S&P 500 Bullish Percent Index Signaling Market is Overbought. There’s obviously no sure-fire way of determining when the stock market has bottomed, and it is time to buy. Or, for that matter, when it is near a top and it is time to head for the sidelines. However, the S&P 500 Bullish Percent Index is regarded by market professionals as a tool that historically proves to be helpful as a contrarian indicator of when the market is getting overbought or oversold.
The Investors Intelligence point and figure chart below shows that 77% of the stocks in the S&P 500 when given equal weight are showing buy signals. Anything over 70% historically means the market is overbought and ripe for a downturn. Contrast that to last December when the index was showing the great majority of stocks with sell signals, and only 18% with buy signals. When fewer than 30% of the stocks are showing buy signals that historically means the market is becoming oversold and ripe for a turnaround.