Sector Rotation Research Published

You might want to check out my latest research on sector rotation:

https://guidance.fidelity.com/viewpoints/buy-and-hold-sector-rotation.

Fidelity Investments commissioned me for the Viewpoint article and it turned out quite good in terms of decent return with limited overhead and risk.

Even better, after the article was published, I improved on the strategies to get higher performance and more consistency.

I’m continuing to research to flesh out a complete trading strategy which I plan to discuss at the MoneyShow Las Vegas:

Thursday, May 17 • 7:45 am – 8:30 am
Sector Rotation with ETFs and Stocks

Compare performance of various rotation strategies, applied to sector exchange traded funds (ETFs), style ETFs, and stocks. Focus on simple strategies for staying invested in the top ETFs as well as strategies for identifying beaten-down areas to buy low. Experiment with a long/short portfolio. Learn how the strategies rated based on Fidelitys Wealth-Lab Pro® portfolio simulation of the last decade in the stock market. Find out which sector ETFs are leading with momentum today and which may present value opportunities.

(Wealth Lab Pro is a registered trademark of FMR, LLC)

I hope you can make it to Las Vegas and I’ll keep you posted on the new strategy as it develops.

Trend-Following Indicator Back-Tests

Have a look at my research on trend-following indicators in which I systematically analyzed 10 ways to ride the trend in US stocks. The back-testing was done with Wealth-Lab Pro(R) for Fidelity Investments. The stocks considered were the S&P500 components. The 10 indicators tested were:

  • Average Directional Movement Index (ADX)
  • Commodity Channel Index (CCI)
  • Channel Break-Outs (NH/NL)
  • Moving Averages (MA)
  • Moving Average Crossover (MAXO)
  • Moving Average Convergence Divergence (MACD)
  • Momentum (Mo)
  • Rate of Change (RoC)
  • Linear Regression
  • Chaiken Money Flow (CMF)

Check it out – the data may surprise you!
https://www.fidelity.com/learning-center/technical-analysis/how-to-befriend-the-trend

TradeStation Webinar and Update

Several people asked for the archive for my recent TradeStation webinar. You can find it here:
https://www.tradestation.com/education/events/on-demand-webcasts/spotlight-on

Of course we have a new set of MACD Divergences now. To stay current, you can sign up for the full list of MACD divergences and MACD Histogram divergences daily on US stocks, ETFs and futures at divergence-alerts.com

Or to sample the scan output, check out the MACD Divergences on NASDAQ stocks posted on Wednesday and Friday by entering your name and email below. That adds you to an email list that gets notified of new divergences twice a week, plus a few promotional offers.

Watching the QQQs

Watching the QQQ gave important clues to the market this summer.  Negative MACD Divergences on the weekly chart (top) of the QQQ showed up just before the big drop in August.   As I write, QQQ is running into overhead resistance from the old up trend line drawn on the weekly chart (top).  On the daily chart (bottom), QQQ reached up to touch the 50-day MA and fell back.  If the NASDAQ leaders retreat, I would expect the market to follow.

QQQ on Sept 1, 2011 - Weekly and Daily Charts
TradeStation Screenshot of QQQ on 09/01/2011

The small cap Russell index, shown below in charts of the e-mini TF, has not even performed as well as the NASDAQ.   You can see from the weekly chart below (top panel) the past negative divergences.  In early August TF failed to achieve new highs and MACD confirmed the weakness – a fuzzy negative divergence.  On the rebound, it is not even close to the past uptrend line.  On the daily chart (bottom), notice TF’s current inability to reach its 50-day MA like QQQ.

TF Weekly and Daily Charts as of Sept 1, 2011
TradeStation Screenshot of TF on 09/01/2011

In summary, I think there could be further to go on the downside before the market gets ready for election year.

Upcoming Educational Presentations

TradeStation Strategy Network, Sept 6 at 4pm EST, Join me for a live online presentation on the latest in MACD Divergence technology. Click here to register for TradeStation Webinar

Trading Options for ProfitS (TOPS) Group Meeting, Sunnyvale CA, Sept 10 at 1pm PST. If you’re in town, feel free to attend this meeting for an extended talk on technical and fundamental indicators to get insight into the movements of the broad market.  Email RSVP to ovug (at) helpone.com

Traders Expo Las Vegas, Nov 18 2011 8am PST on MACD Divergences and 5:30pm PST on Weekend Market Status
Treat yourself to a trip to Vegas to sharpen your trading skills! Click here to register for Traders Expo

Trends and Reversals in Trading

Back in Feb 2011 at the Traders Expo New York, I recorded this interview about Trends and Reversals.  Since that time, I’ve researched several additional ways to check out the strength of the trend, otherwise known as market internals.    I’ll be talking about them in depth in a presentation at the Traders Expo Dallas on June 18, 2011 called Weekend Market Status.

One of the topics is yield spreads between corporate and treasury issues.   This can have an impact for stock traders and investors, not just the bond market.   Yesterday, the yield spreads headed off in an ominous direction for the stock market.

Commodity Negative Divergences, My Sched D, and You

Without getting too personal…
I just sent off my taxes — yes, I had to write a couple checks — but the good news is that my schedule D was much EASIER to fill out than previous years.

Before I’ve struggled to compile huge lists of trades across mulitple accounts. If you actively trade, you probably know what I mean — many hours work, and even when I’ve hired accountants for my taxes they’ve wanted ME to do the gritty work of listing all the trades!

But this year I breezed through sched D! I took fewer trades because I relied more on MACD divergence and the divergence count to target higher-potential times to buy. ( To tell you the truth, sched D is one of the reasons I went for this trading strategy.)

Now I want to share with you the means to simplify YOUR schedule D and, more importantly, FOCUS on times when trades are more likely to work out in your favor.

Check out an example from April 15, 2011 of the divergence alerts commentary. We’ve been seeing lots of different commodities — especially energy and metals but also some of the broader commodity indices — showing negative divergences on the daily charts. On Fridays, we get the weekly analysis and starting to see some of those negative divergences move up to the weekly charts.
http://divergence-alerts.com/commentary/weekly-commentary/commodity-neg-divs-bubble-up-to-weekly-macd-div-alerts/

If you would like to receive alerts like this, plus get all The Truth About MACD educational materials as bonuses, become a member before April 18, 2011 at
http://divergence-alerts.com/my-membership-options-page/

Technical Analysis of SPY

The premise of technical analysis is that the price carries information about a market’s future potential as well as its past. Since price is numerical, we can use mathematics to aid our analysis. For example, a moving average of price smooths its fluctuations and allows us to focus on the overall trend. Today the S&P500 opened with a gap above its 200-day Moving Average. The chart below shows that with the dotted blue line as the 200-day MA. Technical analysis regards this as a bullish sign.

With an ETF such as SPY we have an opportunity to look under the hood to see how well its component stocks support it. Continuing with our example, we can check how many of the S&P500 stocks are above their 200-day Moving Averages. See the screenshot from Telechart below.

We see that 283 of 500 stocks in SPY are above their 200-day MA. That’s slightly better than half and a terrific improvement from last month.
This is one example of the type of analysis that you can do on stocks in an ETF. To see more, check out the eMoneyShow webcast and chat room on Sept 15, 11am EDT. Click here to register.