Pencil drawing of Shane Cabin
Based on Bullish Percent Indicator data the broad U.S. Equities market improved slightly this week. All the broad indexes increased slightly with exception of the Dow Jones Transportation Average (DJTA) which remained even. In general, the sectors followed last weeks move so no changes there.
U.S. Government shutdown, wars, and the prospect of another interest rate hike continue to keep a lid on the market as the underlying economy is performing very well. Consumers are spending as credit card debt continues to increase.
As long-time ITA readers know, I am “death” on credit card debt. Pay it off every month and avoid those high interest costs. Instead, follow The Golden Rule of Investing.
Index BPI
Using the seven broad indexes as a window into equity market action, we see slight improvement this week. Only the DJTA remains oversold. The two primary indexes I follow (NYSE and NASDAQ) are barely out of the oversold zone. This is not what one would call a robust stock market.
Sector BPI
No changes are called for this week for our Sector BPI portfolios. It is highly unlikely any portfolios still hold Energy (VDE) as a sell was called for as early as 7/14/2023. If you do not hold Staples or Materials there is still an opportunity to enter those two sectors.
This week I will pay attention to Communications (VOX) as that sector might drop back into the oversold zone. Most of the ITA portfolios following the Sector BPI investing model already hold a full complement of VOX.
This is a time to be patient and let the market do its work. For those portfolios holding VTI, SPY, VOO, or ESGV, I plan to place Trailing Stop Loss Orders (TSLOs) ranging anywhere from 5% to 8%. I tend to let SPY and VOO run longer than the other two ETFs.
Portfolios up for review this next week are: Kepler, Gauss, and Franklin. All three are now using the Sector BPI Plus investing model.
Questions and Comments are always welcome. Post them either in the Forum or in the Comment section provided with each blog post.
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This morning I checked on the BPI data and I see where Technology (VGT) is overbought. The BPI moved up to the 80% level so I set 2% TSLOs. Were the BPI to move up to 90% I would set a 1% TSLO.
Another example: If the BPI for Technology moves to 81% bullish I will reset the TSLO to 1.9%. The higher the overbought BPI percentage the tighter I am setting TSLOs. Hope this makes sense.
Lowell
Lowell,
I have been looking at the Vanguard ETFs representing the sectors and am questioning their volatility when their price is heavily influence by only one or two companies. For example, VDC (consumer staples) is heavily influenced by Proctor and Gamble at 13% of the value; VCR (consumer discretionary) is heavily influenced by Amazon at 22% and Tesla at 15%; and VAW (materials) is heavily influenced by Linde at 17%.
I have been thinking about using the SPDR equal weight ETFs to represent the sector BPIs with the hope of having a smoother ride. A drawback I see to this may be that we end up between oversold and overbought for longer periods of time due to the lack of volatility in the ETFs.
Thoughts?
~jim
Jim,
Equal weight ETFs will likely reduce buy and sell recommendations or reduce volatility. Or it may shift the trading over to a different sector.
If you were to send me SPDR equal weight ETFs for each sector I can plug them into my spreadsheet and see how the volatilities compare with the current list of Vanguard sector ETFs. Interested?
It is an interesting idea.
Right now I plan to stick with the current methods as they seem to be working quite well. This does no mean in any way that I am opposed to improving the Sector BPI model.
Lowell
Jim,
Have you read Robert Arnott’s book, The Fundamental Index? It has been years since I last read this book. Copyright is 2008.
The book is all about the advantages of using equal weight indexes vs. cap-weighted index.
Lowell
Jim,
Never mind. I’ve located the eleven (11) equal-weight ETFs.
Lowell
Can you provide a list of the equal weight symbols?
Bob,
The equal-weight symbols will show up on the Bullish Percent Indicator post tomorrow.
I am in the process of setting up one portfolio that will use equal-weight sector ETFs. Right now that is the Kepler. This is a poor performer so why not give it a chance with the equal-weight ETFs. In addition, the portfolio has sufficient cash to where I can purchase a few shares of the new sector ETFs.
Lowell
Bob and Jim,
Here is a link to where one can see a list of the equal-weight sector ETFs. If this list is incorrect, Jim, please correct me.
https://sectorspdrs-admin.factset.com/
Lowell
Jim,
One more point. Keep in mind that the Buy and Sell signals are not generated by the movement of the ETFs, but rather the movement of the Bullish Percent Indicators.
Lowell
Jim,
This morning I ran a five-year comparison between the SPDR sector ETFs and the Vanguard group that I use. The SPDR sector ETFs outperformed the Vanguard sector ETFs seven of the eleven comparisons.
It makes sense to set up a sample portfolio using the equal-weight group so I’m going to look over the portfolios and see which makes sense to slowly migrate over time.
Lowell
ITA Readers:
When I check the holdings within the SPDR sector ETFs, I see the same cap-weighted breakout. I need to do more searching for equal-weight sector ETFs.
Lowell
Readers:
I located the equal-weight sector ETFs. Here are the tickers.
RSPC, RSPS, RSPG, RSPF, RSPH, RSPN, RSPM, RSPR, RSPD, RSPT, AND RSPU.
Now I need to run comparisons with cap-weighted sector ETFs.
Scrap those comments related to SPDR as those too are cap-weighted ETFs.
Lowell
I just completed the five-year comparisons between the cap-weighted sector ETFs and the equal-weighted sector ETFs.
Seven of the eleven equal-weight ETFs outperformed the cap-weighted ETFs. However, at least two (Discretionary and Technology) of the cap-weighted ETFs far outperformed the equal-weighted ETFs.
If one wanted to fine tune a portfolio perhaps using a combination of cap and equal weighted ETFs. I need to check the data further, but my hunch is that equal-weight ETFs with low volatility perform better than their cap-weighted counter parts. If the volatility is high, then go with cap-weighted ETFs. This may be an over generalization so more data examination of the data is required.
Lowell
Lowell,
Although not sure, I suspect the reason that cap-weighted discretionary has done better the the equal weight is because of the over-sized influence of Amazon and Tesla. For my part, Tesla is a bit too volatile. Take away those two and I doubt the cap weighted would out perform the equal weight. Just a guess.
~jim
PS – thanks for responding to my comment above. I didn’t expect it to cause so much work by you.
Jim,
Work is not a problem. I’m enjoying the challenge and I think you may see some fruit coming out of this discussion.
Lowell
These are the sectors where the equal-weight sector ETFs outperformed the cap-weighted sector ETFs.
Energy, Financials, Health, Industrial, Materials, Real Estate and Utilities.
Lowell