Lowry Research service started to keep “operating company only” NYSE data. Speaking of Lowry’s, I went to a presentation by one of their analysts last night and will share the details with you tomorrow.

Over the past few months I’ve received this question more than any other:

Where do you get your bullish percent data/charts?

So instead of answering each person individually, let me write about it so everyone will benefit - and leave me alone!

There are quite a few places to get bullish percent data but I use StockCharts.com. They not only track bullish percent charts for 18 different indices and sectors, they have an impressive amount of historical data which comes in handy when you want to compare current market conditions with previous times.

StockCharts also allows you to create your own bullish percent index for any grouping of individual securities. So if you find that the 18 sectors or indices they follow:

• Nasdaq Composite Bullish Percent Index
• S&P Consumer Discretionary Bullish Percent Index
• S&P Energy Sector Bullish Percent Index
• S&P Financial Sector Bullish Percent Index
• S&P Healthcare Sector Bullish Percent Index
• DJIA Bullish Percent Index
• S&P Industrials Sector Bullish Percent Index
• S&P Technology Sector Bullish Percent Index
• S&P Materials Sector Bullish Percent Index
• Nasdaq 100 Bullish Percent Index
• NYSE Bullish Percent Index (the original and most widely followed)
• S&P 100 Bullish Percent Index
• S&P 500 Bullish Percent Index
• S&P Consumer Staples Sector Bullish Percent Index
• S&P Telecom Services Sector Bullish Percent Index
• DJTA Bullish Percent Index
• TSE Bullish Percent Index
• S&P Utilities Sector Bullish Percent Index

…isn’t enough, just make up your own bullish percent index! or replicate an existing index (first, you’ll have to obviously find out all the constituents).

This is a great feature if you follow an obscure sector like say, palladium stocks or gaming/gambling stocks, etc. Or if you simply want to create a bullish percent index for the stocks you hold as long term investments to know when to lighten up and when to add to your positions.

The only disadvantage is that this feature is not free. You’ll have to subscribe to StockCharts. But their rates are very reasonable so if you are serious about technical analysis, you shouldn’t hesitate.

The other online resource for bullish percent charts is Tom Dorsey’s website. He wrote the bible on point and figure charting, which is the foundation of BP index charts.

Only problem is the website (behind the subscription firewall) is incredibly clunky and difficult to navigate. It seems like something his 12 nephew threw it together on a weekend… in 1994.