Warning signals from bullish percent and McClellan Oscillator charts for stock markets

Time to take another look at two of our favorite technical charts! First is the bullish percent index for the S&P 500 index ($SPX), reflecting the percentage of stocks in the index that sport a bullish upward target on their default point-and-figure (P&F) charts. Of course a rising level is good, but it warns of a top when it looks like it looks now. The 80% level is usually overheated and dropping from above that is bearish. It didn't quite get above 80%, but it's rolled down into moving averages and that's an early warning. More concerning, look at the StochRSI indicator in the top window - it's rolled down into bearish levels. When you look back at previous times when that's happened while the bullish percent was at high levels, it presaged the bullish percent and the whole stock market going into a significant correction.* So, it's warning that the stock market is getting ripe for that.

I've also included my chart of the McClellan Oscillator for the NYSE index ($NYMO) on which you can see it's testing toward both the zero level, and one of my trendlines. This is also a warning that the market may be reaching a crest. The longer-term signal of a pullback is also coming from the McClellan Summation Index in the lower indicator window. As I encircled, it's curled below it's moving average, suggesting trouble on the horizon. All in all, these indicators reinforce the concerns we're seeing generally that the stock market is getting close to a significant crest. Whether it makes a higher high or lower high is less important than being prepared for a pullback soon. There are some indications that might not top out until early December but that's not a guarantee (could be a lower high then). So we'll stay on our toes!

*In fact, for KI$$ (my "Keep It $imple $wing/ca$h account" approach for most folks including IRA-type cash accounts), swing investor/traders, this combination of the StochRSI (set at 21, not the default 14) with the bullish percent ($BPSPX) is a great way to know when to be long the market (such as by holding SPY or other ETFs long the S&P 500 or other broad market indices), or to be in cash or maybe short/defensive (put options, inverse ETFs, etc.). If you're only long when this StochRSI is up, and cash out when it drops under .80, then you're long at all the right times on a swing basis. So at this time, KI$$ swing investors/traders would want to be in cash (or short/defensive) unless and until this indicator swings above .80 again. There's chop at some times but it's in time frames that can be managed easily, and KI$$ folks will appreciate the peace of mind.

As a point of information, the bullish percent chart is not based on sentiment but on a technical chart view of whether the current chart-based price target is above the current price (and thus bullish) or not.