Is it correct to conclude that technical analysis of individual securities is a completely different science than for ETFs? For example, if an ETF is going sideways, it could mean that half of the holdings are skyrocketing and half are tanking, thus creating a sideways average. This would have nothing in common with the analytical conclusions one might draw from an individual stock moving sideways. I haven't seen a distinction between technical analysis of individuals vs ETFs but it seems very unlikely that they would behave graphically the same way for the same reasons beyond overall market trends. Anyone know of a resource that expands on this idea?
Tech Analysis of ETFs??
- Thread starter canslim
- Start date
while you might have some merits here, consider the following
patterns develop etc. because of the actions of traders and investors, hedgers, and speculators, etc.
the VAST majority of an individual stocks movement (on average)is attributable to the overall market direction, and to the direction of its sector
that's TA 101
since stocks WiTHIN a sector are strongly correlated WITH the sector, the same rules of supply/demand imbalances creating price apply to sector ETF's that apply to individual stocks
also note that index futures also move due to supply/demand imbalances, similarly. while they have different personalities (compare the NQ's to the Dow for instance), the same rules apply because supply and demand applies.
patterns develop etc. because of the actions of traders and investors, hedgers, and speculators, etc.
the VAST majority of an individual stocks movement (on average)is attributable to the overall market direction, and to the direction of its sector
that's TA 101
since stocks WiTHIN a sector are strongly correlated WITH the sector, the same rules of supply/demand imbalances creating price apply to sector ETF's that apply to individual stocks
also note that index futures also move due to supply/demand imbalances, similarly. while they have different personalities (compare the NQ's to the Dow for instance), the same rules apply because supply and demand applies.
also note that SPY is a proxy for another supply/demand proxy
when institutions want to buy STOCKS qua stocks, they buy the S&P. since SPY *is* the S&P, the same supply/demand curves apply
any trader recognizes that different instruments and different indexes and different stocks for that matter have, to some extent, different "personalities".
for example, a stock where 1/2 the float is being flipped every day by daytraders is going to have different patterns due to much higher volatility, than GE is.
when institutions want to buy STOCKS qua stocks, they buy the S&P. since SPY *is* the S&P, the same supply/demand curves apply
any trader recognizes that different instruments and different indexes and different stocks for that matter have, to some extent, different "personalities".
for example, a stock where 1/2 the float is being flipped every day by daytraders is going to have different patterns due to much higher volatility, than GE is.
The simple answer is "no". Data is data and the maths you apply to it don't notice if it is an ETF or an individual stock. But, like any analysis, there are some conclusions, as you note in your next comment, that don't necessarily follow.
You've answered your own question. That the underlying stocks don't necessary track the ETF is the most important thing to remember if you trade stocks based on indices or ETFs. People get people into trouble when they conclude that "the market" (or in this case, an ETF) is strong, so I'll buy a particular individual stock in anticipation that it will rise with the tide. The TA you did on the ETF applies only to that ETF, not the underlying issues.
Being that your handle is CANSLIM, you understand relative strength. Study the RS of a stock relative to the ETF and trade the issues that are most correlated but that show a desireable beta. But even then, if you are using TA, you'd want to then apply your tech criteria to that individual stock.
Stockcharts.com has a few resources to evaluate groups of stocks. For instance, here is a <a href="http://stockcharts.com/charts/candleglance.php?AA,AIG,AXP,BA,CAT,C,KO,DIS,DD,XOM,GE,GM,HPQ,HD,HON,IBM,INTC,JNJ,MCD,MRK,MSFT,MMM,PFE,JPM,MO,PG,T,UTX,VZ,WMT" target="_blank">Dow "candleglance" group</a> of the 30 stocks in the INDU. Even as the INDU made new all time highs, the individual issues were all over the place. You can also make "market carpets" with stocks you select.
best, amg
It's not supposed to be true: a chart is a chart is a chart. But imo ETFs and indexes are very different animals from individual stocks. Indices and ETF's are much more punishing imo: they are similar to futures because you are playing much more head-to-head with institutions, hedge funds, etc.
I swing trade and trade options on the SPY. I use the same TA concepts that I use for trading any stock EOD, or my futures day trading (I'm a full time trader, this is my only source of income aside from passive real estate income which I've created from trading profits.)
For example, I use a 20 ema in my trading, on all markets and timeframes. Here's a 20 ema on the SPY daily chart. Doesn't that look like there's something to it, with price pulling back off it since mid August?
SPY
Now, here's an example of BRK class A, you can see it finding support on the 20 ema as well.
MSFT, same thing
YM futures on a 1 min chart, same thing. The trend reverses a few times (as it almost always invariebly does (thank God so we get our setups!) intra-day), but you can see it still finds support and resistance on the pullbacks and dips at the 20 ema.
Trading purely with Technical Analysis is just that, purely with Technical Analysis. It doesn't matter which equity or timeframe you're trading, other than just picking things to trade that will typically provide more setups than others, depening on how it is that you enter and exit the markets based on the rules you trade with.
As for myself, with the exception of a few stocks I trade the options for, I moved primarily over to ETFs for options trading simply because they are LESS prone to the huge gaps we see on a lot of stocks out there. There's nothing quite like that feeling of waking up the morning after you've written a bunch of options and seeing that the stock gapped $5 in the OTHER direction.
For example, I use a 20 ema in my trading, on all markets and timeframes. Here's a 20 ema on the SPY daily chart. Doesn't that look like there's something to it, with price pulling back off it since mid August?
SPY
Now, here's an example of BRK class A, you can see it finding support on the 20 ema as well.
MSFT, same thing
YM futures on a 1 min chart, same thing. The trend reverses a few times (as it almost always invariebly does (thank God so we get our setups!) intra-day), but you can see it still finds support and resistance on the pullbacks and dips at the 20 ema.
Trading purely with Technical Analysis is just that, purely with Technical Analysis. It doesn't matter which equity or timeframe you're trading, other than just picking things to trade that will typically provide more setups than others, depening on how it is that you enter and exit the markets based on the rules you trade with.
As for myself, with the exception of a few stocks I trade the options for, I moved primarily over to ETFs for options trading simply because they are LESS prone to the huge gaps we see on a lot of stocks out there. There's nothing quite like that feeling of waking up the morning after you've written a bunch of options and seeing that the stock gapped $5 in the OTHER direction.
edit, nm