Tender and Cruise Ship
Publication of Bullish Percent Indicator (BPI) data is a nearly weekly event. This data is particularly important now that four ITA portfolios are managed using information from the second screenshot or the Sector Point and Figure (PnF) data table. The four portfolios are: Carson, Franklin, Gauss, and Millikan.
The data for the following tables comes from the StockCharts web site. The first table provides readers with a broad overview of the condition of U.S. Equities. No international information is included in these tables. The second data table breaks the U.S. Equities market into eleven (11) sectors and it is that material we are using to manage the four Sector BPI portfolios.
Index BPI
While there is a significant amount of overlap among the following indexes, I include all as some readers pay more attention to particular indexes. If you hear someone in a coffee shop discussing the stock market, they are most likely talking about movement in the Dow Jones Industrial Average (DJIA) even though that index includes only 30 stocks.
I pay most attention to the NYSE and NASDAQ as those are broad indexes. The NASDAQ is heavily oriented toward tech stocks.
This week there are several anomalies. I refer to movements in the S&P 100, NASDAQ 100 and S&P 500 as anomalies as all show an increase in the percentage of bullish stocks (left side of table) while the right side indicates the indexes are bearish (O’s in the right-hand column of a PnF graph). In the last screenshot I show a PnF graph for the Real Estate sector so readers have an idea what a PnF graph looks like.
Sector BPI
Below is the sector BPI table and we find five sectors are over-sold. Over-sold is when a given sector finds 30% or fewer of the stocks within that sector are bullish.
The over-sold sectors at the end of this week are: Energy, Financial, Industrial, Materials, and Real Estate. After the market opens on Monday, if you are using the Sector BPI model, I recommend fully populating the above five sectors. What percentage you invest in the different sectors is a decision you will need to make. I provide guidance, but my method of calculating percentages runs into the problem of running out of cash. In general, fill the sector that is least bullish. Currently, those two are Energy and Materials.
Note that Discretionary and Health moved out of the over-sold zone during this past week. If you hold shares in either sector, continue to hold and wait for the ETF to move into the over-bought zone or when the background turns red. At that time place a 3% Trailing Stop Loss Order (TSLO) on the sector ETF. All this is explained in more detail when the Sector BPI portfolios are reviewed. I’ll be checking on the Carson on Monday.
Real Estate Point and Figure Graph
Just so readers have a clue what a Point and Figure (PnF) graph or chart looks like, I include this partial look at the current Real Estate chart. My cut and paste software does not permit scrolling so I cannot present the full graph. One main difference between conventional graphing and PnF graphs is how the X-axis is presented. We do NOT use trading days across the X-axis. Instead, one moves to the next column only when the price of the security changes direction by a percentage set by the PnF user. The red O’s for Real Estate indicate the percentage of bullish stocks within this sector declined on Friday. Only 13.33% of the stocks within the Real Estate sector are bullish and that is why the Sector BPI model now recommends investing in VNQ, the Real Estate Exchange Traded Fund (ETF).
Explaining the Hypothesis of the Sector BPI Model
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Hello Lowell,
Would there be any merit to waiting until an oversold sector (BPI70). Further, should one be agnostic to the overall health of equity market averages when deploying additional investment capital in a BPI sector model…or not?
Thank you.
-Martin
Martin,
I’m unclear as to your first question. Over-sold is when the BPI percentage for a given sector reaches the 30% or below for bullish stocks within the sector. The Sector BPI “rules or guidelines” specify one wait until the sector reaches the 30% or below level before investing in the sector ETF.
As for the second question, I am agnostic as to the overall health of the stock market. However, I do use this method of investing in a sector. Assume the a sector such as Energy cuts through the 30% BPI level. Instead of filling the Energy sector with one Buy order, I will set multiple limit orders where each order is a little lower in price than the prior order. When we were paying commissions for each order I did not follow this procedure as commissions ate up to much of the investment. Zero commissions allow one to set small and multiple limit orders.
Assume a sector is down around 10% Bullish and I see it move up to 15% Bullish. If I see this, then I’ll make an effort to fully populate the sector of interest as I don’t want the price of the ETF walk away from me. Hope this is clear.
If adding new cash to a portfolio, I am always agnostic. In the Carson portfolio updated today I would love for the owner to add more cash so as to make purchase of more shares of VNQ possible.
If I have not answered your questions, ask again. Always appreciate your interest in asking questions.
Lowell
ITA Readers:
For those following the BPI data, this morning I updated the Sector BPI spreadsheet and found only three (3) over-sold sectors. They are: Financial, Materials, and Real Estate. If the percentages hold it will impact the Millikan portfolio, the account to be updated tomorrow.
Lowell
As of 3/30/23 only Real Estate is currently over-sold. Another up day and we may have zero over-sold sectors come Saturday.
Lowell