How To Properly Interpret Bullish Percent Indexes

This week, we are dedicating our entire focus to disecting the energy trade. We began with Exxon Mobil, one of the largest energy companies in the world, as a proxy for big oil. On Tuesday, we examined the energy services company Weatherford as a proxy for the service industry. Yesterday, we conducted a technical dive into the Pipeline and Infrastructure sector of the energy landscape, where we identified promising names like Targa Resources and TC Energy Corp as outperformers within the sector. Today, we will explore Oil and Gas from yet another perspective, focusing on the Bullish Percent Index (BPI). This will serve two purposes: first, to provide insights into money flows within the energy sector, and second, to educate advisors on how to utilize this tertiary tool, often employed by elite investment advisors. It is often said that using technical analysis alongside fundamentals is akin to playing the piano with both hands. In this analogy, employing bullish percents is like using the foot pedals. Just as the pedals enhance and alter the piano's sound, allowing you to shape its character and tone, bullish percents can be used alongside key indicators such as relative strength and fundamentals to further refine your market understanding.  To say that today’s Equity Leaders Weekly is an advanced report is an understatement. Please have patience as you read and develop your technical skills. Save this edition for future reference, as it contains powerful insights that will enhance your technical prowess. Just as the pedals are a powerful addition to a pianist's skills, bullish percent indexes are invaluable for elite investment advisors.

Simply put, a Bullish Percent Index (BPI) is a breadth indicator based on the number of stocks on Point & Figure Buy Signals within an index. The BPI helps you gauge the internal health of an index by assessing the number of components on a bullish or bearish track. Remember, there is no ambiguity on P&F charts; a stock is either on a P&F Buy Signal or a P&F Sell Signal. However, the bullish percent takes this a step further by analyzing the aggregate data and plotting the percentage of stocks exhibiting bullish or bearish patterns.  Technicians new to using bullish percent often mistakenly believe that a high reading (above 70%, in the Red Zone) indicates danger and overbought conditions, but nothing could be further from the truth. A high reading is, in fact, a bullish signal. Consider this: if a BPI reading shows that over 70% of stocks on a Point & Figure chart are bullish, does that indicate a risky sector? Conversely, if less than 30% of stocks are on a P&F Buy Signal (the Green Zone), does that sound bullish? The answer is very bearish.