Definition: an ETF is an Exchange Traded Fund which trades like an individual security on an exchange like the NYSE, but is composed of individual company shares like a mutual fund. There are many advantages to ETFs over both individual company stocks and mutual funds. Using our exclusive Volume Oscillator indicators, which measure the buying power going into a sector and the selling pressure going out of a sector, we attempt to buy and sell ETFs at a profit with the ETF Trader service.
As of 6 June 2006, we expanded the investables we cover in the service. We now have added:
- Stock index futures contracts, such as the emini S&P 500, emini NASDAQ-100, emini S&P 600, and mini-Dow Industrials contracts.
- Bond futures contracts (electronically-traded only).
We plan to add these stock index and bond futures contracts as opportunities arise in them. We will send out emails when we think an opportunity is coming up. These opportunities will tend to be short term in nature due to the volatility of these contracts.
Each recommendation will be made with the assumption that any positions entered into will be protected by trailing stop loss orders to prevent a small loss from becoming a large loss. We believe in money management stops whereby an order is entered to the broker's computer to liquidate the position should it move more than a certain amount of money against you. This is opposed to placing stops based upon chart patterns, or other devices. By setting up a rule which says, essentially, "I will never risk more than X% of my capital on any single position," you will protect yourself from much of the noise in the market, and live again to fight another day. Remember, you don't have to get every trade "right" -- your job is to recognize when you're wrong and get out, but to let your profits run. When we issue a recommendation, it is with the assumption that you will take action to protect your positions and we are not responsible for any losses.
Since money management stops are dependent on a number of factors specific to each individual and we are prohibited by the government from giving you any personalized investment advice, you should determine the X% factor for setting trailing stop loss orders.
Futures positions will require a brokerage account which allows trading in such contracts. Xpresstrade and Interactive Brokers are two we have experience with in this regard. Interactive Brokers may not be able to execute trades in non-electronic markets, but has the advantage of allowing you to trade stocks as well as futures in one account.
In ETF Trader we take an intermediate term view toward stock-based ETFs themselves, where --
- we want to be buyers when accumulation pressure (buying) is strong and prices are down; generally, we will want to buy when the short term trading indicators on the Trading Page are indicating a buying opportunity is at hand.
- we want to hold a position (long or short) when a trend is in progress;
- we want to sell into price strength when distribution (selling) pressure is strong; and
- we want to be out of a security, or flat, when direction is not clear.
We will have four distinct stances toward each ETF we track:
- Accumulating - In this stance we will want to be accumulating shares (buying). It is wise to spread purchases over a reasonable period of time (days or weeks) rather than doing all buying at one time (this is called "scaled buying" or "scaling into a position" and it's exactly how the pros operate in the stock market). When an ETF is exhibiting bullish divergence on our indicators, we will recommend accumulation over a period of time by assuming an Accumulating stance toward that ETF. In general, it is a good idea to buy when the Trading Page short term trading Buy/Sell indicators are in a "BUY" signal mode.
- Distributing - we will want to be selling shares on a scaled basis.
This is the flip side of the Accumulating stance - we will be selling into price strength
rather than buying. When an ETF is exhibiting bearish divergence on our
indicators, we will recommend distribution over a period of time. When the long
term trend is up in the market, but short term bearish divergence is present on this ETF, we
will generally not recommend selling all shares, but simply taking profits on a
portion of the position in preparation for the next round of accumulation (a buying
opportunity). When the long term trend is down in the market, however, we think selling all of
a position may be a valid result of distributing shares since holding a position long in a
market downturn is generally unwise for a long term position. In other words:
- in a bull market, hold a core position through corrections, and
- in a bear market, sell all shares when distributing.
- Holding - we will want to hold our shares without buying more or selling more. This is not to be confused with a "Sell" or a "Buy" signal. It simply means that we have finished our accumulation or distribution for now.
- Flat - we have no position now and do not recommend either accumulating or distributing shares in the ETF.
For tracking purposes, we will record buys as the average price of the stock over the period of time we recommend accumulating it. Similarly, we will record sells as the average price of the stock over the period of time we recommend distributing it. We will not recommend specific quantities of shares for positions, but for tracking purposes we will use a fixed dollar-value for each individual ETF so that return calculations can be performed.
An Example: Diamonds
The Dow Jones Industrials Average can be bought and sold via the ETF nicknamed the "Diamonds" -- its ticker symbol is DIA. The chart below illustrates the concepts presented above:
Example ETF Trader Home Page
When we change our recommended position for an ETF, the 
flag
will appear in the Position column along with the new position for a few days so
that you can scan down the column to find the recommended changes. If you click on the
ticker for that ETF, you will find a table on that page which lists all of the recommended changes for
that ETF and the dates those changes occured.
The following shows an example of the ETF Trader Home Page:
| MyClues Home | ETF Trader Help | RTH Tick Charts | Trading Page | Volume Oscillator Help | Accumulation-Distribution Help |
|---|
ETF Trader Home Page
Please read the ETF Trader Help page for an explanation of how to use this site.
Comments For the Week Beginning 6 June 2005
The market is very overbought and at risk of a short term consolidation or correction. Therefore, with bearish divergences building on several of the ETFs, this is a good time to be cashing in some of the paper profits we've grown over the past few weeks -- in other words, we'll want to transition into a Distributing mode on many of these ETFs. But, since the trend is still up, maintain a core position in the strongest ones and expect to go back into Accumulating mode fairly soon. The next leg up could be even stronger than the last one.The following ETFs are officially now in Distributing mode: ICF, IXJ, IYR and JKF.
| Ticker | Name | Position | Last Change |
|---|---|---|---|
| DIA | DIAMONDS TRUST SERIES I | Flat | Wed Jun 1 2005 |
| IBB | ISHARES AMEX BIOTECHNOLOGY INDEX FUND | Flat | Wed Jun 1 2005 |
| ICF | ISHARES COHEN & STEERS REALTY MAJORS INDEX FUND | Distributing | Fri Jun 3 2005 |
| IDU | ISHARES DOW JONES US UTILITIES INDEX FUND | Flat | Wed Jun 1 2005 |
| IGE | ISHARES GOLDMAN SACHS NATURAL RESOURCES INDEX FUND | Flat | Thu Jun 2 2005 |
| IGM | ISHARES GOLDMAN SACHS TECHNOLOGY INDEX FUND | Flat | Wed Jun 1 2005 |
| IGN | ISHARES GOLDMAN SACHS NETWORK INDEX FUND | Flat | Wed Jun 1 2005 |
| IGV | ISHARES GOLDMAN SACHS SOFTWARE INDEX FUND | Flat | Wed Jun 1 2005 |
| IGW | ISHARES GOLDMAN SACHS SEMICONDUCTOR INDEX FUND | Flat | Wed Jun 1 2005 |
| IJH | ISHARES S&P MIDCAP 400 INDEX FUND | Flat | Wed Jun 1 2005 |
| IJJ | ISHARES S&P MIDCAP 400/BARRA VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IJK | ISHARES S&P MIDCAP 400/BARRA GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| IJR | ISHARES S&P SMALLCAP 600 INDEX FUND | Flat | Wed Jun 1 2005 |
| IJS | ISHARES SMALL CAP 600/BARRA VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IJT | ISHARES SMALL CAP 600/BARRA GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| IVE | ISHARES S&P 500/BARRA VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IWB | ISHARES RUSSELL 1000 INDEX FUND | Flat | Wed Jun 1 2005 |
| IWD | ISHARES RUSSELL 1000 VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IWF | ISHARES RUSSELL 1000 GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| IWM | ISHARES RUSSELL 2000 INDEX FUND | Flat | Wed Jun 1 2005 |
| IWN | ISHARES RUSSELL 2000 VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IWO | ISHARES RUSSELL 2000 GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| IWP | ISHARES RUSSELL MIDCAP GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| IWR | ISHARES RUSSELL MIDCAP INDEX FUND | Flat | Wed Jun 1 2005 |
| IWS | ISHARES RUSSELL MIDCAP VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IWV | ISHARES RUSSELL 3000 INDEX FUND | Flat | Wed Jun 1 2005 |
| IWW | ISHARES RUSSELL 3000 VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| IWZ | ISHARES RUSSELL 3000 GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| IXC | ISHARES S&P GLOBAL ENERGY INDEX FUND | Flat | Wed Jun 1 2005 |
| IXG | ISHARES S&P GLOBAL FINANCIAL INDEX FUND | Flat | Wed Jun 1 2005 |
| IXJ | ISHARES S&P GLOBAL HEALTHCARE INDEX FUND | Distributing | Fri Jun 3 2005 |
| IXN | ISHARES S&P GLOBAL TECHNOLOGY INDEX FUND | Flat | Wed Jun 1 2005 |
| IXP | ISHARES S&P GLOBAL TELECOMMUNICATIONS INDEX FUND | Flat | Wed Jun 1 2005 |
| IYC | ISHARES DOW JONES US CONSUMER INDEX FUND | Flat | Wed Jun 1 2005 |
| IYE | ISHARES DOW JONES US OIL AND GAS FUND | Flat | Wed Jun 1 2005 |
| IYF | ISHARES DOW JONES US FINANCIALS INDEX FUND | Flat | Wed Jun 1 2005 |
| IYG | ISHARES DOW JONES US FINANCIAL SERVICES INDEX FUND | Flat | Wed Jun 1 2005 |
| IYH | ISHARES DOW JONES US HEALTH CARE INDEX FUND | Distributing | Fri Jun 3 2005 |
| IYJ | ISHARES DOW JONES US INDUSTRIALS INDEX FUND | Flat | Wed Jun 1 2005 |
| IYK | ISHARES DOW JONES US CONSUMER GOODS INDEX FUND | Flat | Wed Jun 1 2005 |
| IYM | ISHARES DOW JONES US BASIC MATERIALS INDEX | Flat | Wed Jun 1 2005 |
| IYR | ISHARES DOW JONES US REAL ESTATE INDEX FUND | Distributing | Fri Jun 3 2005 |
| IYT | ISHARES DOW JONES TRANSPORTATION AVERAGE INDEX FUND | Flat | Wed Jun 1 2005 |
| IYW | ISHARES DOW JONES US TECHNOLOGY INDEX FUND | Flat | Wed Jun 1 2005 |
| IYY | ISHARES DOW JONES US TOTAL MARKET INDEX FUND | Flat | Wed Jun 1 2005 |
| IYZ | ISHARES DOW JONES US TELECOMMUNICATIONS INDEX FUND | Flat | Wed Jun 1 2005 |
| JKD | ISHARES MORNINGSTAR LARGE CORE INDEX FUND | Flat | Wed Jun 1 2005 |
| JKE | ISHARES MORNINGSTAR LARGE GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| JKF | ISHARES TRUST MORNINGSTAR L V I | Distributing | Fri Jun 3 2005 |
| JKG | ISHARES MORNINGSTAR MID CORE INDEX FUND | Flat | Wed Jun 1 2005 |
| JKH | ISHARES MORNINGSTAR MID GROWTH INDEX FUND | Flat | Wed Jun 1 2005 |
| JKI | ISHARES MORNINGSTAR MID VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| JKJ | ISHARES MORNINGSTAR SMALL CORE INDEX FUND | Flat | Wed Jun 1 2005 |
| JKL | ISHARES MORNINGSTAR SMALL VALUE INDEX FUND | Flat | Wed Jun 1 2005 |
| NY | ISHARES NYSE COMPOSITE INDEX FUND | Flat | Wed Jun 1 2005 |
| NYC | ISHARES NYSE 100 INDEX FUND | Flat | Wed Jun 1 2005 |
| OEF | ISHARES S&P 100 INDEX FUND | Flat | Wed Jun 1 2005 |
| QQQQ | NASDAQ-100 INDEX TRACKING STOCK | Flat | Wed Jun 1 2005 |
| RSP | RYDEX ETF TRUST | Flat | Wed Jun 1 2005 |
| SPY | SPDR TRUST SERIES I | Flat | Wed Jun 1 2005 |