Stocks are mixed in today's trading with the major indexes trading near unchanged levels. Yesterday's trading had the NASDAQ Composite Bullish % ($BPCOMPQ) reversing up into "bull alert" status, and my e-mail is full of bullish stock picks in 4-lettered stock.
The Bullish % charts are EXCELLENT at giving traders and investors an understanding of MARKET risk, but do not necessarily give traders/investors a decisive view of price appreciation/depreciation.
With the NASDAQ Composite (COMPX) 1,325 +0.38% showing marginal gains today, it is so important for traders and investors to understand current levels of bullishness with that found in mid- August. Before a bull "loads the boat" or his/her portfolio with 4-lettered stocks without regard to potential risk, we need to take a look at a bar chart of the NASDAQ Composite (COMPX), tie in past levels of bullish % for this broad index and perhaps understand what a bull wants to see going forward, but more importantly, what he/she doesn't want to see in the future. In brief, a bull doesn't want to see what happened soon after the NASDAQ reached it recent relative high of 1,426.76 on August 22nd, just 3 day's after the NASDAQ Composite Bullish % turned higher to "bull alert" status like it did yesterday.
NASDAQ-Composite Chart - Daily Interval
Current analysis has the NASDAQ Composite "just as risky" as it was on August 19th. We can quantitatively say that and even test it.
For example, the recent lows near 1,109 had BEARS carrying the same amount of risk as they faced back in mid-July and early August. Note in the lower left corner of the chart above, that the NASDAQ Composite Bullish % reading were nearly identical at 26%. NASDAQ Composite action has shows nice rebounds from both levels of bullish %.
Now we'll note that the rally from early August eventually found the NASDAQ Composite Bullish % ($BPCOMPQ) reversing up and eventually achieving "bull alert" status at 32%. That 32% and yesterday's reversal up to 32% is identical, as it should be on the reversal up from similar 26% bullish levels.
A trader can perhaps understand from these identical bullish % levels is this. Just as the low reading of 26% hinted of IDENTICAL risk levels, which eventually found reversals higher, we see IDENTICAL risk levels of 32% where we might be cognizant of bullishness fading over the next several sessions.
A bull that runs and loads up his her account may run the same risk that he/she did back in mid-August!!!!!
What a bull needs to be watching for to show continued strength is bullishness to continue in the narrower NASDAQ-100 Bullish % ($BPNDX) that reversed higher on October 11th, and as is often the case, the quicker to reverse up and down before the much broader NASDAQ Composite Bullish % ($BPCOMPX).
I can't stress enough that bulls also need to see continued selling in Treasuries! The cash in Treasuries is in essence the "equity market's piggy bank."
These will be some of the current indicators I would be monitoring on a near-term basis, and something I monitor each day.
As it stands right now, my assessment of downside risk in the NASDAQ Composite from a PRICE level is 1,230. This is based off of the above chart and retracement shown. Current upside potential with the bullish % as it is, would be to the 1,365 level. This could also be thought of as a BEARISH trader's near- term risk assessment level.