How Bullish Percent Works for The TSX

All charts courtesy of StockCharts.com


This post will hopefully help you add another tool in your technical analysis toolbox. So, what is bullish percent? Bullish percent refers to the percentage of stocks within a particular index that are on point and figure buy signals. Point and figure refers to a certain type of charting, and if you would like to learn more about it, I would recommend visiting StockCharts.com and clicking on their chart school tab.

I only recently got into point and figure charting, and StockCharts.com's section on this subject is where I got started, myself. They have written a better explanation than I probably could. Anyway, the good thing is that even if you have never heard of point and figure charting, you can still interpret what I am about to say.



So, if you refer to the above chart, you will see that on the very top we have RSI, and below that we have the BPTSE, the bullish percent index of the Toronto Stock Exchange. After that, we have a chart of the TSX itself, and, finally, on the bottom, there is an MACD histogram of the BPTSE.

The interpretation of this chart is quite easy. Simply notice that whenever the RSI of the BPTSE goes overbought or oversold, it represents good entry points for the TSX. I have highlighted some excellent buy signals in the above chart. Because the TSX is in such a bull market, I would put more emphasis on the buy signals than on the sell signals.

Another great way to use this chart is to pay attention to divergences between the MACD Histogram and the TSX. I have drawn blue diagonal lines on the MACD to illustrate this, and to show how they have some good sell signals, which could be used if you were daring enough to go short in this market.

This chart is very helpful in understanding movements in the TSX, but since the TSX and gold stocks are only mildly correlated, this chart may be of limited usefulness when it comes to finding entry points for that market. However, through ETFs, you can still play this market directly. The ETF that represents the TSX has the ticker symbol XIU.

In addition, there are bullish percent indexes for many other markets. If you would like the symbol for a particular exchange, send me an email, and I will get back to you.

Gold Rush 21 Video

If you are more into the fundamentals behind the gold bull, rather than the technicals, this video should be of interest. To learn more, I would recommend listening to Gold Seek Radio.

My Weakly US Dollar Chart

All charts courtesy of StockCharts.com


I am posting another chart of the USD index because I feel that it is at an important juncture. I believe that what goes on in the chart below will ultimately determine the future path of gold and gold stocks. I am also posting my weekly chart of the USD because it illustrates several interesting technical formations that can be learned from.


I have read many books on trading currencies, and what many of them say is that the Forex market is one of the most technically oriented markets there is. I have found this to be true, and I think my USD chart above lends some evidence to this claim.

The first thing to notice in the above chart is the beautiful head and shoulders pattern that formed in late 2005. The breaking of the neckline led to a precipitous decline that lasted until May 2006. Remember, as well, that during this time, gold was on fire until May 2006.

The second thing to observe in this chart is the giant triangle I have drawn with blue lines. The US Dollar has, like clockwork, been contained within these lines for more than a year. The bouncing off of these lines gave excellent entry points for the gold market. Since the triangle is close to reaching an apex, a move of great magnitude could be in the cards.

The third thing to notice is that the USD is close to long term support, as marked off by the red horizontal line. This red line is key. This red line goes back decades, and if it is ever broken, it will mark an all time low for the USD, and could lead to a major breakdown for the index.

In my opinion, the USD index will eventually break this long-term support, since the USD is in a powerful downtrend, and it never pays to buck the trend. However, on the daily chart, the USD is oversold, which means that another small bounce is likely, so I would not say that a break in the long term support is going to happen right away. I suspect that there cannot be a large move in gold until this weekly USD chart breaks down. Personally, I have half my money invested in XGD right now, and I think I'll keep the other half for when the USD breaks support.

Relative Strength and the TSX

Calculating relative strength is done simply by dividing the security you are interested in by a major index to see whether it is outperforming or under performing the index. In this case, the security that is of interest is XGD and the major index is the TSX, Canada's main stock index. Keep in mind that this has nothing to do with the RSI technical indicator that appears on the top of all my charts. That is something totally different.

Anyway, the chart below is a weekly chart of XGD divided by the TSX, so when the line is rising XGD is doing better, and vice versa. Beneath the relative strength line is a chart of XGD by itself. This chart generates excellent sell signals when the RSI of the relative strength line goes into overbought territory, and then leaves overbought territory. The reverse is also true when the RSI goes into oversold territory.


I have outlined some of these occasions with circles around the RSI and lines pointing down to the XGD chart to show how a bounce is usually imminent at these times. There are other times that this chart generated signals, but I thought 4 examples was enough to drive the point home. You see for yourself that signals generated resulted in a bounce in XGD 100% of the time.

One other aspect of this chart is that the deeper RSI goes into overbought/sold territory, the greater the resultant bounce in XGD. That being said, if you notice in the above chart, the RSI indicator presently is deep in oversold territory. This suggests to me that a very large upward move in XGD could be in the cards.

However, since these are weekly charts, signals generated take longer to manifest, and, in this case, RSI still has to leave its oversold range to trigger the signal. It will probably be necessary to wait a couple of months to really be able to tell if the signal generated here was a valid one.