REVISITING POINT & FIGURE BULLISH PERCENT CHARTS -- SOME RECENT BUYS -- AND SOME DOWNSIDE CORRECTIONS
NASDAQ 100 AND S&P 500 ARE ON BUY SIGNALS ... A few weeks back I wrote an article explaining how to use point & figure Bullish Percent charts (October 21, 2004). The Bullish Percent Indexes that can be found on the Stockcharts Market Summary page are based on the percentage of stocks in each stock index that are on point & figure buy signals. Since then, a number of buy signals have been given both on the major stock indexes and sector charts. Some former leading sectors have entered downside corrections. Here's what they look like now. Charts 1 and 2 show recent buy signals in the Nasdaq 100 BPI and the S&P 500 BPI. [A buy signal occurs when a column of x's (rising prices) exceeds a previous column of x's]. The NDX buy took place during October at 52, while the S&P 500 buy has just taken place during November. Chart 3 shows that the Dow 30 has yet to issue a p&f buy signal, but is on the verge of doing so. A Dow BPI reading of 62 would put it into the buy column.
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SECTOR BPI BUYS... The next four charts show recent sector buy signals in the Financial, Healthcare, Technology, and Telecom BPIs. Generally speaking, a reading over 50 is needed for an uptrend to exist. All four qualify for that. The one that most recently crossed over 50 (it's now 55) is Technology. In my view, that makes Technology the best value in the group. Telecom is the most overbought (80) but could reach its previous high at 94. When we last looked at the sectors, the three strongest were Energy, Materials, and Utilities. They've entered downside corrections.
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SECTOR CORRECTIONS ... BPI readings over 90 generally warn of a very overbought sector. All three sector BPIs shown below were over 90 when we last looked at them. That includes the Utilities, Materials, and Energy. Since then, all three have reversed over to the o column. Since these are three-point reversal charts (and since each box is worth 2 points) a BPI must drop 6% to move it from the x (up) column to a down (o) column. These are not necessarily outright sell signals. To get an actual sell signal, a column of o's must fall below a previous column of o's. As I suggested back in October, however, a downside three-box reversal is justification for taking some profits. That means that all three have been on short-term profit-taking signals within long-term uptrends. To put them back in the plus column (which could justify reinstating some long positions), the Utilities have to rise to a BPI of 90, the Materials to 84, and Energy to 86. Even if they do that, they're still pretty expensive.
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