We are closely watching the RSI and MACD technical indicators to see when it is appropriate to add more shares of ETFs, assuming one has excess cash to put to use in equities.
Here is an example of what we are waiting for. Click on this link and you will see several graphs for VOE, Vanguard’s Mid-Cap Value ETF. Note the RSI graph is below the 30% line, indicating this ETF is oversold. The gamble is when to buy back in. 1) Place a limit order at this point and wait for the price to be struck. 2) Wait for the price to move the RSI graph from below to above the 30% line and then buy when the MACD turns positive.
For the MACD to turn positive, we need to wait for the black line to move from below to above the red line. If this were to happen, there is no guarantee the MACD will not “whipsaw” and turn negative. However, when the RSI is this low and all other signals are also negative, it is only a matter of time until things get better. If the RSI for any of the ETFs of interest were to move below the 20% line, then raise all the cash possible and put in orders for ETFs in that condition.
It appears as if we may be days, if not a few weeks away from a buying opportunity. It is time to stay vigilant.
Watch for the resulting trades within the Premium Content.
Premium Content available for $6.99 per month. Register now and take advantage of trial offer.
Lowell Herr
Photograph: This is where the “salt stream” comes out of the mountain providing salt for Peru and for export.
Look for changes tomorrow when the “Top Ten Stocks” and “Creme List” are posted over on Premium Content. Yesterday’s market drop had a major impact on the Point & Figure (PnF) graphs as many stocks I classified as Bull rotated to Bull-O. To define these terms, go to a PnF graph for Paychex (PAYX). Note the red line has a negative or “Bear” slope. Then move to the far right column and you will see it populated with X’s. I code such a graph as “Bear-X” and then give it a quantitative rating.
Now move on and type in the ticker, JNJ. When I looked at this graph, the blue line has a positive slope and there are X’s in the right-hand column. I call this a “Bull” PnF graph and the best one can find. If the graph is blue or has a positive slope and O’s are in the right-hand column, the stock is coded as Bull-O. This means the overall ranking is positive, but the price is beginning to drop. I would rather see a Bear-X than a Bull-O graph. A Bear-X is a stock with a red or negative slope for the graph, but X’s in the right-hand column.
Getting back to the “Creme List” of stocks, I went through the 140 plus stocks I track and checked every stock that had a PnF rating of “Bull.” Most of those stocks, due to the major downward move in the market, turned from “Bull” to “Bull-O.” When this happens, it shakes up the ranking system and that is why I expect to see changes this week in the “Creme List” and “Top Ten Stocks.”
These lists should be published sometime tomorrow over on Premium Content.
Lowell Herr
Photograph: National Air & Space Museum
Walking through StockCharts such as this graph for VOT, ETFs that are showing weak RSI graphs are growth, international, emerging markets, and commodities. A weak RSI is when the graph penetrates from above to below the 30% line. Mid-Cap Growth is a particularly weak asset class at this time.
When one experiences a market such as what we are now in, it is a good time to look at the technical indicators for each asset class in the portfolio and then review each asset class to see which ones are below target. If cash is available, consider adding to weak asset classes when the signals turn positive. I will give a few examples over on the Premium Content side of the blog.
Lowell Herr
Photograph: Chengdu, China
Subscribe to Premium Content for $6.99 per month.
