ETF Update: Where's the Bull Market?

Jim Cramer has popularized the statement, "There's always a bull market somewhere." That is an underlying concept for our approach to ETF investing. By maintaining a broad universe of choices, we are frequently able to move from one winning sector to another. When conditions are optimal, it is like finding the best wave and riding the crest.

Sometimes, however, the surf is not up. Sometimes our sector universe has positive ratings for only the inverse ETF's (ProShares Short S&P 500 (SH), ProShares Short Dow 30 (DOG), and ProShares Short QQQ (PSQ)). When this happens, as we noted last week, it is time to pay attention. Our TCA-ETF system is always looking for new opportunities. Since it acts not only on trends, but also on cycles, it may act more quickly than systems that rely strictly on trend. (For new readers, there is a more complete description of our methods and ratings at the end of the article.)

Where is the Bull Market in ETF's?

Some investors are poised to seek out buying opportunites. For many months, any buying foray has been an instant loser. The stock market decline has affected all sectors and asset groups. Most recently, even gold has pulled back.

Tom Lydon of ETF Trends advises investors not to try to find the bottom. He recommends waiting for an uptrend before acting.

Gary Gordon at ETF Expert has some reasons that ETF's might turn up in March.

Our own series on the struggle to find a bottom in the market has so far covered economics and political factors. We plan two more articles on valuation and technical analysis.

Meanwhile, the TCA-ETF system is waiting for more evidence.

Weekly TCA-ETF Rankings

All three of the three inverse ETF's are in the buy zone, and all other sectors remain in the penalty box (click on chart to enlarge). Our weekly program gained about 3 percent last week while the market declined nearly 7 percent, so it was a good week for relative performance.

We do much better on an absolute return basis when there are many sector choices, so we look forward to a market turn. We also expect to experience some losses at the turning point. We have continued our bearish stance in the Ticker Sense Blogger Sentiment poll. There are only three of 57 sectors in the "buy" range, and they are all inverse ETF's.

Unlike most observers, we still think this could change rapidly with a really solid plan for troubled assets or a change in mark-to-market accounting. There are hearings scheduled on the accounting issue this week, but it is an early stage of the legislative process.

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.

Comments

[donzelion:]

I always love the wave analogies - except one must remember, the water in the wave is crashing DOWN and one is using its momentum coupled with one's own balance and skill to strive to stay at the same level for the most part while moving sideways to the wave itself. Riding a wave is seldom about climbing "up" to new heights, nor is it about long-term stability or security (or power) - it's about pleasure and internal gratification.

Not exactly what most investors think of themselves as doing. However, the pursuit of the magic algorithm that generates endless riches does seem somewhat akin to surfing, and likely to offer the same ultimate results (except someone else gets to have all the 'fun' with my money).

Mar 09 07:15 AM

[squark62:]

i'd say the water now is like the staying afloat in the bearing sea during stormy conditions. lots of big waves there. but one wave is canceled out by another wave and the overall net motion is, well, zero or worse. crashing wave to front, crashing wave to the left, crash here, crash there. is anybody sea sick?

Mar 09 11:10 AM

[Tomcat101:]

All you can hope to do right now is get sea sick.

Mar 09 12:03 PM

[squark62:]

;-)


On Mar 09 12:03 PM Tomcat101 wrote:

> All you can hope to do right now is get sea sick.

Mar 09 10:01 PM

[Aristophanes:]

Maybe we're just all in a bathtub and someone pulled the plug.

Mar 09 11:36 PM

[mr freddo:]

Interesting perspective. I think I will wait for the up trend before acting. I'm not surprised that the positive indicators point to the short ETF's.

Mar 10 03:25 AM