ETFs, Markets and Thingamabobs
(Start Thread)
January 21, 2009
(reserved)
Printable View
ETFs, Markets and Thingamabobs
(Start Thread)
January 21, 2009
(reserved)
A look at the funds and stuff
ETFs
As all things change, currently a good look at a basket full of current ETFs can be found at the barcharts site. Their default page is at http://www2.barchart.com/default.asp Specifics on ETFs can be found in their market listing of ETFs at http://www2.barchart.com/mktetfx.asp
A Look at your Portfolio
OK...we'll look at mine first.....:bigsmile:
For my circumstances I use three financial institutions for a portfolio. I believe in diversification of funds; not all in one basket.
For tax deferred retirement I have one institution.
For tax paid funds I use a second institution.
And, for emergency, miscellaneous funds I use a third.
I tend to shy away from companies that use their prospectus to enforce rules and cover up what they really don't want you to know.......:suspicious:
Hey Spaf! Thanks for the info.
Quote:
Originally Posted by etftalk
A little more information on trading
Before you buy an expensive platform, check out the generally free platform provided by your broker. With all the extras of the expensive ones, can you find them for free on the internet??
Check out the company providing any ETFs. Run a sample of their ETFs on your platform. You want constant data, not every 15 minutes or so.
Take notice of the Bid and Ask prices. Bid is what they will pay you. Ask is what you pay them. If you wait a short while you may get a better price. http://www.tradestars.com/bid-ask.asp This is one of the reasons your platform and fund should be showing constant data.
Know what unsettled funds are. Don't fall into the trap of what they call as free-ridding. See unsettled funds http://www.superiorinvestor.net/stoc...postt2034.html
Getting Started
Try and put your fund selections in categories. See the categories that StockCharts.com uses for their Market Summary. Other EFT letters will also put the funds in categories i.e., Index funds, Currencies, Commodities, etc.
Also note the difference in similiar funds: value, growth and index.
Try a few funds to start with, not a bunch. Remember that you can add to a good fund and it only takes one sale to vacate.
It can be supprising how much one can spend on just buying and selling
Here's an informative article that addresses JB45's discussion. This is part one of a three part post. Now unfortunately I cannot make my computer post the charts that are in the article, so you'll have to go to the actual site to see them. Sorry about that. But I hope you enjoy the article. Part II coming up!
Lady
http://www.etftrends.com/2008/07/an-...l-seasons.html
An ETF Trend-Following Plan For All Seasons
July 09, 2008
It’s hard to believe that the S&P 500 Index has been flatter than a pancake for the past nine years. It’s had its ups and downs, but when you connect the dots, it went virtually nowhere.
It’s even harder for index investors who relied on this large-cap benchmark to grow their retirement savings. To think, a portfolio with $100,000 allocated to the S&P 500 hardly budged at all. That’s a lot of wasted time and missed opportunity.
That’s why we advocate following trends and actively managing our portfolios using exchange traded funds (ETFs). Whether the broad market travels sideways or falls, a trend is always in the making.
Actually, the term “sideways market” is somewhat misleading. There’s plenty of market activity, but it’s in the form of a sharp downward move, and then a slow recovery period back to its original price level. Only the best and luckiest of timers can get in at the lows and exit at the highs. Otherwise, it can be a very frustrating experience, even for seasoned investors.
Surviving the Dry Season
A quick review of history shows that there have been dry spells in the market lasting 10 years or more. For example, an investment in stocks making up the S&P 500 Index during the periods from 1929 through 1942 (13 years) and 1966 through 1982 (16 years) would have amounted to no more than a break-even investment.
In this most recent nine-year sideways move, the S&P 500 has fallen in value an average of 0.37% per year, a far cry from the stock market’s historical average annual returns of 10% to 12%.
Many financial advisors focus on your timeframe for growth, but it doesn’t matter if you have five years or 25 years left until retirement. You can’t afford to let your investments sit idle for nine years. Worse yet, an idle investment doesn’t take advantage of the beauty of compounded growth.
No matter what the cause, the market’s recent non-action underscores the inherent danger of the buy-and-hold strategy. Sure, the markets will likely rebound eventually, but that will be of little consolation to investors who need their money now for retirement, or who may have bailed out of the markets at or near the bottom.
The volatile jerks during a sideways market often make investors believe that a market rally has taken hold during highs, only to experience disappointment when yet another sharp downturn occurs. Some who can’t stand the fluctuations get out of the market and sit on the sidelines, often without any plan for how to get back into the market later on.
Countering Volatility With ETFs
So what can an investor do? Well, an ETF investor who follows the trends and sticks to a sell discipline has a whole bunch of options.
We take advantage of trends that have developed in asset classes, sectors and global regions. Increasing allocation to these areas work well as long as the trend remains intact.
With the growing list of available ETFs and ever-changing trends, we are convinced more than ever that a disciplined investment strategy is required to enhance portfolio returns, diversify and reduce downside risk.
Your strategy, like ours, should be to stick to a plan and not let emotions get involved. Once you start thinking with your heart or gut, it can be hard to kick-start your logic. Even neutralizing emotions will serve any trader well.
You need to know what to buy, when to buy and, as importantly, when to sell.
Three Main Rules
Here are three rules that should help keep most ETF investors out of trouble:
The Business of Buying and Selling
- Maintain an 8% stop-loss on your ETFs.
- Keep an eye on the trend. If your ETF declines below its 50-day average, that’s not a good sign. If the same ETF declines below its 200-day average, sell.
- Don’t chase markets that are too hot. The last time many world markets and industry groups collectively hit new highs was in 2000. You know what happened then – the boom went bust. Keep your emotions in check.
The first, and perhaps most important screening process for ETFs is knowing the 200-day moving average of each candidate—and where it stands in relation to it. Trend lines are so key that you should only invest in ETFs trading above their 200-day moving averages. You can find this information by clicking on the “basic technical analysis” in the sidebar of any fund information page at finance.yahoo.com.
We look for uptrends, and then examine those trends using fundamental analysis. Once a position is entered, we stay in the investment until the trend turns negative, declining below its trend line.
In some cases, where trends have moved steeply to the upside, the corresponding ETF may be more than 10% above its moving average. In those cases, we impose an 8% stop-loss. If you buy an ETF trading 15% above its 200-day moving average, it’s best to sell if it drops 8% from a recent high. That way, you preserve as much profit as you can.
You must remember that over time, the stock market and individual securities follow general trends and these trends are identifiable. The idea is that you want to be more fully invested in stocks when the market is above its long-term trend line (200-day moving average). And you want to be safely positioned when the market is trending downward.
Below is a chart of the S&P 500 (SPY) with its 200-day moving average. You can see that it traded above that mark between 1995-mid-2000, at which point the bear market replaced the bull market. The S&P 500 stayed below its 200-day moving average and kept us out of the market from mid-2000 to mid-2003, then climbed back above from mid-2003 to mid-2004.
How often we pull the trigger on building or unwinding a position all depends on the ETF and where that ETF lies in relationship to its own moving average and its performance off the high.
Looking at the iShares FTSE/Xinhua 25 (FXI) chart, for example, if an investor bought in at the beginning of September 2007, they should have sold in the beginning of November 2007 when the ETF fell 8% off of its high. This would have meant a gain of about 25% and would have saved the position from falling further, as it is now about 40% off of its high. By following a sell discipline, one could protect more of the gain and avoid greater losses.
Resolve To Protect and Profit
Momentum can certainly turn on a dime. Just look at the health care sector in 1991 as an example. It was up 50% for that year, but the following year it was down 19%.
Whatever trend you’re following, just be sure to take a disciplined approach and remember to follow through with your strategy.
[continued in next post]
- Resolve to stick to your discipline. We know the past year has been rocky, and it is hard not to get emotional. We can’t predict the future, so we don’t know what’s in store for the rest of 2008. One way to avoid pulling every last hair out of your head in frustration over the uncertainty is to have a plan and adhere to it no matter what.
- Resolve to pay attention to the news. Political upheaval, major weather events and leadership changes are among the things that can indirectly affect your holdings. Don’t just isolate yourself to the business section.
- Resolve to pay attention to your investments. Are you coming up on a major life change, such as having children or entering the homestretch before retirement? Look at your portfolio and make sure it’s still working for you.
- Resolve not to invest in something simply because it’s “hot.” That’s the best way to get burned. Invest because it fits your needs, interests and your portfolio.
[continued from previous post]
http://www.etftrends.com/2008/07/an-...l-seasons.html
"Exiting An ETF…Safely and Profitably
If an ETF falls below its 200-day moving average, or if it drops 8% off its high without going below its 200-day average, sell it. It’s a rigorous discipline and is applied to all asset classes, sectors and global regions where there is ETF representation. It’s clear-cut, and you know exactly what your risk is.
However, if you don’t have an exit strategy, then your risk tolerance may not be as well-defined. It takes a high tolerance and lots of patience to suffer 20% or more in losses that some sectors and regions have experienced a few times over the last several years.
While we are clear proponents of having an exit strategy, we understand that there can be some confusion when certain ETFs drop quickly and then climb sharply. There’s a chance you might have sold a position that declined further after you sold it but then rebounded.
In this case, don’t beat yourself up over lost opportunity. Just stick to your plan, have no regrets, never look back and keep moving forward.
When this happens, remember that you can treat the cash you have from previously selling an ETF as a “free agent.” This means that there’s no rule that says you must buy back the same ETF you sold if it’s performing well now. Shop around; see where new trends are developing. There might be a different ETF that’s even better for your portfolio now.
Sharp market movements and subsequent ETF declines can unsettle many investors. However, with an exit strategy and specific stop-loss points, the drops can be less stressful for you as it prevents small losses from turning into there-goes-my-house losses.
There have always been and will always be bubbles, and the only sure way you can protect yourself is to have an exit strategy always at the ready.
If an ETF you’re holding - whether it’s commodities or something else - drops below its trend line or falls 8% off its high, let it go, no questions asked.
A lesser stop-loss, such as 5%, could be too low since markets often have a 3% to 5% correction before they move on and hit new highs. If your stop loss is too low, for example, at 3%, you’re going to be buying and selling more frequently, racking up fees in the process.
Ultimately, that eats up your returns. You also won’t be able to fully take advantage of trends. Instead, you’ll be dealing with constant short-lived whipsaws. Sometimes there are volatile days in the middle of an overall uptrend, and it’s in your best interest to ride those out.
On the other hand, having a sell point that’s too high can also hurt you. Setting your sell point at 30% could mean that you lose a significant portion of money before you’re out. It also has you sitting in areas that might not be performing so well and missing out on areas that are trending up.
What If You Missed The Safety Boat?
What should you do if you missed the 8% drop, and you’re down much further than that? Missing the sell point creates the conundrum above. That’s when I recommend the following:
Letting Go of a Winner Can Be Hard
- Sell 1/3 of your equity holdings and focus on the most aggressive positions—those that might be down 20-30% and trading 10-15% below their 200-day moving averages.
- If those holdings decline by another 5-7%, consider selling another third.
- Keep an eye on the 200-day average of these positions. As the trend lines continue to decline, there will be an excellent buying opportunity in the future when the markets eventually rebound.
It can be difficult to let go of a mover and shaker you’ve always had a soft spot for, but if you want to protect your money, you must. It’s like your parents always said when they were grounding you every other week: “This hurts me more than it hurts you.” But sometimes it has to be done for everyone’s good.
There are no guarantees that when you let a fund go, it’s not going to turn around and deliver the numbers again. But that doesn’t mean it won’t, either. It’s exactly why you have to remain as stoic as possible and stick to the plan and rationalize nothing.
What if you follow your exit strategy, and the ETFs you sell end up rebounding? Try this:
As you manage your own portfolio, you might feel a need to always have a set amount of money designated to a certain investment (i.e. small-cap, China or commodity). If this is the case, then the cash can be held until that certain investment goes above its 200-day moving average or gains 5% from its recent low.
- Treat the newly available cash as “free agent” funds. Just because you sold an ETF doesn’t mean you’re obligated to buy it back when it rebounds.
- Look for ETFs that are above or rising above their trend lines.
- Look for ETFs with positive, relative strength. When markets rebound off a low, it’s usually those with the greatest momentum that enjoy sustained uptrends.
With the recent volatility in the markets, we have seen some price swings in ETFs. One shouldn’t worry about the daily ETF price movement; having an investment plan is the priority. When there is a discipline in place, it can help guide investors through the volatile times.
If you’ve got nervous hands as your ETFs swing up one day and down the next, the best thing you could do is to just sit on them.
Removing the emotions from your investing is one of the smartest things you can do.
And, as we’ve said, having a strategy and removing your feelings from your money is especially timely, considering the ups and downs can make you feel sick.
The Anatomy of a Bursting Bubble—Here and Abroad
Investors and economists often use history as gauge for what might happen today and in the future. Could we have studied the onset of a 14-year bear market in Japan to predict the dot-com crash and subsequent bear in the U.S.? And, what do both events say about today’s economy and markets?
Let’s take a look back.
In the 1980s, outsiders perceived Japan as a utopia because its people had the highest quality of life and longest life expectancy. In addition, Japan was the world’s largest creditor and had the highest GDP per capita. Many Americans feared that Japanese-made robots would eliminate their jobs. With the economy booming and the stock market climbing, skyscrapers filled the Tokyo and Osaka skies, causing real estate prices to skyrocket as well.
Between 1986 and 1988, the price of commercial land in greater Tokyo doubled. Real estate prices soared so much that Tokyo alone was worth more than the United States. Between 1955 and 1990, land prices in Japan appreciated by 70 times and stocks increased 100 times over. Large-scale stock speculation led to worldwide mania. Investors all over the world clamored for Japanese shares. These euphoric investors believed in a perpetual bull market. Luxury goods were purchased in large numbers by the newly wealthy.
Unfortunately, all excessively good things must end. To cool the inflated economy, the Japanese government raised rates. Within months, the Nikkei stock index crashed by more than 30,000 points. The Nikkei crashed this far because its value was inflated on false hopes and hype, not solid financials. Japanese housing prices plummeted for 14 straight years. At its height, the Nikkei stood at 40,000. The Nikkei sank until its low of 8,000 in 2003.
[continued in next post]
[continued from previous post]
http://www.etftrends.com/2008/07/an-...l-seasons.html
Dot-com Déjà vu
Back at home, we experienced a similar crash, but one not nearly as lengthy or devastating as that of Japan’s: the dot-com crash, which began on March 11, 2000 and lasted until Oct. 9, 2002. From peak to valley, the Nasdaq lost 78% of its value as it fell from 5046.86 to 1114.11.
The U.S. military created the Internet decades before “dot-com” became a household word. Vastly underestimating how much people would want to be online, it began to catch on in 1995 with an estimated 18 million users. Soon, speculators were barely able to control their excitement over this new economy. Today, 210 million people in China-alone go online, 50 million users shy of the United States.
The first holes in this bubble came from the companies themselves: Many reported huge losses and some folded outright within months of their offering. In 1999, there were 457 IPOs, most of which were Internet- and technology-related. Of those 457 IPOs, 117 doubled in price on the first day of trading. In 2001, the number of IPOs shrank to 76, and none of them doubled on the first day of trading.
Many argue that the dot-com boom and bust was a case of too much too fast. Companies unable to decide on their corporate creed were given millions of dollars and told to grow to Microsoft size by tomorrow.
Unfortunately, economic and “unanticipated” risks will always be there. Investors hate uncertainty, and since we can’t always identify them in advance or eliminate them, there will be times when they affect the investment markets negatively.
If you follow a buy-and-hold strategy, you leave your portfolio vulnerable to any number of unknowns: oil spikes to $200/barrel, the Middle East erupts into war, The Fed makes a drastic move with interest rates. With an exit strategy, you’re prepared to cut losses or pocket profits when events send the markets lower.
Risks Without Reward
During the 1990s, many investors believed that the stock markets would produce returns of 20% (or more) per year indefinitely, which was a part of the herd mentality back then. Same goes for the late 1970s and early ’80s, when investors thought bank certificates of deposit and fixed annuities would always have double-digit yields—two assumptions that were clearly wrong.
If your expectations for portfolio returns are too high, there is a very good chance your financial goals will not be met. And more importantly, this can lead to saving too little money to meet your retirement goals. Unfortunately, this can also lead to investing in securities and strategies that are far too risky in order to try to “turbo-charge” the returns.
On the flip side, there are investors who invest too conservatively and risk losing purchasing power to inflation. Investing too conservatively can also raise the odds of not meeting investment goals, as well as the risk of outliving your assets.
So, we find ourselves at another crossroads in the markets. Real estate exuberance, based on inflated prices, has gone sour along with values; financial institutions have turned from princes to frogs in a matter of months; consumer debt is at all-time highs, and investors grow increasingly frustrated with the lack of opportunities the current stock markets offer.
But investors who combine the flexibility, diversity and ease-of-use of ETFs with a disciplined buy and sell plan don’t have to fret about all the outside influences on the markets. You can turn a deaf ear to financial hype and keep emotions out of the investing equation.
That’s because the simple, technical indicator—the 200-day moving average—tells us precisely when to buy and when to sell. Even when it seems like the entire market is down, you can count on there being a trend-bucking ETF ripe for the picking.
What the Opportunities Look Like
The S&P 500 and Dow have been trading below their 200-day moving averages for all or most of the year. Meanwhile, gold, oil, steel, and agriculture ETFs have traded above their respective 200-day marks and offered investment opportunities in 2008."
[Post completed. Finally. :nuts:]
Lady
And just when you thought that the previous post was completed, here is a question and answer follow-up that was posted just today. So I guess that makes this particular post Part 4! :bigsmile: Enjoy!
Lady
http://seekingalpha.com/article/1211...y-hold-or-fold
ETFs: When to Buy, Hold or Fold
by: Tom Lydon February 18, 2009
"We love hearing from our readers when they have questions about ETFs or the trend-following strategy. This reader had specific questions about when we buy ETFs, when we sell them and how we choose them.
1. Is the 200-day moving average the SMA or EMA?
We use the 200-day EMA. What’s the difference? The simple moving average (SMA) is calculated by tracking the price of a security over a particular time period. The exponential moving average (EMA) involves a trickier mathematical formula which puts greater weight on the most recent price movement rather than an equal weight over past 200 days. The moving average you choose is a matter of personal preference, but the EMA is consistently closer to the actual price, which is why we use it.
2. When selling an ETF after it declines 8% from a high, do you set an 8% trailing stop loss order at the time of purchase?
Yes, this is what we do. A trailing stop loss order is when the stop loss is set at a fixed percentage below the market price. As the market price rises, the stop loss prices rises proportionately. If the price falls, the stop loss stays in place.
3. How do you determine when you buy an ETF back once the 8% trailing stop loss triggers?
Cash obtained from the sale of an ETF is considered a free agent - it can go anywhere you’d like it to, as long as the trend is there. Look at other sectors, asset classes and global regions - is anything else trending in the right direction? We have a daily report we use to track the 800-plus universe of ETFs, and we use it to spot these trends and help determine areas we should be exploring further.
And sometimes the trends just aren’t there, in which case, we keep cash on the sidelines until it’s safe to go back.
4. What ETFs are included in the portfolio and does the lineup ever change?
What ETFs we choose to include in our portfolio is simply a matter of where the trends are. We don’t employ an asset allocation model. Instead, we look at which funds are above their long-term trendlines (the 200-day moving average). We also consider other factors, such as assets, trading volume, any particulars of the sector or global region and so on before we make a buy.
And while we don’t employ traditional asset allocation, it is necessary to consider where you’re already invested. For example, if you’re holding an energy fund, you may not want to invest in Latin America or Russia, since those areas are heavily allocated toward the energy sector and could leave you overweight.
5. Does the 200-day discipline work the same for all ETFs?
The 200-day discipline can be applied to nearly any security, but it works especially well for ETFs. Having a buy signal at the 200-day moving average mark gives you a chance to have your money invested when a potentially new uptrend is beginning. Having a sell point that has you out when an area is below the 200-day or 8% off the recent high provides you the chance to get out before things could potentially worsen, while also working to protect any gains you may have had."
Awesome info for newbies like me!! Thanks Lady!! :bigsmile:
The only question not answered is do you try and buy when the ETF peaks above the 200 DMA or do you wait a couple of days to ensure support holds? I would think you would wait, but I am a rookie..:huh:
From my very small experience level, I've found that everything seems to go in cycles rather than straight up or down. If I want to buy a stock I drill down a level or two in the timeline to see where it is in the accumulation/distribution cycle and buy it on the next down wave or "pull-back." And every time I haven't waited for the pull-back I've wished I had. :embarrest:Quote:
Originally Posted by justbizness45
Lady
I'm always looking for womething that helps me to clarify my ETF trading. Here's something I found this morning.
Timely Insight for Trading ETFs More Effectively
by: Don Dion, March 09, 2009
"The advent of electronic trading and the increased accessibility of trading platforms have made the purchase and sale of ETFs more readily available to individual investors. ETFs, which have the unique qualities of both stocks and index funds during intraday trading, have an added level of transparency that has made a whole new generation of investors more comfortable trading in the open market. At the same time, the sudden influx of new ETFs into the market has led to problems for beginner traders. Some of the new ETFs have attracted the funds and investor enthusiasm necessary to thrive over the long term, but other products have failed to pick up steam and have traded at sharp premiums or discounts to their actual value or folded entirely. While no trading strategy is foolproof, by taking into account factors like net asset value, liquidity, order type and time of day, beginning ETF traders can avoid some of the pitfalls common to the marketplace.
The most important characteristic of ETFs, which differentiates exchange-traded funds from stocks, is the availability of the fund’s net asset value (NAV). Most ETFs are composed of a basket of securities, which have individual prices at any moment during their regular trading hours. Since the value of the underlying securities can be determined, the value of the ETF itself, or NAV, can be calculated. If an ETF is trading for less than NAV, it is “trading at a discount,” and if it is trading for higher than NAV, it is “trading at a premium.” Understanding premiums and discounts is important for traders who want to get their money’s worth when buying and selling funds.
To compare the current price of an ETF to its NAV, chart the symbol versus its “Intraday Indicative Value,” or “IIV.” The symbol of an ETF’s IIV is usually simply the original symbol plus “.IV”. For example, to chart the IIV of the iShares Russell 3000 Value Index Fund (IWW), you would enter “IWW.IV” into your trading platform. Most fund sponsors also offer the opening and closing prices of the ETFs, along with their actual NAVs on their websites, offering investors a unique opportunity to observe trends over time.
In addition to letting you know if you are “paying up” or getting a discount on the fund’s underlying assets, historical charting of these patterns can tell you a great deal about the health of the fund and how it trades. Many of the fund websites, such as iShares.com or Powershares.com, offer premium and discount charts, while ETFconnect.com is a good independent source for most funds. By looking at historical patterns, investors can observe whether an ETF is trading in line with its historical tendencies. If an ETF generally trades at a premium to NAV and is suddenly trading at a steep discount, investors can draw conclusions about whether the fund is over- or undervalued.
The presence or absence of premiums and discounts is also related to—and is often a consequence of—fund liquidity. Very liquid ETFs, ones that have average trading volumes in the millions, tend to trade close to their NAVs. Because there is abundant investor interest in their products, market makers and traders alike stand ready to buy and sell such an ETF close to its actual value during the trading day. In illiquid products, those in which only a few thousand shares change hands during a day, it is often difficult to find a buyer or seller for your desired purchase. Even appointed market makers are only required to provide liquidity at a certain spread and quantity, so investors in illiquid funds often end up buying ETFs for large premiums; they then have to sell them at marked discounts when trying to unload their shares.
One solution to the liquidity and value problem is for investors to seek out ETFs that trade the largest number of shares on an average day. Often, more than one fund company will offer similarly themed ETFs. When selecting a themed fund, like “emerging markets” or “gold,” it is advisable to seek out all the available ETFs in that category and compare average trading volumes. Relatively higher trading volumes indicate a higher likelihood that you will be able to buy and sell the stock for what it’s worth and also that the ETF is less likely to close up shop due to a lack of investor interest.
Sometimes, however, investors seeking a unique approach for their portfolios will need to buy and sell shares of less liquid ETFs. If this is the case, it is advisable to consider different order types when placing your buy or sell order. “Market orders,” which simply execute at the next available bid or offer, are relatively safe in large liquid funds but can result in large premiums and discounts in smaller illiquid funds. More-patient investors should instead try to place limit orders as close to NAV as possible to get fair prices on their trades. Limit orders allow the traders to pick a price at which they would be willing to buy or sell shares. If there is counterparty interest at your chosen price, the trade will execute, but unlike market orders, this execution is not a guarantee.
Despite increased electronic trading and less human interference in the pricing process, trading is still an emotional and irrational process for many. With ETFs, there is less of an excuse to buy high and sell low, because it is possible to determine—at all times—what the underlying value of the ETF is. While delays in trading data still make it difficult for individual investors to guarantee price execution at NAV, certain considerations such as liquidity and order type can significantly improve execution price. As decreased human intervention and increased access to the markets make it easier for individual investors to participate in trading, these investors must also assume an increased level of accountability when buying and selling shares."
http://seekingalpha.com/article/1248...re-effectively
Lady
It thought this was interesting so wanted to 'scrapbook' it here.
How to Use ETFs As Market Indicators
June 19, 2009 at 1:00 pm by Tom Lydon
"Is there a better way to understand market trends and inter-related events in an effort to be a more keen exchange traded fund (ETF) investor?
Trang Ho for Investor’s Business Daily talked to Chartered Market Technician Brandon Wendell to get a better understanding of how studying a few ETFs can lead to a better understanding of the market’s messages.
This is how Wendell uses ETF for market analysis:
- First, he uses copper as a leading indicator, since it’s found everywhere in our society and can be a bellwether of current or future building activity. High copper demand can signal expansion. iPath Dow Jones-UBS Copper Subindex Total Return (JJC) can signal turning points in the stock market or at least correlate with moves in the stock market and give extra confirmation that the market is going to continue in one direction or the other. JJC is up 60% year-to-date.
- PowerShares US Dollar Index Bullish (UUP) is a good indicator of the health of the U.S. dollar. The U.S. dollar has been declining quite a bit recently; that’s allowed U.S. equity prices to rise. UUP is down 2.5% year-to-date.
- iShares Barclays 7-10 Year Treasury (IEF) is coming into an area of consolidation (or support) that it hit last year in October and November. This indicates interest rate are going up and as rates go up, the economy will slow as money becomes tighter.
- United States Oil (USO) and gold, Market Vectors Gold Miners (GDX) are good indicators if the market is pushing on the downside. Wendell notes that there’s about a 75% correlation between USO and the stock market, while gold itself tends to follow after GDX.
Other areas that can signal changes in the economy include ETFs such as Market Vectors Steel (SLX), iShares Silver Trust (SLV) - both metals are using heavily in building and construction - and Consumer Discretionary Select Sector SPDR (XLY). Consumer spending is two-thirds of the economy, and as consumers spend more on discretionary items, it could signal improving confidence and lead the way higher.
Whenever you invest, be ready with a strategy such as the 200 day-moving-average and this will help keep your emotions out of the equation. This will also help keep your guesswork to a minimum."
http://www.etftrends.com/2009/06/how...ndicators.html
Lady
Just 5 ETFs... And You're Set? Buy-N-Hold Silliness Still Carries On
By Gary Gordon | June 22, 2009
You'd have thought that the 2000-2002 bear that ravaged portfolios in the first half of the decade would have stifled buy-n-hold, asset allocation advocates. Alas... "simpleton" journalists and "commission-based, keep-your-assets" advisers continued to push the ridiculous notion that you refrain from selling.
Certainly, the 2008-2009 bear that dehumanized investors must have put an end to the silliness, right? After all, assets from stocks to bonds to commodities to real estate demonstrated that buying-n-holding any investment type is far too risky; plainly speaking (writing), there isn't a magical asset allocation percentage that diversifies a portfolio away from life-changing losses.
It's pretty surprising, then, that:
(1) Bogle of Vanguard fame,
(2) "defrocked-a-decade-ago" Motley Fool and,
(3) Money Magazine
...have each thrown their respective fishing lines directly into the winds of change. It's surprising because more successful marketing machines began changing their tunes a long time ago. Think Suze Orman... a reformed buy-n-holder.
Bogle, founder of Vanguard, has raged against the ETF machine for nearly 10 years because ETFs seemed to be challenging Vanguard's indexing dominance. Of course, Vanguard was smart enough to develop 40+ ETFs of their own, ignoring the founder's disdain and cementing their place as one of the top financial institutions.
Keep in mind, just because ETFs are tradeable like individual securities, an indexer can still choose to be a passive buy-n-hold, asset allocator. ETFs just make it easier for an investor to buy or sell at a price point that one desires... something Bogle thinks leads investors to make poor "timing" decisions.
(Note: Ask any Vanguard 401k investor how happy they were to have restrictions and penalties for leaving or entering mutual funds. The disincentive, as well as the public pressure to "hang in there," caused millions of people to lose half of their retirement savings! Say "No" to ETFs, Mr. Bogle... really?
The idea that a financial institution knows what's better for the "average" investor such that it restricts trading activity, something that Bogle thinks is a good thing, is intrusive, oppressive and insulting. What happened to freedom of choice? If an ETF investor wishes to hold on, he/she can. If an exchange-traded index fund investor wishes to sell, he/she should have that ability!)
Not everyone is against ETFs anymore. Yet I find it ironic that the kings of foolish buy-n-holding of individual stocks, the Motley Fool, who softened their tone after the 2000-2002 bear market ruined their reputation, are now talking up ETFs.
Here in 2009, they've put forth the "only" ETFs you will ever need:
SPDR Trust (NYSE: SPY) Vanguard Small Cap (NYSE: VB) iShares MSCI EAFE Index (NYSE: EFA) Vanguard Emerging Markets (NYSE: VWO) iShares Barclays Aggregate Bond (NYSE: AGG)
So this covers the investment universe, does it? Any asset allocation for any risk level, the folks at Motley Fool claim.
An "all-in-one" aggregate bond fund that is effectively dependent on intermediate U.S. treasuries flies in the face of scores of important bond and income possibilities. Where to begin? Short, medium, corporate bonds diversify in the way that small cap stocks diversify from large-cap stocks alone. Munis, inflation-protected, foreign bonds, emerging market bonds, and yes... high quality mortgage backed. How can the world of bond investing be minimized to AGG... albeit, an excellent core holding?
Do I even need to go further with the income that's not presented above? I guess there's no need for domestic REITs or foreign REITs. Perhaps we can forget about the buy-write option income approach. Preferreds? Convertibles? Why... they must be a waste, according to Motley Fool "journalist/investors."
As for stocks, I am a big fan of Vanguard Emerging Markets (NYSE: VWO). Yet to minimize the importance of China and Brazil is ludicrous. And to minimize the criticality of small-cap funds like China Small Cap (NYSE: HAO) and Brazil Small Cap (BRF) is near-sighted at best. At the very least, you think these folks might have at least served up SPDR International Developed Small Cap (NYSE: GWX) as having relevance like U.S. small caps do. And do I even need to mention the failure to include commodities?????
Money Magazine is equally shameful, if for no other reason that the advice changes issue by issue. In "ETF Investing Done Right," the writer(s) of this July 2009 piece claim that you need just 5 ETFs to get your diversified mix of 60% stocks, 40% bonds.
Ironic, since late 2007 mixes typically showed 70%-75% stock appropriate for most. By April 2008, it shifted to 50% stock and 50% income. Now it's 60%/40%?
Keep in mind, there's no systematic rebalancing or recommended asset allocation changes taking place in the magazine. Each presentation is offered as a buy-n-hold, leave-it-alone solution for moderate risk tolerance. Pick up the magazine one month, get a "cure-all." Pick it up another month, find something entirely different.
Below is Money's "ETF Investing Done Right" for July 2009:
1. Vanguard Total Stock Market (NYSE: VTI) 35%
2.Vanguard FTSE All-World excl U.S. (NYSE: VEU) 20%
3. Vanguard Total Bond Market (NYSE: BND) 30%
4. Vanguard Real Estate Inv Trust (NYSE: VNQ) 5%
5. iShares Lehman TIPS Bond Fund (NYSE: TIP) 10%
I could "tee off" on Money Magazine for its failure to identify two of the most powerful forces in diversification: foreign bonds and commodities. For foreign bonds, one could use the SPDR Lehman International Treasury Bond ETF (NYSE: BWX) and for commodities, one could employ the services of the Powershares Total Commodity Index (NYSE: DBC).
Naturally, it doesn't make much sense to get too wound up about weak presentations from has-beens and/or media mainstreamers. As easy as ETFs are to use, an investor needs to take a bit more interest in what he/she does. Buy-n-hold asset allocating is never sensible... and 5 ETFs won't cover your retirement life adequately.
If you'd like to learn more about ETF investing... then tune into "In the Money With Gary Gordon." You can listen to the show "LIVE", via podcast or on your iPod.
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.
http://www.greenfaucet.com/technical...rries-on/97803
Lady