Ruins in England
Last week Bullish Percent Indicators (BPI) identified buying opportunities within sectors of the U.S. Equities market. Will we see a repeat or continuation this week or have many of the buying opportunities passed? Follow along with the BPI analysis shown below.
Index BPI
With exception of the NASDAQ 100, all the major indexes dropped this past week. The Dow Jones Transportation Average (DJTA) is at rock bottom and the DJIA has one bullish stock among the 30 that make up that average. We are in a deep bear market based on this data.
Sector BPI
Every sector is over-sold so there are buying opportunities among all sectors. This does not mean one needs to rush out and go into a buying frenzy. If cash is available, select a few sectors of interest. For example, one might choose Staples, Energy, Financial, and Technology. Set up a ladder system that might look like this for one particular sector.
- Set a limit order to use 5% of the cash to purchase shares of several ETFs at 1% to 3% below the current price. This assumes the price will drop further sometime in October.
- Set a second limit order to use 10% of the initial cash position to purchase more shares of ETFs at 4% to 5% below the current price. These might be the same or different sector ETFs from the first limit order.
- Set a third limit order to use 20% of the initial cash position to purchase more shares of the ETFs of interest at 6% to 7% below the current price.
- With the remaining 65% keep increasing the percentage to invest while lowering the limit order price below the current price.
- Once all the limit orders are in position, be patient and wait for the sector ETFs you have purchased to move into the over-bought zone (70% bullish or higher) and when that occurs, place a TSLO on the shares you own of that particular ETF. This is a Buy Low – Sell High strategy.
thank you for explaining laddered limit orders for this new member. still learning.
Ken,
Do you need even more details regarding laddered limit orders? For example, I could go through a specific example if one comes up in a review this next week. The portfolio needs available cash to put this idea to use. I use it with the Copernicus where the owner of the portfolio is investing new cash on a regular basis, much as I recommend for a young investor who is in the process of saving for retirement.
Lowell
Lowell,
I have a question regarding placement of the TSLO. How do you determine the percentage amount to use for the traveling stop? Would you consider the volatility of the market when making a decision? I know the Kipling Workbook provides suggested stop limits that are based on standard deviation and they can vary depending on the standard deviation multiplier selected. Would certainly be interested to have your thoughts on this topic since getting whipsawed on trades seems to be a high probability in this market.
Thank you,
Richard
Richard,
Within the Kipling spreadsheet I generally set the SD Multiplier {Position Size (Auto) worksheet} to 8% +/- 2%. When the market is low and I consider it to be low now, I might go as high as 10% for the SD Multiplier. When the market is high I generally narrow the SD Multiplier to 5%. With Dual Momentum portfolios I don’t pay much attention to the SD Multiplier.
As a general rule, and this goes back to a recommendation by William O’Neil, set the TSLO to 8% after conducting a purchase of stocks. This 8% is for stocks so it is something less for bonds. This is where the Kipling SS, and the volatility calculation, provides guidance for the TSLO percentage.
Bottom line: 8% is a good middle of the road percentage to use for a TSLO setting when working with stocks or what I call equities.
Hope this helps rather than confusing.
Lowell
Lowell,
Thanks for a very helpful reply.
Richard