Market Overview for 11/10:
I have expanded the Overview spreadsheet to include more asset classes which will help or should help everyone get a better picture of what is going on every day. The Nasdaq rose 0.4% to its highest close since March 28, 2000. It’s been trading sideways for about a week, pausing after surging 13% off its Oct. 15 low. The S&P 500 climbed 0.3% to another record high.
Winners beat losers 9-to-7 on the NYSE and 3-to-2 on the Nasdaq. Volume fell across the board from Friday’s already light pace. Veterans Day is today, so expect another quiet session in the stock market. The bond market will be closed Tuesday.
I am going to take our ETF sector and industry group spreadsheet and do a little different sort. I have written quite a bit over the years about Victor Sperandeo’s (Trader Vic) diversified trends indicator. He uses this indicator on the monthly charts to determine if he should be long or short numerous commodity futures. I use it here on ETFs.
I have back tested this method, but not recently, perhaps not in five years or so. The past backtests worked out well. So here is the sort I am using today (pull up the 80 Sector and Industry ETFs spreadsheet to follow along:
Column Q is the DTI position as of the end of October, Column R is the position last month and Column T is my accumulation/Distribution algorithm. What I am looking for is changes happening over time.
I generate a list of ETFs that were:
- on a sell at the end of September
- On a Buy as of the End of October and
- Showing Accumulation.
Sorting like that is the real power of Excel and why I use it for various reports.
Using R.S.I. for Entry/Exit:
Those of you who may not be familiar, the R.S.I. I am referring to is Welles Wilders Relative Strength Index. Do not confuse RSI with relative strength. RSI is an oscillator that moves back and forth between 0 and 100 and cannot exceed either.
Sometimes I believe everyone that uses RSI has a different interpretation of its meaning at any point in time.The original formula in Welles Wilders book utilized a 14 day time frame. Now I see very short time frames in the calculation; 2, 3, and 4 days. In fact I did a live test several years ago using the 4 day time frame against the my asset allocation ETFs. Results:
If anyone is interested in perusing the trading (2009) let me know and I will grant access to the old Google Spreadsheet.
That being said there is probably a more conservative method to utilize RSI in its more traditional 14 day form. Step one is to define if the market, sector, ETF, whatever you are trading is in a bull market. This can be accomplished in a few different ways such as price overcoming resistance for a bull phase.
Once that is accomplished then look for the RSI to come down to an oversold level or look for the RSI to cross a moving average. Examples:
You like to pick off out of favor sectors, buying what you perceive to be value and waiting for the market so see your genius 😉 Its kind of like a dogs of the Dow strategy. The weakest sectors currently are: Metals and Mining, Gold, Silver, Energy. All down on the year. XLE first:
The three green arrows at the bottom are showing oversold readings vis-a-vie the RSI. As I often state, just because something is oversold/overbought, does not mean it cannot become more oversold/overbought. As was the case looking at the first two green arrows. When the green arrows appear what you can and should do is plan strategy. OK its oversold but what will make me buy?
I talked about the Biotech’s last week or perhaps the week before. They have not reached an oversold level since July. However, since mid-August this sector has been an out performer. I talked about the support between the two white lines (previous high points) as a support and a low risk buy point. XBI bounced nicely off the lower white line.
If you didn’t buy then, perhaps look for the RSI to cross the 8-day moving average or the SAR to execute, or both.
Many ways to skin a cat. Totally depends on your psyche, financial condition, and risk tolerances.
Today’s Reports and Earnings:
Talking Points and Climate Change Debate: House Science Chair vs. UN Report:
Why High-Frequency Trading Is So Hard to Regulate (DealBook)
Political Economy (Alhambra)
The stock market doesn’t care how you feel (MarketWatch)
A Weaker Yen May Bring Significant Deflationary Headwinds (GaveKal)
Gold Bulls Accelerate Retreat to This Year’s Fastest Pace (Bloomberg)
It’s Black Friday for Wall Street contrarians (MarketWatch)
The New Era of Communication Among Americans (Gallup)
Can Russian Woes Hammer the U.S. Stock Market? (Barron’s)
Subjective Well‐Being and Income: Is There Any Evidence of Satiation? (Brookings)
Launch desktop applications from Google Drive in Chrome (Google Drive)
Why the top 1 percent dominates more in the U.S. than anywhere else (WonkBlog)
Dunning: We Are All Confident Idiots (Pacific Standard)
Why offering 3 percent down payment mortgages is not a return to lax lending (WonkBlog)
Climate Change Debate: House Science Chair vs. UN Report
Have a Great Day!