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Strategies & Market Trends : Point and Figure Charting

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To: J.B.C. who wrote (34389)10/28/2022 9:23:37 AM
From: J.B.C.4 Recommendations

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Lou Weed
Sun Tzu

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More positive thrusts in the indicators:


Two notable developments have occurred this week – one from a closely followed indicator and another from a group we often follow. The Bullish Percent for All Equity Funds ^BPMU0@2 reversed back into Xs following Tuesday’s action to 24%, and Wednesday’s action saw the indicator push higher to 28%. For those not familiar with the Bullish Percent for All Equity Funds, it measures the percent of all equity-based funds - this universe includes global, domestic, and international equity funds – on a point and figure buy signal on their intermediate-term trend chart (the default trend chart). Said in plainer English, just over a quarter of all equity-based funds – both ETF and mutual funds – are on a point and figure buy signal. This move up comes after the indicator had fallen to 10%, its lowest level since 2020. Outside of 2020, the only other period in which the indicator moved to or below 10% was 2008 and 2009. The reversal in the BP for All Equity Funds also coincides this week with the reversals by the BP for the NYSE ^BPNYSE and S&P 500 ^BPSPX, which focus on measuring stocks on point and figure buy signals within those given universes. Like the stock bullish percent indicators, moves up from low levels have historically been an opportunity to participate as positions rally, and on average returns 12 months out are positive. But while still near these low levels, investors should focus any allocation towards equities to those exhibiting upside movement and participating in the indicators increase. From here, we look for further improvement within the indicator and we will see if we are able to revisit or better the 56% chart high seen back in March and August.

In addition to the BP for All Equity Funds, the S&P 500 Index Funds (Core) group climbed back above the score of 3 following Tuesday’s action after scoring at or below the level since the latter part of September. This is the second time this year the S&P 500 group has fallen below the score of 3, and this is the first time this has occurred in a 12-month rolling period since the latter part of 2015 and early 2016. With the uptick in score above the 3.0 score threshold, the Core group is now scoring above 3 along with the US Money Market Group for only the third time ever – the other two times were in December 2018 and August through October of 2007. Moving forward, a sustained score above 3 or further score improvement and moving back above the US Money Market group would add positive evidence for Domestic Equities.

Along with the Core group improving above the score of three, two sector groups also achieved the feat over this past week. Biotechnology and Healthcare both climbed above the score of 3 following Wednesday’s action for the first time since August. Looking at the rally over the past week Biotechnology and Healthcare were among the ten best performing in the DWA 40 Sectors; Biotech DWABIOM gained 6.89%, while Healthcare DWAHEAL gained 6.46%. From a trend perspective, a few Biotech ETFs – the iShares Biotechnology Fund IBB, VanEck Biotech BBH, and First Trust Biotechnology Fund FBT – moved back into positive trends in addition to giving buy signals this week.

Among the three, FBT maintains the highest fund score of any Biotech ETF on the system at 3.94 – 0.81 points higher than the average Biotech ETF or Mutual Fund. FBT also maintains the lowest beta at 0.57 among the three aforementioned funds. Weekly momentum is now positive after having been negative for nine weeks and monthly momentum has been positive for two months after having been negative for 12 months prior. Recent trend chart action has led to consecutive buy signals as the fund shifted the trend back to positive in the process. Additionally, a series of higher bottoms from $130 to $134 offer notable support above the summer chart lows, which isn’t something many equity-based funds can claim.

Broadly speaking, further improvement out of Domestic Equities is needed to give confidence before putting assets back to work. But seeing indicators reverse back into Xs as stock and funds return to buy signals is a start.

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