Healthy, is the prognosis of the U.S. Equities markets. The offensive teams are in control of every major index and sector of the market. The only sector to show a percentage decline was Health, but the downward move was insufficient to flip the BPI from offense to defense.
Index BPIs: For the fourth consecutive week, all major indexes are bullish as indicated by X’s in the right-hand column. Our primary index, the NYSE, is still fairly valued at the 57.57% bullish level. The S&P 100 moved up into the over-valued zone and it has been a few weeks since the DJIA and DJTA did the same. We are still waiting for a 10% to 15% correction that would push some of these indexes below the 30% level. That would provide better buying opportunities.
Sector BPIs: Drilling down into the individual sectors shows the overall market is still strong. Energy is the weakest sector as oil prices continue to decline. Regular gasoline dropped below $3.00 per gallon in some areas of the country, but not in the Northwest. As mentioned above, Health is the only sector to show any percentage decline. Telecom and Utilities remain even and that is no surprise as those two sectors don’t vary much from week to week.
The data this week is telling us there are opportunities for the broad market to continue to rise as conditions for upward movement are better than they were back in late July.
Lowell,
I am somewhat confused by an apparent contradiction between the results of your nice ranking system and your methods for implementing the recommendations.
You wrote: “We are still waiting for a 10% to 15% correction that would push some of these indexes below the 30% level. That would provide better buying opportunities.”
Doesn’t this attitude (or approach) say that you don’t trust the rankings that come up every 33 days in the various portfolios? According to the four consecutive weeks of all green Xs in the “Who’s got the ball chart,” it looks like the end-of-year “January effect” is already taking hold, but you are waiting for a sell-off. Why?
Doesn’t this attitude (or approach) say that you don’t trust the rankings that come up every 33 days in the various portfolios? If a given approach to investing has been back-tested to verify its potential usefulness, that back-testing made the simulated buys and sells immediately, instead of waiting for “better buying opportunities.” Why rank if you don’t follow the rankings immediately? In various portfolio reviews, you frequently state that you have put in limit orders to buy things at various levels below the current price. What do you do if those lower prices never materialize? How long are the ranking recommendations allowed to go without being followed?
Also, one purpose of the 33-day review interval is used to avoid “wash” sales, but by postponing recommended sells until prices rise, you may be pushing sells to fall into the next 33-day interval, thus leading to potential wash sales that you then have to avoid by delaying again. I’ve seen this situation in at least one of your portfolio reviews.
Do you have a formal trading philosophy to go along with the ranking system?
Thanks,
Herb
Herb,
In past BPI rankings I’ve written that I do not use the above data to manage individual portfolios. Rather, both the index BPIs and sector BPIs are presented to give a broad picture of the U.S. Equities market. If one looks at the individual percentages, the market is modestly over valued. What is encouraging is the 57% ranking of the NYSE. That is about average so there are likely to be opportunities going forward.
Separate BPI data and the ETF ranking data. BPI data if for seeing the large market picture and the ETF ranking table is to identify individual ETFs for purchase. Yes, I do trust both.
Historically, when many of the broad indexes show a percentage of bullish stocks below the 30% level, it is definitely a good buying opportunity. That is the broad view and we don’t have that opportunity right now. That does not mean one does not buy anything or sell all.
Keep in mind that not all portfolios are managed the same way. Several are passively managed and for the two newest ones I am waiting for a correction to fully populate them. Partial positions are already invested.
Limit orders are generally set very close to the current price and are therefore picked up in a day or two. This happened last week with the Maxwell portfolio. If a portfolio has a lot of cash, then I am not inclined to invest everything immediately, particularly when the market is setting new records. Call it blending two sides of the investing coin – momentum and reversion-to-the-mean.
Lowell