Bullish Percent Indicators Reflect Healthy Correction

Includes: DIA, QQQ, SPY
by: Lowell Herr

Defense is said to win football games. The defensive teams certainly took over most of the major indexes and market sectors this week. As expected, the Bullish Percent Indicators (BPI) reflect Thursday and Friday's market declines. This is part of the correction we have been expecting for months as many parts of the stock market are still over-valued. BPI data is not used to manage individual portfolios, but it does provide a broad view of U.S. market conditions. While this week's correction may encourage future buying pressure, the following data indicates the stock market is still over-priced.

Index BPI: Six of the seven major indexes are now under the control of defensive teams as the NASDAQ 100, S&P 500, DJIA, and DJTA switched sides. Even with the major decline last week, only our most important index, the NYSE, moved out of the over-bought zone (above 70%). To be truthful, we could use another 10% to 15% decline before we see good buying opportunities.

Sector BPI: Financial, Health, Industrial, and Materials joined the defense this week. This leaves only Technology, Telecom, and Utilities and the data for Telecom is suspect as it seems to be stuck on 62.50%. Energy dipped below the 50% line and cheap energy tends to fuel a strong economy. We still have five sectors (Financial, Health, Industrial, Materials, and Technology) with bullish percentages above 80%, so this is still an over-valued market.