Logo Background RSS


Percent Buy Index (PBI) Fails To Confirm

  • Written by Syndicated Publisher No Comments Comments
    November 18, 2013

    One of our proprietary indicators is the Percent Buy Index (PBI), which shows the percentage of stocks in the S&P 500 Index that are on intermediate-term buy signals.

    (This is an excerpt from recent blogs for Decision Point subscribers.)

    Click here for FREE TRIAL!

    Currently the PBI has a strong reading of 85.6, which is more than enough to justify the new highs being set by the market. The only problem is that the PBI has set a series of lower tops, which is a negative divergence compared to the series of rising price tops. This shows that fewer stocks are participating in the market rally, and that could be a problem. Nevertheless, there are a high number of stocks participating, and we would not consider the negative divergence to be an automatic sell signals, considering the price strength being demonstrated — just a warning that things could be better internally.

    Screen shot 2013-11-15 at 11.55.16 AM

    The period when the 2000 bull market top was being put in shows how seriously out of balance the PBI can get. What happened was that market participants had narrowed their focus to primarily large-cap stocks, and they were the reason that the broad market indexes were held aloft.

    While the current PBI reading is strong, the downside is that it is at a level where a price top could materialize. This is exacerbated by the negative divergence. Note historically that PBI tops have been accompanied by price tops. It doesn’t have to be a major top, but some corrective action is likely.

    Images: Flickr (licence attribution)

    About The Author – Carl Swenlin, Decision Point

    Carl SwenlinCarl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.