Right now, Consumer Staples as a sector has the lowest percentage of buy ratings of any sector in the S&P 500 – coming in at just 41%. The above chart is the “Bullish Percent Index” for Consumer Staples (red and black line) with the XLP (Consumer Staples) ETF in the background (all black line).
The Bullish Percent Index, or BPI, is a breadth indicator that shows the percentage of stocks on Point & Figure Buy Signals. There is no ambiguity on P&F charts because a stock is either on a P&F Buy Signal or P&F Sell Signal. The Bullish Percent Index fluctuates between 0% and 100%.
In December, the Bullish Percent for Consumer Staples got as low as 15.15% (to say extreme is an understatement). Historically (with the exception of 2008), 7 out of 9 times in the past 10 years it has paid off big time to buy a dip in this reading below 30. It is currently trading at ~27.27. It does not have to go straight up – as a retest is a possibility – but it is saying there is big room to the upside over time. Furthermore, we covered how current earnings are differing from 2008 and 2000 (big corrections) as there were 2 earnings “tells” well ahead of the big drops both times (we have not seen that type of warning shot at present): Jan 22 post showing how 2000 & 2008 was different – so far.
As with all indicators, they are a barometer to weight probabilities and not a crystal ball (as black swans like 2008 do happen – albeit infrequently). That’s where risk management becomes paramount. The key is taking probability advantaged trades over a series – with a positive expected outcome – and disciplined risk management and sizing to win over time.
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