We are looking at a lower opening this morning, with Dow futures down 55, and Nasdaq futures lower by 29. Fair value for the S&P 500 is $7.25. Buy programs are set at $10.50, and sell programs at $4.00. Stocks in Japan closed down 0.95%, and European markets are still closed for Easter.
Nasdaq-100 no longer "oversold"
Attendees of the OptionInvestor Expo were able to expose themselves to a new tool for understanding market risk in a more quantitative manner last week. How fast things can change and they have changed immensely since the conference ended last Monday. When we were looking at the NASDAQ-100 bullish percent, the index was in "bull alert" status below the 30% level and in the course of just four trading sessions, this indicator has rocketed to 60%. From quantitatively "oversold" to a position on a football field where a bullish trader should at least be willing to kick a field goal should the opposition (the bears) get the football. As it relates to point and figure charting, we'd currently say that the "risk" in this index is now growing for the bulls. The risk that profits might slip away. An excellent strategy here is to begin raising stops on long positions and get the defensive team suited up and standing ready on the sidelines.
NASDAQ-100 Bullish Percent - 2% box scale
Traders can monitor the bullish percent daily on www.stockcharts.com for several indexes. Risk levels can be measured every day for the NASDAQ-100 ($BPNDX) and other indices at www.stockcharts.com. You can see from the above chart that levels above 70 aren't uncommon and is often times a level where "overbought" conditions exist. The bullish percent isn't necessarily used to predict future price gains or losses, but used widely by institutions to help assess risk in various markets and indices.
S&P 500 Bullish Percent - 2% scale
We looked at the above chart of the S&P 500 at the OptionInvestor Expo and pointed out that the SPX had reversed into a column of X's and had things in a "bear correction" status. This was just before we noticed a triangle formation for the SPX developing in its point and figure chart. Well, on Tuesday, the SPX set off a bullish triangle pattern and the bullish percent for the SPX has reached the 52%. If 52% of the stocks in the SPX are on a point and figure buy signal that must mean that approximately 260 stocks in that index have given supply/demand buy signals. Notice how the bullish percent chart gave a "sell signal" (column of O's exceeding a previous column of O's) on the above chart. Not check out a point/figure chart of the SPX and see if you can now understand how to use the bullish percent and point/figure chart of the SPX together to see what is going on and how to manage your account going forward.
S&P 500 Index Chart - $10 box scale
By looking at the bullish percent and getting a feel for risk, we can then begin to perhaps understand what is going on in the SPX and what lies ahead. I'm observing that the SPX bullish percent has rallied right up to a level of bullishness where this indicator broke down in March (red 3 on bullish percent chart). You can see on the above chart that the bullish percent must therefore have given traders a "heads up" to coming weakness in the index as the breakdown in the SPX didn't come until two columns of data after March was entered on the above chart (red 3). Today, we now see how the bullish percent has rallied right back to a level where the breakdown occurred AND the SPX point/figure chart is sitting right near the 1,180 level. A level where it has had a tough time trading 1,190 two times previous. Institutions are a funny bunch, but they do know how to manage risk. Doesn't it make sense that they would be somewhat likely to begin shifting some risk (by selling stocks or hedging) near current levels? I think so and that is why I was trying to get some traders to at least be thinking of writing some covered calls or snugging up stops on long positions on Thursday. I'm writing all of this information on Thursday evening and we'll see how things play out on Monday. If equity futures are lower Monday morning, I think we could see a pullback to the 1,150 level. If futures look hot to the upside, I think the 1,210 level is achievable, but by then the bullish percent should be getting pretty close to a near-term historical high reading. For a bullish trader, the thing you want to be most concerned with is a reversal in the bullish percent chart to 46%. That would have the BEARS taking the ball from the BULLS and a time to begin playing some defense.