Bullish percent data helps to determine if a market is overbought or oversold from a little different perspective than just looking at oscillators. Bullish percent measures the number of stocks in and index that are trading with a buy signal on their point and figure chart. If 70% of the stocks are trading with a buy signal, the index is considered overbought. If only 30% of the stocks are trading with buy signals, the index is considered oversold.
Nasdaq-100 and S&P 500 Bullish Percent Charts
Looking at the Nasdaq-100, we can see that it hit a low of 26 in June, and has reversed up to a current reading of 44. When an index reverses into a column of Xs from a reading below 30, this is known as a bull alert. It is just an alert, not a signal to swing for the fences, because stocks could easily pullback and test their lows. The odds favor trading from the long side, but proceed with caution. Profits of 10 or 15 percent are the upper range of expectations.
After peaking at 74, the S&P 500 bullish percent chart has reversed into a column of Os, and now sits at 54. This is called bear alert status. This reading does not mean that all hope is lost for the bulls, but it might time to take some defensive action. Traders can consider shorting this market, but must be very agile. Watch for the column of Os to reverse back into a column of Xs to cancel the bear alert, and put the S&P 500 back in bull confirmed status.
FPL Group and Nike Point and Figure Charts
So what could sway the S&P 500 bullish percent data one way or another? Lets start with Nike. Nike has been trading on a buy signal since mid-May, but has had trouble breaking the bearish resistance line. The current column of Os has dangerously dropped to 41, and if Nike drops one more box, it would give a sell signal and drop the bullish percent data by one. FPL Group is the exact opposite, and has been trading on a sell signal since early May. FPL is trying to rally, but has met resistance at the bearish resistance line. If FPL can climb more one box to $62, it would give a buy signal and increase the bullish percent by one. One of the reason I like bullish percent data is that it is more democratic, one stock - one vote. A buy signal from FPL is the same as a buy signal from GM.