There’s a lot of talk about when this 8-year bull market will end and a new bear market will begin. We wrote about this six months ago. Here’s a portfolio of bear market stocks you can set up to see for yourself.
In January 2017, TradeSmith wrote about what percentage of stocks in a diversified portfolio could be in the Stock State Indicator (SSI) Red Zone before you’d want to get out of the investments entirely.
And that number was 40%.
In other words, up to 40% of your stocks could be in the SSI Red Zone before you might consider exiting all of your positions.
This is a hypothetical index comprised of the 9 Select Sector SPDR ETFs that we follow in the Sector ETF strategy. When less than 40% of the index was in the SSI Red Zone, the index performed well.
When more than 40% of the index was in the SSI Red Zone, the index did not perform well.
So here’s an idea to keep track of this yourself. Create your own Watch Portfolio of the stocks that make up the Dow Jones Industrial Average (DJIA). It’s easy to do.
Click on the “Portfolios” tab at the top of the TradeStops page and then click on the green “Add Portfolios” button. A new window will open up. For this portfolio, click on the “Add Manually” tab and then create a “Watch Only” portfolio.
Once this has been created, click on the newly created portfolio and it will open up in the “Positions & Alerts” tab.
Now you can begin adding the individual stocks that make up the DJIA. Because this is a “Watch Portfolio”, you can leave the number of shares set to zero. Remember, our goal is just to be able to see at a glance how many of the 30 stocks that make up the DJIA are in the SSI Red Zone at any one time.
Be sure that you set up SSI Alerts to notify you of a change in the condition of these stocks.
To make things easy for you, here’s an alphabetical list of all the stocks that make up the DJIA as of 6/27/2017:
- AAPL – Apple Inc.
- AXP – American Express Company
- BA – The Boeing Company
- CAT – Caterpillar Inc.
- CSCO – Cisco Systems, Inc.
- CVX – Chevron Corporation
- DD – E. I. du Pont de Nemours and Company
- DIS – The Walt Disney Company
- GE – General Electric Company
- GS – The Goldman Sach Group, Inc.
- HD – The Home Depot, Inc.
- IBM – International Business Machines Corporation
- INTC – Intel Corporation
- JNJ – Johnson & Johnson
- JPM – JPMorgan Chase & Co.
- KO – The Coca-Cola Company
- MCD – McDonald’s Corporation
- MMM – 3M Company
- MRK – Merck & Co., Inc.
- MSFT – Microsoft Corporation
- NKE – NIKE, Inc.
- PFE – Pfizer Inc.
- PG – The Proctor & Gamble Company
- TRV – The Travelers Companies, Inc.
- UNH – UnitedHealth Group Incorporated
- UTX – United Technologies Corporation
- V – Visa, Inc.
- VZ – Verizon Communications Inc.
- WMT – Wal-Mart Stores, Inc.
- XOM – Exxon Mobil Corporation
Once you’ve added these stocks to the DJIA Watch Portfolio, it’s easy to sort them by the SSI Signal. As you can see, there are only 3 stocks that are currently in the SSI Red Zone – VZ, IBM, and GE. Another 4 are in the SSI Yellow Zone.
Because there are 30 stocks in the DJIA, 40% means that 12 stocks in the SSI Red Zone would be a “wake up” call. As you can see, we’re a long way from having 12 stocks in the SSI Red Zone.
This is not a set-in-stone rule. Every investor should come to their own conclusion. However, it is an easy way for you to follow a major index and keep track of what percentage of stocks are in each of the SSI Zones. At the very least, it will give you a good sense as to how the overall market is truly trending.
The TradeStops team joins me in sending you best wishes for this 4th of July holiday.
Tom Meyer
Education Director, TradeStops
