Remember that the NYSE Bullish Percent tells us the amount of risk currently in the market. It’s not a tool that will tell us whether the market will zoom up or down.
Currently, it’s telling us the risk in the market is at it’s highest, and the chance of losing money now is pretty good. The reason why we say it measures the risk in the entire market is this:
The Dow Jones is a basket of only 30 stocks, and is a price weighted index. And since the S&P 500 is a cap-weighted index, it’s controlled by essentially just a quarter of those stocks.
But the NYSE Bullish Percent is an indicator taking into account over 2700 stocks and it assesses what is happening under the surface.
So, what’s been happening is that fewer stocks are rallying and more are violating support and giving sell signals.
When risk is high we adjust our approach. This can mean a number of different things from simply reviewing positions, or raising stop loss points, adding protective puts, buying only partial positions.
What all of these strategies have in common is reducing the risk in your account.
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Crude oil broke through the “brick wall” of overhead resistance at $67/barrel and now trades in the low $70’s. The market is trying to tell us that there is clearly more demand for oil, not just because it is mid-summer, but there may be an international turmoil unfolding. We don’t know the reason.
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Like all the other charts we follow, we don’t NEED to know the reason (the actual reason why something is rising and falling in price may not come out, or be known right away). But this breakout in crude oil ends the sideways action that oil has been going through now for four months. Also, now the next most logical resistance level on the chart will be $80-$81/barrel, which was the previous high.
We’ll continue to monitor what’s happening with that, along with the rest of your holdings.