"Bullish Percent Index The Bullish Percent Index (BPI) is a popular market breadth indicator that is calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals, by the total number of stocks in that group. Bullish Percent levels that are above 70% are considered overbought, whereas levels below 30% are considered oversold. Strong buy signals occur when the Bullish Percent Index falls below 30% and then reverses up by at least 6%. Conversely, promising sell signals occur when it goes above 70%, and then reverses down by at least 6%." Seems silly to me now to argue whether or not this is a new bull market or a bear market rally. For those who are not invested, does the risk/reward really favor going long at these levels?
I'm looking primarily for shorts at this point. Overbought and not much is cheap out there. I won't stand in front of a train but it's going to take some time for fundamentals to catch up to where we're at.
Speculative issues like IPOs, secondary offerings, etc. are one way to confirm a bubble's top. People start feeling like they can just print money in the market, now THAT's excessive bullishness. Retail daytraders start coming out of the woodwork. Anyways, currently speculative activity is still somewhat tame, though growing. Online trades are about 1/2 of what they were at the dot com top, undoubtedly part of it is due to those washing out and those migrating to greener trading pastures. Here's an article at CNN that has ET resident Don Bright mentioned: http://money.cnn.com/2003/05/22/markets/daytrading/
Margin statistics will also be important to watch, as they too are a measure of overconfidence by the bullish.
if you short this market don't let it get away from you. this could be the real thing this time. if the us$ turns here the overseas money could come back because they get a double bang for their buck. they make money on the stock plus they also make money on the currency. also if the bond turns lower here money will flee the bonds for stocks. another possibility is they just might get joe investor to come back with enough cnbc hype and because they took away his ability to make money through interest. so many things are lined up here that this thing could go a lot farther than the bears think. the only real negatives are high valuation and poor earnings and the market has proven it doesn't care about those things at this time.
I would need harder empirical evidence to use contrarian indicators, like mutual fund money flow and insider buying/selling ratio. Rydex ratio is currently at 0.17, lowest was a couple days ago at 0.14. This is where bears shut up and lay down their bets, not opinions. http://www.schaeffersresearch.com/streetools/rydex_nu.asp What this indicates to me is that despite the excessive bullishness of newsletter writers and the talking heads on CNBC, that there are still a hell of a lot of bears out there to either wash out or convert. The art of contrarian thinking is one of the more subjective tools to use; one would find it more profitable to actually FADE the contrarians, as researched by Colby in Enyclopedia of Technical Market Indicators. Mom & Pop mutual fund money is usually the last ones in and the last ones out. http://www.trimtabs.com/main/mffresearch.html Insider selling/buying ratio highest its been since last year. http://insider.thomsonfn.com/tfn/insider.asp?imodule=mktTearsheet First time in three years that the commercials have been net long in the Spoos (hedged short in the e-minis). http://www.cftc.gov/dea/futures/deacmesf.htm 6 of one and half a dozen on the other, take your pick.
That's the sort of thing one looks for toward the end of a bull cycle. However, in some major averages, we have yet to break out of the trading range we've been in for nearly a year. If those remaining averages do break out of it, and those that already have do not sink back into it, there will be a long way to go before we have to worry about upside capitulation.
I need to see the S&P 500 break out and trade above the 960's and then I need it to find support at this current resistance and go higher than it's breakout high before I'd add to current longs. My first thought is that we don't do this, but rather pull back from todays high. But then my second thought is, "well that's too easy, someones got to get faked out here". I think selling at this level might be good risk reward only with a very tight stop or even selling a breakout that stalls and fails. but because a geniune breakout is very possible as a trader we should be ready for both a start of a bearsish scenerio -and- also be ready for continuation move much higher. All we really want is the market to move. Who cares if its higher from here or back down? I don't.... because the key is if you're right then "sit tight", but if your wrong so what you take a small loss and enter a new trade. and repeat.