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The concept began in the 1940's
but it wasn't until 1955 that A.W. Cohen actually created the
NYSE Bullish Percent. We often refer to this indicator as our
main coach for NYSE stocks. It tells us whether to have the offensive
or defensive team on the field. X's mean offense and O's mean
defense. This indicator tells you who has the ball. Based on a University of Chicago study 80% of the risk in any stock is based in the market and the sector. However, they found that most people spent 80% of their time on
stock selection. The NYSE Bullish Percent provides the insight needed in determining the risk in the market. The more you learn about this indicator, the more confidence you will have in your day to day operations in the market.
If the overall market is not
supporting higher prices, very few stocks you own , if any, will
do well. In a football game, two sides operate on the field at
any one time, offense and defense. The same forces act in the
marketplace. There are times when the market is supporting higher
prices. When the market is supporting higher prices, we can say
that you have possession of the ball. You have the offensive
team on the field. When you have the ball, your job is to take
as much money away from the market as possible; this is the time
you must try to score. During times when the market is not supporting
higher prices, you have in essence lost the ball and must put
the defensive team on the field. During such periods, the job
of the market is to take as much money away from you as possible.
Think for a moment about your favorite football team. How would
they do if they operated only with the offensive team in every
game? They might do well when they had possession of the ball,
but when the opposing team had the ball, your team would be scored
on at will. The net result is your season would be lackluster
at best.
This is the problem most investors
have: They don't know which team is on the field, much less where
the game is being played. The NYSE Bullish Percent clearly signals
when the environment is ripe for offense or defense.
The NYSE BP is simply a compilation
of the percent of stocks that trade on the NYSE that are on Point and Figure buy
signals. If you simply thumbed through all the Point and Figure chart
patterns of the stocks on the NYSE and counted the ones that
were on buy signals, then divided by the total number of stocks
evaluated, you would have the NYSE Bullish Percent reading. DWA
calculates all of this in our database and displays the charts
for you, however, it is important to know how they are calculated.
Let's say for instance, there
were 2,000 stocks on the NYSE and 1,000 of them were on Point
and Figure buy signals. The Bullish Percent would be at 50% (1,000/2,000
= 50 percent). We use the same three-box reversal to shift columns
in this index as we do in the normal Point and Figure chart.
Each box constitutes 2 percent, and the vertical axis runs from
0 to 100 percent. It will take a 6% change in order to reverse this chart.
When the index is rising in a
column of X's, more stocks are going on buy signals. Changes
in the index can only come from first signals that are
given by a stock, not subsequent signals. Let's say that XYZ stock bottoms
out after declining and then gives that first buy signal off
the bottom. That signal turns the stock from bearish to bullish.
It is this first buy signal that is recorded. All subsequent
buy signals are not counted.
The Bullish Percent concept is
unique from most market indicators because it is a one stock
- one vote indicator. The reason this is so important is that
most people's portfolios are managed on an equal dollar weighted
basis, much like a one stock - one vote. Therefore, the Bullish
Percent index is a better indicator to manage risk than a capitalization
weighted index like the S&P 500. In other words, you are
getting an apples to apples comparison.
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