One of my favorite market timing tools is the NYSE bullish percentage index, Stockcharts.com symbol $BPNYA. This indicator shows the percentage of stocks in the NYSE Composite Index (NYA) which are currently exhibiting buy signals on point and figure charts on any given day. It is an objective market barometer. Interpretation is simple: If the index is above 50%, we are in an uptrend; if it is below 50% we are in a downtrend. If it is above 70% the market is overbought and unlikely to go much higher. If it is below 30% the market is oversold and it is feeding time for alligator investors. Like any other technical indicator, $BPNYA can give false signals, but it is usually right. Historical charts and information regarding interpretation and use of the NYSE Bullish Percentage Index are available on the internet.
This chart shows $BPNYA plotted against its underlying index for the last three years. Note that peaks of $BPNYA over 70% have coincided with peaks in the market, and have often preceded them. During this time frame, we have not had a correction of sufficient magnitude to bring the $BPNYA below 30%. However, valleys in the index have coincided with dips in the market. The $BPNYA often trends. It is often possible to identify trend turning points as they occur with the use of technical analysis tools.
The important thing is to recognize major selling opportunities when $BPNYA is above 70% and major buying opportunities when $BPNYA below 30%. This is timely because $BPNYA could reach 70% this week.