Technical Tuesday - Be Bullish Here. Period.

Be bullish here.  Period. 

If you buy the stock market (such as the SPY, which is an exchange traded fund that tracks the S&P 500), odds strongly favor that you'll make money. 

As long as you use proper risk management, this is the time investors and traders alike should have no problem taking on a little risk in order to grab the profits that are sitting on the table in front of them.

The NYSE BPI is now in a column of Xs.  What does that mean? 

Demand is in control of the stock market now. 

For those who don't know, the NYSE BPI tells you what percentage of stocks trading on the NYSE are on "buy signals".  Today, I'll save you the lesson behind the "Xs" and "Os" and, instead, I'll just tell you what's going on.

On June 5th, 43.06% of all stocks on the NYSE were on buy signals.  (The remaining 56.94% were on sell signals.)

As of Monday's close, 52.06% of all stocks on the NYSE were on buy signals.  (The remaining 47.94% were on sell signals.)

When a stock moves from a sell signal to a buy signal, it means it has done something that is very difficult for a stock to do unless there is real buying pressure that's overcoming real selling pressure.  

If a stock has been trying to break above one price over and over again, and has failed over and over again, that level is known as a resistance level because sellers continue to sell lots of stock to the buyers at that price. 

It becomes a lot like Tom Hanks in that movie "Castaway" where he's stranded on an island while everyone thinks he's dead.  He tries to get off the island and out to sea on that very weak makeshift raft.  But he couldn't overcome the waves that just kept rolling in.  Eventually the waves overpowered him completely, sending him back to shore. 

But eventually he gained a lot more strength, built a much stronger raft, and waited until the tide was right and he overcame the rough waters enough to get out to sea.  

Once at sea, of course, he ran into a whole other slew of problems, but based on the fact that he had shown the strength and resilience, (and because he's Tom Hanks, the star of the movie) those watching the movie had confidence that he just might make it out at sea until found. 

Once a stock that has failed and failed again and again to rise above a certain price breaks above that price and keeps going, it has proven that it is more likely that it has a better chance at continuing its up trend. 

Maybe the sellers decided they are no longer interested in selling at that old resistance level.  Or maybe they just didn't have any more stock for sale due to eager buyers coming to the table with 10 times as much money to buy stock at that price. 

The point is, that is a "buy signal". 

Now, of course there are caveats and exceptions.  One has to investigate the price activity a bit further.  But today we are talking about 9% of all stocks on the NYSE (net) moving to buy signals.  Therefore the caveats and exceptions need not be considered here. 

You're almost certainly not going to see 9% of all NYSE stocks move to buy signals as a fake out before reversing back down again.  Can it happen?  Anything can happen.  But that's why we use proper risk management strategies -- using stop losses and/or options to position ourselves.

If you're going to risk money in the stock market, now is the time to do so.  The big waves have been overcome, and the raft is much much stronger. 

The stock market's price action has proven to us that is has strength, and this is the confirmation we have been waiting for after seeing a bunch of preliminary bullish signals from other indicators discussed in recent Tycoon Report articles. 

Chris Rowe
Chief Investment Officer
Technical Analysis Millionaire