Mt St Helens with Mt Rainier off on the far left horizon.
Bullish Percent Indicators are flashing critical indicators after Friday’s selloff so pay attention, particularly to the sector section of this blog post. Of particular interest are these sectors. You will see why in a moment. These are not the only sector tickers so make your own decisions.
- Discretionary (VCR)
- Technology (VGT)
- Telecommunications (VOX)
It is extremely rare to see one of the major indexes sufficiently bearish to fall into the Buy zone. That is what we see with the NASDAQ 100 as only 28 tech companies are currently bullish. More on this in a bit. Once more, the X’s and O’s provide the broad picture. If you need precise information, check on the bullish percentages found on the left side of the following tables.
Index BPI
Of the seven major indexes in the following table, pay most attention to the NYSE and NASDAQ as they are the largest indexes. The third most important is the S&P 500 followed by the DJIA.
As hinted at above, the NASDAQ 100 is in the Buy zone so we will identify where we might take advantage of this oversold situation.
Sector BPI
Technology (VGT) is in the dumps so give thought to picking up shares of VGT if you have faith in the principle of reversion-to-the-mean. Discretionary (VCR) is another sector that merits consideration. Telecommunications (VOX) is not quite in the Buy zone, but close enough to where I plan to put some available cash to work.
Assume your basic investment quiver does not include sector ETFs. Since these oversold situations do not come into play all that frequently, here is a possible plan or one I intend to follow.
- Purchase X shares of VCR, VGT, and VOX (assuming cash is available) at market on Monday.
- Set limit orders below the Monday market price to add more shares of VCR and VGT. If you see VOX moving down, add more shares of Telecom.
- Once you have positions established, hold on to the shares until the sector moves into the overbought zone. That could be weeks or even months. When the sector is overbought, sell the sector and then invest the cash as recommended by the investment model you are currently using.
In other words, this is a one time move. As an example, go back to Energy on 8/20/21. Using this plan, one would have purchased the Energy ETF on the following Monday and then sold all shares on 9/27/21.
If you have questions, drop them in the Comments section provided below.
