ETF Update: What is Working?

At "A Dash" we combine fundamental analysis with system trading.  We monitor and report economic information, with a special emphasis on implications for corporate earnings.  Our trading system provides a reality check on the markets.

We have found that looking at the charts of many different sectors is a great way to get a feel for the overall market, as well as how specific sectors are performing.  Our system includes Trend, since that is the most important technical consideration.  We also attempt to include a Cycle for specific sectors, and we add a touch of Anticipation.  Putting these together is the basis for our TCA-ETF method.  (The complete current rankings are at the end of the article, along with an explanation of our methodology).

The Current Picture

We provide the ratings not as specific trading advice, but more as a basis for checking your own analysis against a scientific method.  To illustrate, let us look at this week's ratings.

• ICF, our featured sector last week, took a big hit on Monday.  We noted that it was a key point for technical analysts.  There was plenty of negative commentary from reports about stress tests.  The model filters drove through this reaction and ICF remains our top-rated sector.  It bounced back nicely from Monday's selling.
• The overall market analysis remains bullish, although more sectors have dropped into the "penalty box", where we do not recommend buys.
• The Home Builders, ITB, have bounced back into the top group.

It is a complex story.  Those who watch the individual sectors have a better overall market feel, and a better sense of what is working, and what is likely to work over the next thirty days.

Here is the chart showing the ICF bounce from the Monday "news."

 

And here is the chart on the home builders, ITB.

Other ETF Comments

John C. Ogg notes the reaction to home builders from the recent housing data.

Trends I'm Watching  also notes this pop.

Zero Hedge sees the same data, but offers a note of skepticism.

Our Take

The story about financial sectors is complicated because of the debate over the "stress tests."  This bears watching, and it is our main current focus.

There has been plenty of misinformation, with speculation about the stress test results.  Many traders are very skeptical.  We maintain that  the "leaks" about this story are incorrect.  The mainstream media stories have looked at the methodology and speculated about the results.  We expect the actual announcement to be a positive for the market, supporting the model recommendations.

Weekly TCA-ETF Rankings

41
of
our 57 sectors are in the
"buy" range.  Many sectors still have extremely strong ratings,
although some  ETF's have moved into our "penalty
box".  This designation means that the sector cannot qualify as  "buy"
on technical grounds.  You can think of it like a sell stop, only with
a more complicated basis.

It was another good week for the
system, gaining over one percent while the S&P 500 declined a bit.

Based upon the model signals, we continue our official bullish position in the Ticker Sense Blogger Sentiment poll.

Note for New Readers

Our weekly ETF Update is designed to assist both investors and
traders interested in ETF's and Sector Rotation.  Before turning to the
current rankings, let us undertake a review for readers new to this
series.

Our Method.  In this past article,
we described our basic methodology and why we believe the rankings are
useful for fundamental traders and technical traders alike.  While we
urge readers to check out the entire article, the key point is that
ETF's pose challenges and opportunities different from investment in
individual stocks.  The fundamentals may be more difficult to assess. 
Even with a good grasp on fundamental trends, there is a lot of
technically-based trading in ETF's.  This means that those trading with a fundamental approach (and we do this as well) want to monitor the "hot money" moves.  Here is an article on that point.

The system synopsis.
We look at Trending sectors, Cyclical Sectors, and build in an element
of Anticipation for both entry and exit — thus the name of the model,
TCA-ETF.  While we do not reveal the exact methodology for spotting
trends and cycles, the system is not a "black box."  The basic elements
are used by many, and widely reported.  We even discuss the need for human analysis as opposed to black box trading.

We report the rankings
each week, now on the weekend with a one-day delay, using the Thursday
output from the model.  We monitor and trade this daily, and offer a
free report (request via the email address on the top left of the site)
for those interested in our weekly trading program.