They say nobody rings a bell at the top of a bull market. But that's a lie. The truth is… bells are ringing all the time. Yet no one listens. Quasimodo is in the bell tower right now, and he's doing everything but peeing over the side. No one seems to care. Investor sentiment is more bullish than ever. The Volatility Index (the "VIX") is displaying extreme investor complacency. The put/call ratio (another sign of fear in the markets) closed last Friday at its lowest level in three years. And speculative penny stocks, typically the last group to move higher in a bull market, are bursting like popcorn on a hot stove. "There's nothing to worry about," says one financial analyst after another as they goad mom and pop investors into chasing stocks higher. Meanwhile, long-term interest rates are creeping higher. The Fed is actively monetizing the nation's debt. States and municipalities are bordering on bankruptcy. And our elected officials continue to raise the debt ceiling ever higher toward infinity. Oh sure, there's nothing to worry about. Among all the other bells that are clanging and trying to warn investors of an impending correction, another one is ready to sound off…
The above chart shows the bullish percent index of the transportation sector (BPTRAN). This chart measures the percentage of stocks in the transportation average trading with bullish point-and-figure charts. In short, it measures momentum, and it indicates when a sector is overbought or oversold. Typically, when a bullish percent index (BPI) rallies above 80, the sector is overbought and vulnerable to a decline. Oversold conditions occur when a BPI drops below 30. Sell signals occur on the BPTRAN when the index reaches overbought levels then declines below its 20-day moving average (DMA). The happened last January and again last April. Both times preceded large corrections in the stock market by just a few days. BPTRAN is on the verge of triggering another sell signal. The index and the 20-DMA have both been at 95 for the past two weeks. When the index moves below the 20-DMA, another bell will ring on the stock market. Is anyone listening? Best regards and good trading, Jeff Clark