Indicator? What indicator?

Indicator? What Indicator?

Last week, our Weekly Wire revealed that we were watching the US Stock Market closely to see if a bottom had indeed formed.  We mentioned that one of our less sensitive indicators had reversed up, however, we did not share the name of the indicator.  This prompted some great questions from our clients and blog readers.

 Alphabet Soup – BPNYSE

In the investing world we are often plagued by acronyms such as “NASDAQ”, National Association of Securities Dealers Automated Quotations, and initialisms like “NYSE”, New York Stock Exchange, and “S&P 500”, Standard and Poors 500 Index.  The list is seemingly endless.  We would like to add another one to your investing jargon repertoire: 

“BPNYSE” stands for the New York Stock Exchange Bullish Percent.  It is not a ticker symbol or index, rather it is an aggregate number illustrating the percentage of stocks on the NYSE that are on buy signals according to Point and Figure Charting – a system for measuring supply and demand of securities developed by Charles Dow in the early 1900s.

Despite the alphabet soup, the theory is actually rather simple.  A low percentage means fewer securities in the index are on buy signals and vice-versa.  When we say the indicator “reversed up” it means the percentage had been dropping or stagnate but it is now rising.  This gives a pretty good indicator of the overall health of the market.

Field Position

As football season is upon us, we’ll use a simple sports analogy here.  The plays called by a football coach will be determined by the team’s position on the field.  The plays used when the team is at the 10 yard line will be different from the plays used when they need to advance 80 yards to score.  Professional investment advisors will respond differently to a percentage reversal that occurs when the BPNYSE is at 30% verses when it is at 80%.

In fact, if you read up on the BPNYSE, the charts that indicate reversals and riskier points in the market look an awful lot like a gridiron chart that a football coach might use.

So what exactly happened last week?

Last week the BPNYSE was at around 24% and reversed up to a current point of about 30%. To put it in sports terms, if that trend sticks it would be like your team getting the ball well inside the 50-yard line (for non-football fans that means your team is doing pretty good.)

For more information on the BPNYSE click here for Investopedias™ explanation.

For some more background on Point and Figure Charting, this article is also helpful.