How the Bullish Percent Index works
To understand how the bullish percent index, our main coach, works, you need to begin with and understand three main concepts.
First, the bullish percent index merely measures the percentage of stocks currently on buy signals. It’s simply a chart that runs from zero to 100%.
Second, the only way a stock can give a buy signal is to see a price increase. The only way a stock can be on a sell signal is to have a price drop.
Third, stocks are either on buy signals or sell signals.
So, another way of explaining this bullish percent concept is to say that when the percentage of stocks with buy signals falls, the percentage of stocks on sell signals is rising.
Suppose last week the bullish percent index was at 70%. That means 70% of all stocks were giving buy signals. That means the other 30% of stocks were on sell signals.
Now this week, we see the bullish percent index fell from 70% to 64%. Meaning only 64% of all stocks are on buy signals, and that also means the percentage of all stocks on sell signals has risen from 30% to 36%.
The percentage of stocks on buy signals is falling; the percentage of stocks giving sell signals is increasing.
Again, the only way a stock can be on a sell signal is to have a price drop.
When this happens, it means more money is beginning to flow out of stocks.
This tells us more and more stocks are starting to give sell signals and we need to begin focusing more on wealth preservation instead of trying to make as much money as possible in the market.