Our main coach, the New York Stock Exchange bullish percent chart has signaled this week it’s time to bring the defensive playbook out. “Wealth preservation” becomes the key now.
The bullish percent is a “risk” indicator, not a predictor. It means stay alert, clear out your weak holdings, take sell signals seriously. It doesn’t mean sell it all.
And it doesn’t mean “Let’s wait and see,” either.
Regardless of what happens in the Middle East, the economy, interest rates or sub-prime loans. The main coach is telling you: “Beware! Something is going on in the markets.”
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I’m far more sensitive to changes in this indicator when “nothing is happening.” In late February, the indicator was close to reversing to defense when China burped. That was enough to push the market to defense. Today there’s been no such “event.” At least, nothing we can see at the moment.
Two more things:
First, the bullish percent chart is a chart showing the PERCENTAGE of stocks on buy signals. The chart has to drop at least 6% just to flip from X’s to O’s. A short-term bounce may happen soon. That’s just the sort of “head-fake” that lulls many to sleep.
Second, just because the Dow or S&P 500 may be flat (or even going up) doesn’t mean YOUR stocks or mutual funds are doing the same thing. Many people “do the freak” when they get their statement and see they lost money when the market went up (or was flat), in the same period. The bullish percent measures the percentage of ALL stocks currently on buy signals. That number is now dropping.
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The bullish percent charts tell us that money is flowing OUT of stocks. In the “supply & demand” game, supply is gaining the upper hand. When there’s too much supply, prices must fall. But we don’t have to panic. We have a game plan to manage the risk. And we’re going to stick with it.
Make no mistake: something’s happening.
But we’re prepared, that’s our job.