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S&P 500 Bullish Percent Index Signaling Market is Overbought

There’s obviously no sure-fire way of determining when the stock market has bottomed, and it is time to buy. Or, for that matter, when it is near a top and it is time to head for the sidelines. However, the S&P 500 Bullish Percent Index is regarded by market professionals as a tool that historically has proven to be helpful as a contrarian indicator of when the market is getting overbought or oversold. The Investors Intelligence point and figure chart below shows that 77% of the stocks in the S&P 500 when given equal weight are showing buy signals. Anything over 70% historically means the market is overbought and ripe for a downturn. Contrast that to last December when the index was showing the great majority of stocks with sell signals, and only 18% with buy signals. When fewer than 30% of the stocks are showing buy signals that historically means the market is becoming oversold and ripe for a turnaround.

S&P 500 Bullish Percent Index Signaling Market is Overbought
S&P 500 Bullish Percent Index Signaling Market is Overbought

Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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