One of the more interesting indexes that Stockcharts creates is the Bullish Percent Index.
For more information from the Chart School click on this Bullish Percent Link.
Whenever the Bullish Percent Index is very low, technicians can use this tool to look for clues on when to enter the trade. The Gold Miners Bullish Percent is today's example.
Roughly a month ago, I talked about the Gold Miners BP Index. It was at an interesting level. Well now, this index is near levels seen on the 2008 low!!! So, nothing says anything is changing yet. But that is the point.
As a technician, we can wait to start see investors buying up gold mining stocks. We don't really want to take a position until they actually create a buy signal on a PnF chart. So it can bounce off the low in each stock, but until it breaks the down trend and turns the stock into a new uptrend, this index will not change. When the stocks start to make buy signals, it is usually a nice place for an entry. Currently of the 29 stocks in the Gold Miners Bullish Percent index, only one stock is still on a buy signal or 3%. When this changes, it is usually a pretty good place to look.
So we wait for the opportune moment. When this turns up, it can be very powerful. It could still fail as it did where the two red arrows are. But this is a great advantage that technicians can use to find an entry to a new up trend. You may wish to put an 8 period MA on the chart and when it crosses above on an End of Day Basis, you can look and decide if you want to take the trade. You can see the reversals produced great signals. It shouldn't be traded without a stop as it can continue lower, but it takes a fair amount of inertia to move multiple stocks to a buy signal from a very oversold condition. When that level of inertia is applied, you can see it has created a pretty strong trade in $GOLD or in GDX.
We jsut announced new courses in Toronto on July 26th and 27th. One of the topics covered in SCU 101 is Bullish Percent indexes. Long Beach, Seattle, Toronto and New York all have SCU 101 classes scheduled. You'll also notice we have started an advanced class called SCU 102. More information on both can be found here. SCU EVENTS.
Greg Schnell, CMT.