ETF Exchange Traded Funds
January 27, 2017 - Analyzing Dow 20,000 Using ETF Charts
Dow 20,000 Demystified in These ETF Charts by The Street
Can this rally continue, or are we headed south?
We've arrived at Dow 20,000, fueled in large part by yesterday's Turnaround Tuesday in which markets rallied and shook off some month-long sideways action on light volume. Encouraging earnings reports and better economic data, except for housing, boosted stocks as we approach month-end with important indexes at record high levels.
Of greater concern, and postponed for another day, is just how the president's budget plan will be received. The GOP leadership may not play ball in the manner Trump would like as he wants to shake-up the way of doing things in D.C. For now, at least it appears bulls are willing to set those concerns aside and bid stocks higher.
Leading sectors include high beta sectors where growth prospects are greatest. This includes some odd groups with homebuilders, small caps, materials, financials, transports and even overseas sectors
Let's look at some weekly charts to highlight whether these current rallies are just overdue reactions to the markets recent malaise.
iShares US Home Construction (ITB)
iShares Russell 2000 (IWM)
Small Caps are inclined to rally when the investors are looking for more beta. Nevertheless, here small caps are still moving sideways.
Materials Select Sector SPDR ETF (XLB)
Alcoa (AA), a member of this sector, reported earnings that beat analysts' views, rallying the stock after the close of trading adding to sector gains.
iShares Transportation Average (IYT)
Trump signs legislation expanding oil pipelines that had been stuck in the Obama WH. As this occurs, the logical negative impact will be on rail, which dominates current delivery methods and Buffet's holdings.
Financial Select Sector SPDR ETF (XLF)
The so-called "Trump Rally" is plain to see, but the bulk of it happened several months ago and now we're seeing some consolidation and sideways action.
iShares Europe ETF (IEV)
With another ("please don't make me") BREXIT vote likely on-tap, European assets are rising with most other assets globally. If the vote takes place and is "no," you have a win for the chickens market bulls.
The HI/LO Indicators, if shown, can be used to demonstrate why market change may soon appear, whether the trend is rising or falling. Naturally daily, weekly and even monthly views reflect the possible time sequence these indicators may reflect. My experience in using these has made an impact two-thirds of the time. That's about as successful as most such indicators can make.
Effective HI/LO Indicators may take as long 10 to 12 weeks to provide an effective measurement when a trend is ending when viewing weekly charts. This may indicate sideways movement ahead or even a reversal of the previous trend. I generally value the weekly chart views as providing the best overall indication.
Daily charts when the indicator applies, may offer great short-term trading opportunities to highly volatile sectors like many commodities or other market sectors featuring high betas. In that instance, time periods of 10 to 12 trading days could be considered.
I've also found good signals when applying them to monthly charts emphasizing changes in long term trends. These would cover long periods over as much as one year.
We routinely follow over 300 indexes, ETFs, futures and commodity markets. Not everyone is suitable for this use. Readers may inquire from time to time for a special chart not featured.
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What Is An Exchange Traded Fund?
An exchange-traded fund or ETF is an investment vehicle traded on stock exchanges, much like stocks or bonds. An ETF holds assets such as stocks, bonds, or futures. Institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for a "basket" of the underlying assets or, alternately, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage and causes the value of the ETF to approximate the net asset value of the underlying assets. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500.
An ETF is Like a Mutual Fund and a Closed End Fund
An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETFs.
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