Is a Short-able Bounce Coming?

By John Del Vecchio and Brad Lamensdorf

The NYSE Bullish Percent Index has been in freefall.

The beauty of the Index is that it represents a one stock, one vote system. Unlike market cap weighted indexes, we can easily see how the average stock is performing. The Bullish Percent Index is based on point and figure charting, which is objective. A stock is either in an uptrend or a downtrend.

While the broader indexes have been making a series of higher highs, the Bullish Percent Index was making a series of lower highs.

That divergence is a warning sign. Demand for stocks has simply been waning.

P&F Bull trend NYSE

Recently, the market has sold off. In the short-term, the broader indexes are oversold. The average stock is very oversold.

We have shown the Short-Term Composite before. This indicator, courtesy of Investors Intelligence has just plummeted to 5.2 from around 80 just a month ago.

As you can see, a reading of five is quite oversold.

Short term composite indicator

We would expect a bounce.

However, the average stock is likely to continue to be mired in a downtrend. This condition is unlikely to change any time soon. By the time investors go after Apple, Microsoft, and other leaders, we will be well on our way to a nasty bear market in the average stock.

The coming bounce represents an opportunity to add to hedges before the next down wave comes.

Originally Posted on December 22, 2021 – Is a Short-able Bounce Coming?

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