Professor’s Comments December 20, 2016
Posted by OMS at December 20th, 2016
The Dow rose 40 points, closing at 19,883. Volume was low, coming in at 79 percent of its 10-day average. There were 104 new highs and 22 new lows.
There were no changes to any of the cockpit indicators yesterday. The VTI on the Dow remains positive.
The markets are entering the Bullish Christmas period now, so with the VTI on the Dow remaining positive, it’s likely the markets will maintain their upward bias into the year’s end. However, IF the VTI changes, I’ll let you know. The daily rate of change to the indicator is getting extremely small now, and one good down day should turn it negative.
Important Announcement:
Next year, I plan to introduce a new feature to the web site. When the market was trading sideways during the months prior to the election, I noticed that even though the overall market was not going anywhere, there was considerable movement in a few of the individual sectors. I believe this rotation, where money flows from one sector of the market into another, is something that will likely continue in the years ahead. So, last month I started testing a mechanical trading system using the VTI as a trigger and then trading ETFs based on the strongest or the weakest sectors of the S&P500. The results were amazing!
For example, on 5 August 2016, with the VTI on the Dow turning positive at 18,543, the model told me that Semiconductors and Computers were the place to be. The VTI and all the breadth indicators on these two sectors were positive. And even though the Dow remained flat for the month, the Semis and Computers had nice gains.
Same thing happened on 9 September, only this time to the down side. The VTI turned negative with the Dow trading at 18,085. A month later, the Dow was trading at 18,240, so it was flat to slightly positive. But with the VTI heading down on 9 September, if you shorted the two weakest sectors in the S&P, which were Foods and Health care, again, you would have experienced some nice gains.
The two examples above were tough calls for an algorithm to make. Remember, the market was basically going nowhere. But let’s look at two easy calls.
Back on 12 February, the VTI turned positive. There were a lot of strong sectors back then. But the strongest of the bunch were Energy, Health care, Retail, and Technology. Imagine if you had this information back then. The VTI called the market turn, and the new algorithm told you which sectors to be in.
Another easy call was on 7 November, the day before the election. That’s when the VTI on the Dow turned positive with Semiconductors, Banks, Transportation, and Computers being the strongest sectors. BTW, this rally differed from the February rally because you really had to be in the right sector. You might want to look at what happened to the ETFs or stocks in these sectors.
Basically, the system appears to have all the risk advantages of trading ETFs, without having to carry the laggards of an index. It was like trading the S&P on steroids!
Based on my testing, I can conclude the performance of the Sector ETFs /VTI strategy has merit and deserves your consideration as it significantly outpaced the performance of the Dow and SPX.
Right now, I’m still evaluating which sector ETFs best match the various sectors of the S&P. Not all ETFs do a good job of this, and besides, there aren’t ETFs available for a few of the sectors. So, when an ETF is not available, I might have to use an individual stock or two.
But the next time VTI turns negative, I’m going to publish the top three or four strongest and weakest sectors. Hopefully this should help you decide which individual stocks and /or Sector ETFs to trade.
I think you’re going to love this new strategy!
That’s what I’m doing,
h
Market Signals for
12-20-2016
DMI (DIA) | POS |
DMI (QQQ) | POS |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | POS |
VTI | POS-T |
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