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Bias via Bullish Percent

It all comes down to "maintaining favorable field position." Looking at bullish percents can be a great way to understand risk via a quantitative indicator.

The idea of this article came about when I started to wonder if I should begin wondering about a "bear trap" in the markets. I took a bearish position on Thursday as some significant support areas were broken; however, the close was more neutral than I would have liked and went home flat (as is usually the case due to such uncertainty). Since a trend only takes place when the 'market agrees with everything,' I wanted to make sure that risk via bullish percent indicators were letting me know that I was not crazy in looking for a move lower.

The equity markets in general are stuck in-between a few daily retracement levels, and things continue to look "great" at the top and "horrible" at the bottom of this range. Speaking of ranges, I still use the ranges found in this article as a way of assessing least resistance on a price basis.

However, the "Developing a Bias" article doesn't tell me if I should be "quarter position short, half position short, full- position short, etc." The bullish percent charts are used for that purpose.

As Jeff Bailey explained it to me, "John, think of the NASD and NYSE Bullish Percent as the Mississippi River, and then the SPX as the Missouri that feeds into the Mississippi, and the OEX and NDX as smaller rivers that flow into the Missouri. Then we have the Dow, which is like a tiny creek that can have an effect on some of the smaller rivers." Perfect analogy.

If these "bull confirmed, bear alert, etc." words are foreign to you, please read Jeff's article


In conclusion, all the 'rivers, streams, and creeks' are signaling risk to the downside. This keeps our bias as being bearish in the short and intermediate term.

After a trader looks at the bullish percent charts, THEN it is time to see if a weekly S1 or S2 level holds, followed by looking to see if the intermediate term pivots (read monthly) is in fact acting as strong resistance. Moreover, is only the daily R1 tested, and not R2? Or maybe not even the daily pivot is tested. This will help in recognizing levels to be more aggressive in. As is the case now, we have to be concerned about a bear trap; however, we are going to need a serious reversal before we can begin wondering about the time when it makes sense only to go long. It might even be now IF the NYSE bullish percent was looking horrible; however, that is far from the case..