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The Bullish Percent Indicator (BPI)
is our primary market indicator and is used to determine the overall
level of risk in the market. Is risk high or low? The level of risk in
the market is also known as our field position and the overall field
position determines whether we are in the Capital Appreciation (Offense)
or Capital Preservation (Defense) mode.
As a measure of risk, the BPI is one
of the more reliable indicators and has been since its debut in the
1950s.
We use the BPI in the first two
steps of our 5 Step Investment Process. In Step One, we use it to gauge
the level of risk in the overall market. We maintain BPI charts on all
of the major indices (i.e. NYSE, NASDAQ and the S&P 500). In Step 2, we
use it evaluate the level of risk in each market sectors. This allows us
to rank the sectors from the lowest risk to the highest risk.
Bullish percent is easily
calculated. All you do is divide the number of stocks in a group (index
or sector) that are trading on a “buy” signal by the total number of
stocks in the group. This number is then multiplied by 100 and the
percentage is plotted on a chart.
For example, to calculate the BPI
for the NYSE, you take the number of stocks on the NYSE trading on a
“buy” signal and divide it by the total number of stocks on the NYSE.
You then multiply your answer by 100 and plot the percentage on your
chart. Easy enough, isn’t it?
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