Primary Market Indicators for Gauging Risk

This chapter on the New York Stock Exchange (NYSE) Bullish Percent covers a critical area of investment strategy (see Figures 6.1a, 6.1b, and 6.1c). It is critical that you grasp this concept thoroughly. This index is our main coach and dictates our general market posture. Since my first book was published, our experience with this concept has strengthened my conviction that this is the absolute best market indicator for perspective on the markets, not in and out trading day to day. Now that the fourth edition of this book is coming out, we have expanded our thought process on asset allocation and playing offense or defense with the markets. Don't get me wrong—this index is very important to me and guides my thoughts on whether to be offensive or defensive with respect to my market posture. However, relative strength (RS) has taken over for guiding us in what asset classes we need to be invested in as well as what sectors, stocks, funds, or commodities should be used to populate this asset mix. How enthusiastic I am about investing the maximum into a portfolio will be guided by this index. You see, they both play important roles in the investment process. This index, in combination with the Nasdaq Bullish Percent, has guided our decisions through the murky markets of 1999 and 2000 with flying colors, the bear market from 2000 to 2002, powerful moves up from bottoms in 2003 and 2009, a sideways market from 2004 to 2005, a global ...

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