Spring is finally coming to Oregon.
Each week I post the latest Bullish Percent Indicator (BPI) information on seven large indexes and the eleven sectors that make up the S&P 500. Some of the data goes back as far as 2005 or three years before I began writing this blog. Since the BPI information ages, periodically I go into the database and delete the older posts in order to limit the amount of information that needs to be backed up. Over many years I posted BPI data to provide a broad overview of U.S. Equities direction, but did not use the information to actively manage portfolios. That changed late last year when I developed the Sector BPI investing model. Platinum and Lifetime members will find information on this model by doing a search for Sector BPI or following the Carson, Franklin, Gauss, and Millikan portfolios.
The early Sector BPI model showed a few weaknesses. To patch those holes I am now employing what I call the Sector BPI Plus model. Should new weaknesses show up, I will seek new solutions to improve the investing model.
Index BPI
For new readers the BPI indexes are divided into two parts. On the right we quickly see the end results of what are called Point and Figure (PnF) graphs. Four of the seven indexes are bearish. I pay particular attention to the NYSE and NASDAQ as they are the largest. Next in importance is the S&P 500, made up primarily of large-cap stocks.
On the left side of the data table we have the percentage of bullish stocks within a given index. For example, on April 28, 2023, 46.97% or 47% of the stocks in the NYSE index are bullish. One can conclude we are not in a particularly strong market. Neither is it particularly weak. Call it an average market and it reflects an economy (U.S. only) that is showing small growth. This data is quite provincial as it does not speak to any international investments.
Sector BPI
The following table breaks the S&P 500 down into eleven sectors and this is the table I use to manage the four Sector BPI Plus portfolios. When a sector shows 30% or fewer stocks are bullish, the sector is calling for a Buy. Such is the case with Telecom. Since I use Vanguard ETFs to populate portfolios, VOX is the ETF to purchase at this time. How many shares of VOX to purchase depends on the size of the portfolio. This is where I rely on the Kipling spreadsheet for guidance. As I recall, the maximum amount to invest in VOX is 20% of the total portfolio.
When a given sector moves into overbought territory or when 70% or more of the stocks within the sector are bullish, the Sector BPI Plus model calls for a Sell. Instead of selling immediately, I recommend placing a 3% TSLO under the ETF which permits the security to rise even higher before selling. There is a debate over this issue. Should one sell immediately and lock in a profit or set a TSLO to allow for additional price rise. Currently Staples and Utilities are calling for a Sell and I have TSLOs set in all four portfolios using the Sector BPI Plus model.
In actively managed accounts decisions are always required. For example, assume there is insufficient cash to purchase shares of VOX so as to make up 20% of the total portfolio. At that point I would immediately sell shares of VDC and/or VPU to raise cash. If I were not holding any shares of those two ETFs I would look for other sources of cash in order to fully populate VOX. Purchase as many shares of VOX as possible, up to where it is 20% of the total portfolio.
Let me quickly add that I don’t think one should actively manage the entire family portfolio. I’m a strong advocate of passive portfolios such as the Schrodinger and Copernicus.
When speaking of management decisions, what does one do with Discretionary (VCR), should this sector currently be held in a Sector BPI Plus portfolio. Remember, a Buy signal was given back on March 17th. If one rounds the Discretionary sector BPI, it lands in the overbought zone of 70%. On Monday I will go through each of the four Sector BPI Plus portfolios and place TSLOs of 3% on VCR.
Explaining the Hypothesis of the Sector BPI Model
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Based on the current BPI data I examined the four Sector BPI Plus portfolios (Carson, Franklin, Gauss, and Millikan) and placed 3% TSLOs under VCR when held in any of these portfolios. Three of the four accounts are holding VCR.
Here is a management decision I will work on after the market opens Monday. Telecom (VOX) is a Buy. If there are insufficient funds to push Telecom to the recommended 20% percentage, I will remove the 3% TSLO and sell VCR shares in order to raise cash to purchase more shares of VOX.
If this is unclear, post a question and I’ll try to explain more clearly or will go through the process on Monday.
Lowell
Lowell,
For what it’s worth I’m testing the no rounding approach and will wait for VCR to hit 70%. I realize we haven’t really tested a +/- on the 30/70 so I have no quantitative basis for not rounding just trying to see “what happens”. My 3% TSLOs all hit and most of those subsequently went higher so I’m also evaluating that exit approach. These are all individual preferences and I suspect we won’t really have enough data to make a solid refinement.
Bob W.
Bob W. and Gleason,
Had Telecom (VOX) not triggered a Buy I might have waited until Discretionary (VCR) moved to the 70% or higher bullish percentage. With Telecom down and Discretionary up, I’m willing to sell a tad early (likely will not wait for the TSLO to strike) to raise cash to fill the VOX percentage requirement. This move is not following the letter of the law.
Lowell
Bob W. Interesting comment on the 3% stop loss criteria. What kind of options are you thinking? Maybe something like a 5 dma. I tend to draw a line under the low for the last week and if hits it then set that as a sell for the next day thus giving it a chance to run the next day. This approach would seem to require too much activity for what Lewell is trying accomplish.
I really like the sector 70% and 30% warning of time to take action.
In case you are pondering on the condition of sector BPI data, you can relax. Checking moments ago, there are no Buy recommendations. None!. Telecom moved up above the 30% BPI level.
There remain two sectors that are overbought and they are: Staples and Utilities. Both have been in that zone for several weeks so no changes there as well.
With yesterday’s down market I thought a few sectors might be in the oversold zone. Not so. Therefore no planned changes in the Sector BPI Plus portfolios.
Lowell
No sector ETFs are in the Buy zone based on data from Thursday (May 4th). Utilities is still in the Sell zone with a bullish reading of 76.66%.
Lowell
May 11:
Telecom just dipped into the Buy zone (30.0) and Energy is extremely close with a bullish reading of 30.43.
This information is for those following the Sector BPI Plus model.
Lowell
Lowell,
I purchased VOX on 5/4. Seemed like the $BP was at 30 in late April but life got in my way so I waited until VOX moved back to the level of the April signal. Didn’t quite hit the $95 price, paid between $95.35 and $96 in the various accounts. I’m holding VAW, VCR, VDE, VFH, VNQ and VOX.
Bob W.
Bob W.,
I’m holding similar sectors. I have a lot of Sector BPI Plus portfolios to update next week. Will be interesting to see the performance and risk data.
Lowell