BULLISH PERCENT STILL UP BUT OVERBOUGHT -- ENERGY BPI IS STILL DOWN BUT OVERSOLD -- COMMODITY SELLING APPEARS OVERDONE -- CHEMICALS BENEFIT FROM DROP IN OIL PRICES

NYSE BULLISH PERCENT HISTORY ... I've received a few requests to update my December 8 article on the NYSE Bullish Percent Index. There are two ways of looking at it. One is a line chart as shown in Chart 1. The second, and more common way, is with a point & figure chart. Let's start with the line chart to review the indicator. The BPNYA is the percent of NYSE stocks that are currently on p&f buy signals. Chart 1 shows the indicator over the last six years. [The blue line is the NYSE Index of stock prices]. The two most important levels on the chart are 30 and 70. Readings below 30 generally coincide with major market bottoms. That occurred at the end of 2002. Readings over 70 signal an overbought market (and usually lead to market pullbacks). That happened in 2004, 2005, and 2006. [The BPNYA crossed over 50 in the spring of 2003 to signal a new bull market]. During bull market corrections, the 50 level should act as support. With the exception of last spring when the 50 level was temporarily broken, each downside correction since 2004 has stayed above the 50 level.

Chart 1

THE BPNYA IS OVERBOUGHT BUT STILL UP ... As was the case back in December, the NYSE Bullish Percent Index is still in overbought territory over 70. The last four times that happened the market entered a downside correction (red arrows). While a reading over 70 is a caution sign, the indicator has to actually turn down to signal a market correction. There are generally three things needed for that to happen. One is a drop below the 50-day moving average (blue line). That's already happened. The second is a drop back below 70. With the current value at 70.85, that hasn't happened yet. The third requirement is a downturn in the point & figure chart. That hasn't happened either.

Chart 2

P&F TREND IS STILL UP ... Chart 3 is a point & figure version of the BPNYA. After dipping below 50 briefly last June, the indicator have a new buy signal at 56 during August (red letter 8). [A buy signal occurs when an x column exceeds a previous x column]. As the chart shows, the BPNYA reached 74 during December (red letter C). [The red letters A, B, and C represent October, November, and December]. That puts it in overbought territory over 70. Each of the previous four downturns (see o columns) started with a downside three-box reversal and a move back below 70. At present, the BPNYA needs to drop to 68 to fulfill those two requirements for a possible market correction.

Chart 3

S&P ENERGY BPI IS OVERSOLD, BUT STILL DOWN ... The same bullish percent analysis can be applied to market sectors. Chart 4 is a point & figure chart of the S&P Energy BPI (BPENER). [Index and sector BPI's are available on the Market Summary Page]. The latest downside three-box reversal from over 70 took place in December. At the moment, the BPENER is very close to oversold territory at 31.57. It's also around the same level that was associated with upturns over the last two years. [Previous upturns started from 34, 32, 22, and 14]. Each previous upturn, however, was preceded by an upside three-box reversal. Right now, the energy BPI would have to rise to 38 to accomplish that. If that were to occur (and if it were accompanied by rising oil prices), that might be enough to prompt a downside correction in the overbought NYSE Bullish Percent Index.

Chart 4

ENERGY AND COMMODITIES ARE OVERSOLD ... Last Friday I wrote about commodity prices being oversold and due for a bounce. As has been the case for months, however, continuing weakness in crude oil has dominated commodity indexes. The weakness in crude oil and the CRB Index has also masked strength in other commodity groups. Agricultural markets have remained strong, while precious metals have been bouncing all week. This is happening as the U.S. is starting to back off from overhead resistance. Let's take another look. Chart 5 and 6 show similar downtrends in the US Oil Fund (USO) (an ETF based on the price of crude) and the Reuters/Jefferies CRB Index. Oversold readings come from two places. Both are trading below lower weekly Bollinger bands for the first time in years. And both 20-week Commodity Channel (CCI) Indexes are in oversold territory and showing positive divergence. [Both bounced on Friday].

Chart 5

Chart 6

GOLD RALLIES ON OVERBOUGHT DOLLAR ... Last Friday I showed the DB Commodities Tracking Fund (DBC) bouncing off its October low to demonstrate that it was in a potential support zone. It's still holding above that support level (Chart 7). Chart 8 shows the streetTracks Gold Trust Shares (GLD) trading back over its moving average lines. I suggested last week that an overbought U.S. Dollar Index was starting to pull back from is 200-day moving average. Chart 9 (through Thursday) shows some stalling in the dollar rally. Any dollar weakness from current levels would add to the odds for a commodity bounce.

Chart 7

Chart 8

Chart 9

CHEMICALS BENEFIT FROM FALLING OIL ... Market groups that have benefitted especially from falling oil prices have been retailers and transportation stocks. Chemicals are also effected by the direction of oil. That's because they use oil to make the chemical products. That may explain the sudden interest in chemicals over the last six months. Chart 10 shows Dupont surging nearly 30% since oil peaked last July. Dow Chemical was another chemical gainer this week. The weekly bars in Chart 11 show the stock surging to the highest level in ten months, and breaking a two-year down trendline in the process. That also has important implications for the basic material group. The Materials Select SPDR (XLB) closed at a record high today. DD and DOW are the two most heavily weighted stocks in the XLB. It also got help from Alcoa andMonsanto which had a strong week.

Chart 10

Chart 11

NASDAQ HOLDS 50-DAY LINE...NYSE NEARS HIGH ... The market closed the week on an upnote. The most important action took place in the Nasdaq market which bounced off its 50-day moving average (Chart 12). Broader market measures have held up much better. Chart 13 shows the NYSE Composite Index ending the week just shy of its old high. It's well above moving average support. It remains to be seen if today's oversold rally in the oil market continues next week and if that causes any short-term profit-taking in the market. Even so, the NYA would have to break its January low to warrant any real concern. Chart 14 ends with a point & figure chart of the NYA. [Each box is worth 50 points]. It shows the continuing uptrend that started at 8050 during June. The NYA needs a close at 9250 or higher to resume its uptrend. It requires a close at 8950 or lower to trigger a sell signal.

Chart 12

Chart 13

Chart 14