[isatrader]

I noted yesterday that the long term NYSE Bullish Percent Index ($BPNYA) was very close to reversing to a column of Os (Defense) within overbought territory. Well today even with the market rebounding higher, the NYSE Bullish Percent Index closed below the 72% level and so reversed to column of Os for the first time since December - which puts it on "Defense" in the high risk zone. i.e. Supply is in control of the market and the defensive team is on the field, and so the "head coach" suggests that we now should move into wealth preservation mode.

Dorsey Wright has done a lot of work on the NYSE Bullish Percent Index over the years and came up with a playbook for it which you can get on their website. What it suggests when the Bullish Percent is in the "Red Zone" (above 70%) and on Defense (column of Os) is to:

• Aggressive Defense
  
• Decrease volatility
  
• Raise cash levels
  
• Reduce exposure to offensive sectors
  
• Tighter stops on longs
  
• Sell leaders & laggards on breakdowns
  
• Buy protective puts to hedge
  
• Buy inverse funds to hedge
  
• Initiate Short Equity exposure
  
• Increase non-correlated exposure