The Bullish Percent Index (BPI) is a unique market breadth indicator based on point and figure charting. It measures the percentage of stocks in an index or sector that are currently on point and figure buy signals, providing insight into market strength and potential turning points.
What is the Bullish Percent Index?
The BPI calculates the percentage of stocks showing bullish point and figure patterns. Unlike traditional breadth indicators that use daily price changes, BPI uses the longer-term signals from point and figure charts.
Formula: BPI = (Number of Stocks on P&F Buy Signals / Total Stocks in Index) x 100
The BPI ranges from 0% to 100%, with higher readings indicating more stocks in bullish patterns.
Understanding Point and Figure Basics
Point and figure charts are different from traditional bar or candlestick charts:
- Use Xs for rising prices and Os for falling prices
- Filter out small price movements
- Focus on significant price changes only
- Generate buy/sell signals based on pattern breakouts
A stock is on a P&F buy signal when its most recent column is Xs breaking above a previous column of Xs.
Interpreting BPI Readings
Overbought Zone (Above 70%)
- More than 70% of stocks on buy signals
- Market showing broad strength
- Risk of pullback increases
- Not automatic sell signal
Oversold Zone (Below 30%)
- Less than 30% of stocks on buy signals
- Market showing broad weakness
- Potential buying opportunity
- Not automatic buy signal
Neutral Zone (30-70%)
- Mixed market conditions
- Direction depends on trend
- Watch for moves to extremes
BPI Example
The S&P 500 Bullish Percent Index (BPSPX) drops from 75% to 25% over several weeks.
This sharp decline shows many stocks shifting from buy signals to sell signals.
At 25%, the market is oversold with potential for a bounce.
When BPI turns up from this low level, it may signal a buying opportunity.
BPI Status Indicators
Beyond the percentage reading, track the BPI's direction:
Bull Alert
- BPI reverses up from below 30%
- Signals potential bottom forming
- Consider initiating long positions
- Risk/reward favorable for bulls
Bull Confirmed
- BPI column of Xs exceeds prior column of Xs
- Confirms upward momentum
- Favor long positions
- Market breadth expanding
Bear Alert
- BPI reverses down from above 70%
- Signals potential top forming
- Consider reducing long exposure
- Risk/reward shifting to bears
Bear Confirmed
- BPI column of Os exceeds prior column of Os
- Confirms downward momentum
- Reduce long exposure or go short
- Market breadth contracting
Warning: BPI Can Stay Extreme
In strong trends, the BPI can stay overbought or oversold for extended periods. During powerful bull markets, BPI may remain above 70% for months. Use the direction of BPI (rising or falling) along with the absolute level for better signals.
Sector Bullish Percent Indexes
BPI is available for individual sectors:
- Technology Bullish Percent
- Financial Bullish Percent
- Healthcare Bullish Percent
- Energy Bullish Percent
- And more for each sector
Sector Rotation Using BPI
- Compare sector BPIs to overall market BPI
- Sectors with higher BPI = relative strength
- Sectors with lower BPI = relative weakness
- Rotate toward sectors with improving BPI
Trading Strategies with BPI
Contrarian Strategy
- Buy when BPI drops below 30% and reverses up
- Sell or short when BPI rises above 70% and reverses down
- Best for intermediate-term positions
- Requires patience for signals
Trend Following Strategy
- Stay long when BPI is rising or in bull alert/confirmed
- Reduce longs when BPI is falling or in bear alert/confirmed
- Let the broad market guide positioning
- Works well in trending markets
Sector Selection Strategy
- Focus on sectors with BPI above 50% and rising
- Avoid sectors with BPI below 50% and falling
- Look for sector BPI breakouts above prior highs
- Improves sector allocation decisions
BPI vs Other Breadth Indicators
How BPI compares to other measures:
- Advance/Decline Line: BPI is slower, less noisy
- Percent Above MA: Similar concept, different methodology
- McClellan Oscillator: BPI is longer-term
- New Highs/Lows: Different perspective on breadth
BPI's advantage is filtering out minor fluctuations through point and figure methodology.
Combining BPI with Other Analysis
- Price trends: BPI confirms or warns about price moves
- Support/resistance: BPI extremes near price levels
- Sentiment: BPI extremes often align with sentiment extremes
- Relative strength: Focus on stocks with P&F buy signals in strong sectors
Limitations of BPI
- Slower to react than other breadth indicators
- Point and figure methodology may be unfamiliar
- Can miss short-term trading opportunities
- Best suited for intermediate-term analysis
Track Sector Strength
Pro Trader Dashboard helps you identify strong and weak sectors for better allocation.
Summary
The Bullish Percent Index measures market breadth using point and figure charting methodology. Readings above 70% indicate overbought conditions while readings below 30% indicate oversold conditions. Track both the level and direction of BPI for the best signals. Use sector BPIs to identify leading and lagging sectors. BPI provides a longer-term, less noisy view of market breadth compared to daily indicators.
Learn more: Percent Above Moving Average and Market Breadth Indicators.