Molly Malone in Texture
Investors using the Sector BPI model need to pay attention as market action this week moved two more sectors into the over bought zone. We now have four overbought sectors and two of the four are over 80% bullish.
Index BPI
All major indexes with exception of the Dow Jones Transportation Average (DJTA) are bullish. It is somewhat of a concern that this key index dropped so far this week. While November was a very strong month for U.S. Equities the market is still top heavy in that it is large-cap companies that are moving the market. Note that the NYSE and NASDAQ, two broad indexes, are hovering around the 50% bullish level. This indicates small- and mid-cap stocks are not participating to any great degree in this market.
Sector BPI
Utilities and Real Estate joined Financial and Technology in the overbought category. This weekend I will be going through the various portfolios using the Sector BPI model and setting Trailing Stop Loss Orders (TSLOs) for VPU and VNQ. TSLOs are already in place for VFH and VGT, but I will check on those two ETFs as well.
If and when any of the overbought sector ETFs are sold and then return to the oversold zone, I will check the five-year performance record and purchase either the equal-weight ETF (those that begin with RSP) or the cap-weighted ETFs. I’ve been using cap-weighted Vanguard ETFs to populate the oversold sectors.
If you have questions or comments, drop them in the Comment section provided.
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Lowell,
Looks like industrials will be the next sell coming up.
Bob W.
Bob,
Correct. Anytime a sector moves into the 60% bullish range I check frequently to see if there is a change or a move above the 70% bullish line.
Do you hold any portfolios with Schwab? Schwab permits decimal TSLOs so I set a 2.6% TSLOs on VNQ as the BPI is 74%. Had it been 75% bullish I would have set the TSLO at 2.5%. The logic is that the higher the BPI percentage the less likely it will move higher and the greater the probability the BPI percentage will begin to retrace.
If this is too complicated, just stick with the 3% TSLO when a sector reaches 70% or higher on the bullish scale.
Lowell
Lowell,
I had a number of portfolios with TD which have now transitioned to Schwab so I can do the fractional TSOL. I’ll change my VNQ TSOL to your recommendation. Right now I only have portfolios with Schwab and E*Trade. I consolidated my IRAs to one brokerage to make things easier for my heirs:^ )
Bob W.
Bob,
Once I set the TSLO tend not to change it.
One concern I have with TSLOs has to do with “sale slippage” should the number of shares become quite large, as is the case with a very large portfolio.
Lowell
Lowell,
Yes that is a problem. When you first started developing the sector concept I placed the sell as a limit or market order on Monday after letting the market show some direction. My experience has been about 50/50 but I didn’t examine the results carefully. I think on VOX the TSLO approach has been helpful.
Bob
Lowell,
I just noticed VGT has risen to 81+. The original TSLO was set at 2% should we lower that to say 1.5%? Or do we let things sit once entered?
Bob W.
Bob,
I would not change the TSLO. If I made any change the new TSLO would be 1.9%, assuming the broker permits decimal TSLOs.
Lowell
Industrial sector hit the overbought zone so set a TSLO under the sector ETF. For me it is VIS.
Lowell
Bob,
I posted on 12/4 that VIS or Industrials is a Sell.
Lowell