Nasdaq Market Sentiment

Above we have a 6 year weekly chart of the Nasdaq 100. In the lower panel is a market sentiment indicator that could be found at StockCharts.com which is called the 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.

You'll notice in the above chart that every time the BPI got above 70 and turned back down below 70, the Nasdaq had a selloff. There are 10 sell signals on this chart (not including the current signal). 8 out of the 10 signals were all profitable even though the market has had an upward bias the last few years. So we can say that in the last 6 years, this indicator has been 80% accurate with its sell signals which is pretty good.

In addition to this BPI sell signal, most of you are aware of my other reasons for being bearish. When you combine this BPI indicator with my other reasons, I think the odds of a sell off increases. So I am clearly bearish on my view of the market..

One note of caution and this is important.. I don't care how bearish the charts look or how confident I may be..I still will use moneymanagent and NOT bet the farm and I will be quick to get out if I am wrong.. This is only one trade of many that I do all year long. Never bet too large and always use money management for it is money management that will determine your success in the market...not how good you are at picking tops and bottoms or anything in-between.