The Bullish Percent is one of the oldest market breadth technical indicators. Many indicators have come and gone over the years but the Bullish % has stood the test of time.
The Point and Figure Bullish % can be traced back to A.W. Cohen, of Chartcraft, in 1955. It was effective then and is an equally powerful tool in the modern age.
Stock Market Internals
The most common application of the Bullish Percent is gauging the condition of stock market internals. Assessing market health. The broadest measure being the NYSE Bullish %. The indicator simply plots the percentage of the NYSE market on P&F buy signals. The measure may be plotted as a line chart or in the traditional way, as a Point and Figure chart.
Graphical representation of the Bullish Percent
The percentage of index constituents on a P&F buy is best interpreted as a Point and Figure chart. The techniques filters our noise by nature of the 3 box reversal method. The best box size to use for the indicator is 2% fixed, with the scale extending up from 0 to 100%. Therefore, to reverse direction, a move of 6% by the breadth indicator is required.
Point and Figure Bullish % sector charts help to identify which sectors to be invested in and which ones to avoid. A further effective means to assess stock market internals.
Breadth sector charts are calculated in the same as the NYSE. Simply the percentage of an industry group possessing a P&F buy signal.
Advantage of Breadth Indicator
The Bullish Percent is more representative of stock market internal health than analyzing a weighted index alone, such as the NASDAQ 100.
The indicator gives equal weight to every single stock in the market or sector. When the Bullish % is rising, it signals expanding participation. However, an index like the NASDAQ 100 can rise on the strength of one stock alone. Apple for instance is highly influential on the direction of the NASDAQ 100. Therefore, a false impression is given on the market's overall health when analyzing the index alone. Usage of the bullish percent in the analytical process curtails this issue.
Where to find the NYSE Bullish Percent indicator?
Our 3boXreversaL P&F charting tool includes the breadth indicators of importance. Navigate to the left hand corner of the online tool and select "NYSE Bullish %". Free five day trial to the tool available!
Analyzing the Bullish % Breadth Indicator
Key points to note when analyzing Point and Figure Bullish Percent breadth indicators:
- Rising trend on a Bullish % chart indicates strengthening internals of the market or sector. Participation is expanding. Therefore, an investor should be long.
- Falling trend on a Bullish % indicates internals of the market, or sector, are weakening. Participation is thinning. As a result, an investor really needs to consider defensive action, reducing long exposure.
- Bearish divergence against a market index (e.g. S&P 500) in overbought territory (70% and above) would suggest a rally was tiring. The negative divergence reveals troops retreating from the frontline.
- Bullish divergence against a market index in oversold territory (30% and below) would suggest a correction or bear market was near an end. Troops beginning to mass at the frontline.