Using the BPI Indicator for Stock Trading provides good signals as to the state of the market. The bullish percentage indicator (BPI) compares the percentage of stocks that have generated buy signals compared with the total number of stocks in a given index.

You can check out the various BPI indexes here:-

http://stockcharts.com/symsearch/index.html?$BP

What it means:-

Bull alert: When the BPI is less than 30% and changes direction.

It is our aim as stock traders to trade with the dominant trend. We have looked at the business cycle and interest rates and how they can impact of the different phases of the market. We have also looked at business sector analysis to establish which industries tend to do well in the different market phases.

Now let’s look at some technical market indicators to help up confirm the dominant trend and more closely align it with stock market movements.

Keeping an eye on the following sectors will help you spot when a market is about to enter a bearish phase.

Healthcare and other service sectors hit their peak as the market is about to turn downwards. Utility and financial companies also do well as interest rates begin to rise. If stocks in the following sectors begin to have relative strength it is usually a sign of an upcoming bearish phase.

Economic conditions that foster a new bull market include lower interest rates and signs that industrial production is starting to rise.

The stocks of cyclical and technology stocks tend to do well when interest rates are low. These companies often lead the market and can sometimes rally before a recession has completely hit the bottom. As stock traders we can look for positive signs of these sectors improving the industrial production figures to mark the start of an upturn.

Keeping an eye on business sector rotation when stock trading is crucial as some sectors perform better at different times in the economic cycle. Some industries perform better at the start of an upturn and yet others perform (relatively) well in downturns.

Stock traders should look to anticipate the state of the economy and where it, and the markets, are headed by looking at how well certain business sectors are performing.

Interest rates and their trends are a key determiner of government economic influence and barometer of the current state of the economy and where it is in the economic cycle.

In general high interest rates are associated with economic highs and low interest rates with economic cycle lows as governments lower rates to stimulate economic activity in a downturn and raise rates to slow down activity.

Understanding the current state of the economy is the first step in identifying stock market phases. Over the next series of posts we’ll be demonstrating how to use both fundamental analysis and technical analysis to help you identify which phase the market is in.

To look at the overall state of the economy requires looking at a few basic fundamentals and let’s be honest, if you are a stock trader, you’ll already have a good idea of the situation. Nevertheless, these are worth re-stating.