If your gut feeling is that Bullish Percent Indicators (BPI) are going to show a lot of red this week, you are right on target. The cogent question remains – Is the current market decline sufficient to generate any buying opportunities? While BPI data is generally not used to manage ITA portfolios, we have put BPI information to good use in the past. Follow along as I explain how one might use Point and Figure (PnF) data to enhance portfolio returns. In case readers don’t know, the data in the following table comes from PnF graphs. Here is a link to the NYSE PnF graph so you can see what these charts look like.
As frequently mentioned, pay most attention to the NYSE and NASDAQ as they are the two broadest indexes. Both are very close to the over-sold zone of 30% or lower. Readers will note that both Dow indexes (DJIA and DJTA) are over-sold. The dark green background indicates these two indexes are ripe for purchase. This does not mean they will not go lower. When any index or sector of the market dips below 30% the index or sector is positioned in the Buy zone.
The following table is where we break U.S. Equities down into individual market sectors. There is actually an 11th sector, Real Estate, but we handle that sector within our asset allocation strategies in the different portfolios.
Check the right side of the table. All sectors are bearish. Materials (VAW), Technology (VGT), and Telecom (VOX) are over-sold and as a result are candidates for purchase. Here is the link to Technology so you can see what a PnF graph looks like for this particular sector of U.S. Equities.
Assume you have sufficient cash to purchase 100 shares of Technology (VGT or IYW). Here is an example of how I might handle this situation.
- Set a limit order to purchase 10 shares of VGT at 2% or 3% below the current price.
- Set a second limit order to purchase 15 shares of VGT at 5% below the current price.
- Set a third limit order to purchase 25 shares of VGT at 8% below the current price. We now have orders to purchase 50 of the 100 shares.
- Set a fourth limit order to purchase 25 shares of VGT at 15% below the current price.
- Set a fifth and final limit order to purchase the last 25 shares of VGT at 20% below the current price. Assume there is a low probability this limit order will be struck.
Hold the shares of VGT until it reaches the over-bought zone or when the background turns red. When this occurs, set a Trailing Stop Loss Order (TSLO) at 3% to lock in profits.
On Monday I plan to use this approach with the Einstein, Kepler, and Gauss – assuming there is available cash in any of these portfolios. Stay in touch when I update the BPI data every Saturday.
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