Bullish Percent Indicators: 20 May 2022

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Bullish Percent Indicators (BPI) provide investors with a broad look at the U.S. Equities market.  The following screenshots tell us nothing about U.S. Bonds or International Equities so keep that in mind as you peruse the following two tables.  While the following data is generally not used to manage portfolios, the current volatile market is providing some buying opportunities for those who hold cash.  Follow along for more detailed explanations.

Index BPI

The first table lays out seven major market indexes.  Focus on the NYSE and NASDAQ as they are the broad indexes.  When T.C. Pits (The Common Person In The Street) speaks of how the market is performing, they are generally talking about the Dow Jones Industrial Average (DJIA) even though this index is made up of only 30 stocks.  I prefer to think of the NYSE, NASDAQ, and S&P 500 as they provide a more complete view of market behavior.

How should you read the following data?  On the right side of both tables you see X’s and O’s.  When the week closed on Friday, was the index bullish or bearish?  Did the index end up on Friday or was it down, based on something known as Point and Figure (PnF) graphs?  As examples, the NYSE and DJIA were bearish.  If I remember correctly, I have the graphs set so a 3% change is required to move from bearish to bullish or vice versa.

When looking for buying opportunities pay attention to the percentage of bullish and bearish stocks within the various indexes.  Every index with exception of the NASDAQ 100 are in over-sold territory and this index is very close to the over-sold zone.  Conclusion: This is a buying opportunity and I wrote a blog as to how to handle this situation.  If one wishes to purchase the S&P 500, use SPY as the Exchange Traded Fund (ETF).

Sector BPI

The following table lays out ten important sectors of the U.S. Equities market.  Only Real Estate (VNQ) is not included as this sector is a key element to all the portfolios tracked here at ITA Wealth Management.

How does one make use of the following information when it comes to portfolio management?  Skip down to the 5/20/22 row of data and you will see six of the ten sectors are over-sold.  The first order of business is to stay away from Energy and Utilities as  both are over-bought.  Health and Materials, both showing approximately 32 percent bullish stocks, are very close to a buying opportunity.  We are very close to “dart throwing” time as U.S. Equities are over-sold.

Included for the first time are ETFs representing the ten sectors.  Check the bottom row for ETF tickers.  All tickers are Vanguard ETFs.  Some investors may prefer to use iShares ETFs and if so you will need to look them up on your own.  I prefer Vanguard as one becomes a part owner of Vanguard when you invest in their products.

Check out the Discretionary sector as it is rare to see a sector with so few bullish stocks (8.3%).  If you have cash available, plan to buy shares in VCR.  As explained in a prior blog, set limit orders to invest a particular percentage of the cash at a value 2% to 3% below the current price of VCR.  Then set another limit order to pick up a higher percentage of the ETF at a price even lower than the first limit order.  If you need more help, ask for it in the Comment section provided below.

Then move to another over-sold sector and do the same.  Staples (VDC), Financial (VFH), and Technology (VGT) are sectors where I have limit orders set and I will be placing more limit orders this week.  When the market dipped this past week, several limit orders were struck.  This is known as averaging down.

If readers need additional explanations as to how to put cash to work, post a comment in the space provided below this blog post.  If necessary, I can go into more detail next week.  Buying opportunities like this don’t come along all that frequently so we want to take advantage of the situation.  Again, this assumes one has cash available to invest.  If you have under-water securities, it might be prudent to sell them, take the loss, and use the cash to invest in market sectors.

An added point: If you end up holding a sector ETF in a portfolio, hold on until the sector moves into the over-bought zone (>70% bullish).  When this happens, then place a tight Trailing Stop Loss Order (TSLO) on the ETF representing that sector.  This way you lock in a profit.

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