Bullish Percent Indicators for seven broad indexes and ten sectors of the U.S. Equities market provide an overview of where the market is currently, but it does forecast where the market might be by the end of the calendar year. However, if we have any faith in the U.S. economy, when the percentage of bullish stocks drops below the 30% level it is time to think about putting some available dollars back into the market. That is where we find ourselves as we examine broad indexes and individual sectors. Check the guidance below.
Keep in mind that the approach described below works best when investing in mutual funds or ETFs as we are focused on broad sections of the U.S. Equities market, not individual stocks.
Of the seven indexes listed below, I pay most attention to the first two or the NYSE and NASDAQ as they contain the most stocks. Next in importance is the S&P 500 as it is closely followed by analysts. Looking at the percentage values or the bottom row of the left side of the following table, nearly every index is in the over-sold zone or very close to the “magic” 30% line. Both the NYSE and NASDAQ are over-sold so now is a good time to being adding equities to your portfolio. More on this as we move to sectors.
It is within sectors of the market where we can take advantage of over-sold areas of the U.S. Equities market. What I am about to write about runs counter to recommendations mentioned in yesterday’s post on looking ahead to the second half of 2022. How we handle or use BPI information is outside the recommendations we use when managing Relative Strength (or Relative Momentum) and Dual Momentum™ portfolios. Think of BPI decisions as an addition or an overlay to investment decisions based on models used with the Kipling spreadsheet. Here are some examples.
Note that Energy, Financial, Industrial, and Materials sectors are over-sold. If cash is available, purchase a few shares of VDE, VFH, VIS, and VAW. You can also use iShares ETFs if you prefer. Suppose you set limit orders for five (5) shares of each at 1% below the current price. Then set a second set of limit orders to add 10 shares of each over-sold sector ETF at 3% (.97 x current price) below the current price. If cash is still available, set more orders, say 15 or 25 shares at 5% or even 10% below the current price. If you have excessive cash available, increase the number of shares rather than the small numbers in this example. On occasion I’ve set staggered limit orders as low as 50% below the current price, never expecting to see such orders activated.
If your limit orders are hit, then plan to hold on to those shares until the sector moves into the over-bought zone or at a level where 70% of the stocks within the sector are bullish. At that point set a Trailing Stop Loss Order (TSLO) at 3% so as to lock in profits. Assume it will be many months before a sector moves from the over-sold zone into the over-bought zone.
I am not using this approach with the Schrodinger, Copernicus, Bethe, Bohr, Huygens, or any of the Dual Momentum portfolios. Portfolios where I am applying this approach include the Einstein, Gauss, Millikan, and Kepler. Follow along when these Relative Momentum portfolios come up for review. The Einstein is scheduled for a complete review this coming week.
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Now that we are in the third quarter of 2022, I’ll be updating portfolios at a rapid rate so as to include second quarter dividends. Expect to see more than average reviews coming your way over the next two weeks. Keep the Comments and Questions coming. Let your family and friends know about this blog using social media outlets. Your spreading the word is appreciated.