Why actively trade ETFs?
- Thread starter deronwagner
- Start date
One of the reasons that I like the ETF's is because the risk of an overnight or intraday news event devastating the issue is minimized.
But, it is interesting to see what happened with PPH. I gues this was because of MRK bad earnings ?
Do you have rules for playing ETF's near earnings reports of a heavyweight inside a particular ETF ?
Like INTC for SMH
MRK for PPH
etc. ?????????????
But, it is interesting to see what happened with PPH. I gues this was because of MRK bad earnings ?
Do you have rules for playing ETF's near earnings reports of a heavyweight inside a particular ETF ?
Like INTC for SMH
MRK for PPH
etc. ?????????????
This was an excellent post! why is it that when someone
makes an excellent post , or someone comes to Elite
trader for information, you always get the same forum lifers
that have to comment about about off subject matter or
make someone feel sorry they even posted to begin with.
If you wait several days, then you get someone that has
actually experienced your question and will give you a legit
opinion Come on people. get a life! this shows a typical inferiority complex! If you can't answer the question, we don't
want to hear you!
makes an excellent post , or someone comes to Elite
trader for information, you always get the same forum lifers
that have to comment about about off subject matter or
make someone feel sorry they even posted to begin with.
If you wait several days, then you get someone that has
actually experienced your question and will give you a legit
opinion Come on people. get a life! this shows a typical inferiority complex! If you can't answer the question, we don't
want to hear you!
Hey John,
Whose post are you referring to? What was the topic? Am I missing something here?
Deron
Any thoughts on this Deron ?
No, I do not have specific rules for trading ETFs going into earnings reports. However, I use quite a bit of discretion and common sense.
In general, I make sure I know what percentage of each ETF that a particular stock is weighted. For example, I know that the heaviest weighted stocks in PPH are: PFE, JNJ, then MRK. Since the weightings change based on the market value of each stock, I frequently reference www.holdrs.com to make sure I am up to date.
I also take the general market sentiment into account because it's usually not the actual reports that matter, but the overall sentiment that determines market reaction. If sentiment is negative overall, I tend to be more cautious. In the case of PPH, I anticipated strength in PPH regardless of what MRK reported because the sector had already been so beaten down. I was obviously wrong. Regardless, it was still much safer to be long a diversified ETF such as PPH rather than an individual stock like MRK.
In general, I make sure I know what percentage of each ETF that a particular stock is weighted. For example, I know that the heaviest weighted stocks in PPH are: PFE, JNJ, then MRK. Since the weightings change based on the market value of each stock, I frequently reference www.holdrs.com to make sure I am up to date.
I also take the general market sentiment into account because it's usually not the actual reports that matter, but the overall sentiment that determines market reaction. If sentiment is negative overall, I tend to be more cautious. In the case of PPH, I anticipated strength in PPH regardless of what MRK reported because the sector had already been so beaten down. I was obviously wrong. Regardless, it was still much safer to be long a diversified ETF such as PPH rather than an individual stock like MRK.
Just wanted to share some ETF analysis that we published in this morning's newsletter. Particularly, I found it interesting that each subsequent test of the 50-day MA is occurring quicker and quicker. Here is the text. . .
We mentioned in the beginning of last week that the major indices would likely trade down to their respective 50-day moving averages within a few days of breaking below their 20-day moving averages. Not surprisingly, that is exactly what happened on Friday as each of the major indices traded below their 50-day moving averages on an intraday basis, but recovered to close above them. Notice the 50-day moving averages on the daily charts of QQQ (Nasdaq 100 Index), SPY (S&P 500 Index), and DIA (Dow Jones Indu. Avg.) below:
As you can see from the charts above, the 50-day moving average is a powerful support or resistance level that will nearly always cause an index to bounce. The major indices traded well below their 50-day MAs on an intraday basis, but each recovered and closed above it. This is because major moving averages, such as the 50-day MA, are a bit "elastic," meaning that the price will not always reverse at the exact price of the moving average. Instead, prices will often trade just above or below the moving average before bouncing and resuming the prior direction of the trend. Friday's closing rally could most likely be attributed to institutional program trading that kicked in when the indices traded within a certain percentage of their 50-day moving averages. Although not illustrated, it is important to realize that the lower channel support of the primary daily uptrend lines are just below each of the 50-day moving averages. You can connect each higher low, beginning with the March low, and you will see the primary uptrend line, which is actually more important than the 50-day moving averages. If and when the major indices approach that mechanical trend line, we will analyze it in more detail.
Notice what subsequently occurred the last two times the major indices tested their 50-day moving averages in August and September. The 50-day MA acted as a springboard to propel the broad market to new 52-week highs. Will that happen again, just as it did the last two times? While it is impossible to know for sure, the one thing that makes me cautious is the length of time that has been elapsing between each subsequent test of the 50-day moving average.
When in an uptrend, the less frequently an index tests a support level, the more solid the trend is intact. However, if the distance between each subsequent test of support begins to narrow, it often is an early warning sign that the trend is weakening because it tells us that there are less and less buyers to support new high prices each time. This is the scenario that is occurring right now. For example, look at the more expanded daily chart of QQQ below:
Notice that QQQ initially crossed above its 50-day moving average back in March. After doing so, QQQ never breached below its 50-day moving average until August, which was five months later. However, after bouncing off the 50-day MA and setting a new high in August, QQQ once again fell down to its 50-day moving average only six weeks later, at the end of September. After setting a new high in mid-October, QQQ again fell down to its 50-day moving average only three weeks after its prior test at the end of September. Do you notice the pattern there? The length of time between each subsequent test of support has been decreasing. If this pattern continues, you can figure out what will soon happen; the indices will soon revert to trading below the 50-day MA and possibly establishing a trend in the opposite direction. In addition to a shortened length of time between each subsequent test of the 50-day MA, notice also how each recent breakout to a new 52-week high has been less of a percentage breakout than the previous one. In other words, each rally to a new 52-week high has barely taken the major indices above their previous 52-week highs. This aids to confirm my initial analysis that the buyers have been less prevalent on each new breakout. Furthermore, we have been seeing more bearish distribution days in which volume has been increasing on the down days.
Although the warning signs discussed above are certainly valid, it is impossible to know how long the market will continue to find support at its 50-day moving average, nor does it really matter. As long as the primary uptrend remains intact, your odds of success are probably going to be greater on the long side of the market. But it is important to be prepared for a possible reversal so that you are not blindsided if/when it happens. Remember that previous support levels act as new resistance once the support is broken. Therefore, expect the 20-day moving averages, which are now just overhead, to act as resistance for the major indices. The exact levels of the 20-day moving averages are listed on the charts above. Most importantly, we will be looking for changes in volume if the market attempts to follow-through on Friday's bullish reversal. If volume sharply increases, along with price, it will increase the odds of further gains. If not, then one wave of selling could quickly push the major indices back below their 50-day MAs. We'll keep you informed of what we see this week. Tomorrow there is also an FOMC meeting on interest rates, which are expected to remain the same. As you enter this week, remember to always TRADE WHAT YOU SEE, NOT WHAT YOU THINK!
We mentioned in the beginning of last week that the major indices would likely trade down to their respective 50-day moving averages within a few days of breaking below their 20-day moving averages. Not surprisingly, that is exactly what happened on Friday as each of the major indices traded below their 50-day moving averages on an intraday basis, but recovered to close above them. Notice the 50-day moving averages on the daily charts of QQQ (Nasdaq 100 Index), SPY (S&P 500 Index), and DIA (Dow Jones Indu. Avg.) below:
As you can see from the charts above, the 50-day moving average is a powerful support or resistance level that will nearly always cause an index to bounce. The major indices traded well below their 50-day MAs on an intraday basis, but each recovered and closed above it. This is because major moving averages, such as the 50-day MA, are a bit "elastic," meaning that the price will not always reverse at the exact price of the moving average. Instead, prices will often trade just above or below the moving average before bouncing and resuming the prior direction of the trend. Friday's closing rally could most likely be attributed to institutional program trading that kicked in when the indices traded within a certain percentage of their 50-day moving averages. Although not illustrated, it is important to realize that the lower channel support of the primary daily uptrend lines are just below each of the 50-day moving averages. You can connect each higher low, beginning with the March low, and you will see the primary uptrend line, which is actually more important than the 50-day moving averages. If and when the major indices approach that mechanical trend line, we will analyze it in more detail.
Notice what subsequently occurred the last two times the major indices tested their 50-day moving averages in August and September. The 50-day MA acted as a springboard to propel the broad market to new 52-week highs. Will that happen again, just as it did the last two times? While it is impossible to know for sure, the one thing that makes me cautious is the length of time that has been elapsing between each subsequent test of the 50-day moving average.
When in an uptrend, the less frequently an index tests a support level, the more solid the trend is intact. However, if the distance between each subsequent test of support begins to narrow, it often is an early warning sign that the trend is weakening because it tells us that there are less and less buyers to support new high prices each time. This is the scenario that is occurring right now. For example, look at the more expanded daily chart of QQQ below:
Notice that QQQ initially crossed above its 50-day moving average back in March. After doing so, QQQ never breached below its 50-day moving average until August, which was five months later. However, after bouncing off the 50-day MA and setting a new high in August, QQQ once again fell down to its 50-day moving average only six weeks later, at the end of September. After setting a new high in mid-October, QQQ again fell down to its 50-day moving average only three weeks after its prior test at the end of September. Do you notice the pattern there? The length of time between each subsequent test of support has been decreasing. If this pattern continues, you can figure out what will soon happen; the indices will soon revert to trading below the 50-day MA and possibly establishing a trend in the opposite direction. In addition to a shortened length of time between each subsequent test of the 50-day MA, notice also how each recent breakout to a new 52-week high has been less of a percentage breakout than the previous one. In other words, each rally to a new 52-week high has barely taken the major indices above their previous 52-week highs. This aids to confirm my initial analysis that the buyers have been less prevalent on each new breakout. Furthermore, we have been seeing more bearish distribution days in which volume has been increasing on the down days.
Although the warning signs discussed above are certainly valid, it is impossible to know how long the market will continue to find support at its 50-day moving average, nor does it really matter. As long as the primary uptrend remains intact, your odds of success are probably going to be greater on the long side of the market. But it is important to be prepared for a possible reversal so that you are not blindsided if/when it happens. Remember that previous support levels act as new resistance once the support is broken. Therefore, expect the 20-day moving averages, which are now just overhead, to act as resistance for the major indices. The exact levels of the 20-day moving averages are listed on the charts above. Most importantly, we will be looking for changes in volume if the market attempts to follow-through on Friday's bullish reversal. If volume sharply increases, along with price, it will increase the odds of further gains. If not, then one wave of selling could quickly push the major indices back below their 50-day MAs. We'll keep you informed of what we see this week. Tomorrow there is also an FOMC meeting on interest rates, which are expected to remain the same. As you enter this week, remember to always TRADE WHAT YOU SEE, NOT WHAT YOU THINK!
In an earlier post we were describing a reversal in BBH (biotech HOLDR). In the post we were describing how when you have a confluence of indicators working in your favor the odds of the trade working out increase dramatically. A similar situation is brewing in OIH (Oil Services HOLDR). You can surf over to www.holdrs.com for more specific information about the components of these ETF's.
Following are three screencaps of OIH taken after the close today. Same ETF, just three different time frames. As any seasoned trader will tell you, top down rather than bottom up produces the most consistent results. When scanning different time frames, you want them all to line up starting with the longest first and then "drilling down" to the shorter time frames.
In the 3 charts following you can see that OIH is setting up for a buy on the weekly, daily and hourly charts..............
Trendline support and hammer forming on weeklies........
Daily chart showing clear overextension from 20ma to the downside, along with bullish reversal bar..........
Finally on the hourly, notice the break of the downtrendline......
We went long OIH today @ 55.15 on a break of that hourly trendline represented in the third chart above. That was the confirmation to tell us that the sellers had thrown in the towel and that buyers more than likely would take the upper hand for the near term. Our stop is @ 54.40 just below todays low. A good first target would be at least 57.50 to retest that 20ma on the daily.
Following are three screencaps of OIH taken after the close today. Same ETF, just three different time frames. As any seasoned trader will tell you, top down rather than bottom up produces the most consistent results. When scanning different time frames, you want them all to line up starting with the longest first and then "drilling down" to the shorter time frames.
In the 3 charts following you can see that OIH is setting up for a buy on the weekly, daily and hourly charts..............
Trendline support and hammer forming on weeklies........
Daily chart showing clear overextension from 20ma to the downside, along with bullish reversal bar..........
Finally on the hourly, notice the break of the downtrendline......
We went long OIH today @ 55.15 on a break of that hourly trendline represented in the third chart above. That was the confirmation to tell us that the sellers had thrown in the towel and that buyers more than likely would take the upper hand for the near term. Our stop is @ 54.40 just below todays low. A good first target would be at least 57.50 to retest that 20ma on the daily.
On Wednesday after a gap up and hard selloff which did not confirm the bottoming action in OIH, we took half off the table @ 55.05 for a .10 loss. Our stop on the remaining portion was raised up to 54.60 to minimize risk.
Yesterday, further weakness in OIH caused the second half of the position to get stopped out as well. Afterwards, main ETF components such as HAL, BHI and SLB began to find strength and closed very strong. On this confirmation we decided to re-enter the position late in the day. We are now long OIH from 54.70 with a new stop @ 54.10.
Yesterday, further weakness in OIH caused the second half of the position to get stopped out as well. Afterwards, main ETF components such as HAL, BHI and SLB began to find strength and closed very strong. On this confirmation we decided to re-enter the position late in the day. We are now long OIH from 54.70 with a new stop @ 54.10.
Oil Services was very strong today with BHI and others leading the charge. $OSX (Oil Services Index) up almost 3% today, and definitely the strongest sector all day.
We took some profits @ 56.41, and raised our stop on the second half to 54.70 which is breakeven, essentially taking all the risk out of the trade at this point.
Lets see if we get continued follow through next week..............
Happy Halloween!
We took some profits @ 56.41, and raised our stop on the second half to 54.70 which is breakeven, essentially taking all the risk out of the trade at this point.
Lets see if we get continued follow through next week..............
Happy Halloween!