Bullish Percent Offense-Defense System
Use market breadth and field position to choose offense or defense
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 99%
The bullish percent system counts the share of securities in a universe that are on point-and-figure buy signals, then plots that percentage on a zero-to-one-hundred scale. Dorsey separates direction from field position with a football metaphor. A rising column of Xs means the portfolio has the ball and should play offense; a falling column of Os means the defensive team is on the field. The level of the indicator determines how aggressive those plays should be. Near seventy, many investors are already committed, so upside field position is poor even if the indicator is rising. Near the lower end, a fresh rise offers better field position and supports more aggressive offense. The same calculation can be applied to exchanges, sectors, and other indexes to guide broad and targeted portfolio risk.
Origin
Dorsey credits Ernest Staby's search for a soulless barometer and A. W. Cohen's creation of the bullish percent index.
Core principles
- 01Breadth measures how many securities participate in a market move.
- 02A rising indicator means the portfolio has the ball and can play offense.
- 03A falling indicator calls for defense.
- 04Direction and field position answer different questions.
- 05High readings imply poor upside field position even while breadth rises.
How to run it
- 1
Define the universe
Select an exchange, index, or sector and gather a consistent point-and-figure chart for every constituent. Keep the membership and signal rules explicit.
Pro tip Run the same process at both market and sector levels.
Watch out Mixing universes or signal definitions makes the percentage unreliable.
- 2
Count buy signals
Classify each security by whether its X column exceeds the previous X column. Divide the number on buy signals by the total number of securities.
Pro tip The test is visual and programmable, which supports consistent classification.
Watch out Do not substitute opinions about company quality for the chart signal.
- 3
Read possession
Determine whether the bullish percent chart is rising in Xs or declining in Os. Treat rising breadth as offensive possession and declining breadth as a defensive condition.
Pro tip Use direction to decide which team is on the field.
Watch out A high percentage is not automatically bearish if the indicator is still rising.
- 4
Assess field position
Locate the reading on the zero-to-one-hundred range. Readings near seventy imply crowded participation and poor field position; low readings imply more potential room if breadth turns up.
Pro tip Separate the question of whether to attack from how aggressively to attack.
Watch out Field position without direction does not identify which team has possession.
- 5
Choose the play
Adjust exposure, security selection, or risk according to both possession and field position. Recalculate as constituent signals change.
Pro tip Use sector bullish percents to locate stronger or weaker areas inside the market.
Watch out Do not turn the barometer into a precise forecast of market tops or bottoms.
In the wild
Dorsey takes roughly two thousand New York Stock Exchange stocks, counts every chart whose current X column exceeds its previous X column, and divides that count by the total. The resulting bullish percent indicates both whether breadth is rising or falling and where it sits on the risk range.
→ The portfolio manager receives an objective offense-or-defense signal and a separate measure of how aggressive to be.
Common mistakes
Confusing possession with position
Direction shows who has the ball; the percentage level shows the quality of the field position.
Treating seventy as an automatic exit
A high reading calls for less aggressive plays, but the column direction still matters.
Counting subjective favorites
The numerator must come from the same objective buy-signal definition for every security.
Is it for you?
Best for
It is best for active allocators who can classify a defined security universe with consistent point-and-figure signals.
Not ideal for
It is not ideal for a fixed buy-and-hold mandate that cannot alter exposure or portfolio aggressiveness.
From the transcript
“we calculate the percentage of stocks that are on by signals”
“when it's in a column of x's and rising, you have the football. So when you have the football, you should be playing offense.”
“when it's in a column of OS and declining, in other words, more stocks going on cell signals, which is a column of OS exceeding…”
From the episode
Interview With Tom Dorsey: Masters in Business (Audio)
Tom Dorsey