Market action on Friday saw muted gains for most domestic equity indices, but those gains did cause the Bullish Percent for the NYSE (BPNYSE) to reverse back up into a column of Xs at 58%. As a refresher, this indicator measures the percentage of stocks in the NYSE that are trading on a current point & figure buy signal, and is used as a participation reading for how many names in the domestic equity market are attributing to its improvement. After reaching the lowest-ever point of just 2% in March, climbing with only a couple of short reversals, the BPNYSE reached a multi-year high of 80% early in June, providing investors with double-digit gains before reversing down into a column of Os on June 11th which put us back on defense and the protection of those gains. In keeping with our Bullish Percent Playbook, Friday’s reversal back up into Xs puts the offensive team back onto the middle of the field, calling for a more “risk-on” approach in the management of equity exposure.
Our system helps us to see what the smart money is doing so that we do not make investment decisions based on what the media is saying. We’ll continue to sell laggards and take profits where more upside potential is not evident. We are looking to increase or maintain equity allocations and should still focus on areas with strong relative strength and favorable technical attributes. Those broad areas are the Nasdaq 100, Large Cap Growth, and Mid Cap Growth. And more specifically, we continue to focus on technology, healthcare, consumer goods and services, and now basic materials. Globally, the Emerging Markets have finally gained enough relative strength to warrant our attention and allocation as well.
The “value” asset classes — small, mid, and large — remain out of favor. Energy, with the exception of clean energy, real estate, finance, and utilities, which are often called the defensive sectors, continue to lag, and we generally do not own them. Their time will come, but we do not usually seek to invest in unfavored sectors.
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