Hidden under the hood of our ETF trading signals are sophisticated mechanisms that measure the probability that a given ETF will rise this week, this month, or over other near term periods using technical analysis of stock trends. Our database of stock trends goes back, in some cases, several decades. For newer ETFs and stocks, our look back period is shorter, but is still measured in years.
Technical analysis stock trends is the heart of our ETF rotation and timing systems. For most of the ETF weekly and monthly systems, the prediction of future performance is based on an analysis of recent performance (mid term) along with a factor for the very short term performance. For many of the systems, the mid term performance is added to the inverse of the very recent performance. The ETFs are then ranked based upon the number derived from that formula. The inverse of the recent performance is used because of the observation that the best time to buy is often when an ETF is in a strong uptrend but has suffered a near-term dip in performance. The system favors the strongest up-trending ETF that has a modest dip within the recent period. After ranking the performance of all the ETFs in the pool of possible investment vehicles for the system, the system simply chooses the number of the top ETFs that the particular system trades.
Most of the systems have one or two other elements of technical analyis of stock trends – such as a longer term look back period with a sophisticated moving average crossover component that prevents the system from remaining in equity ETFs if the overall market is remarkably weak, and other pieces of the technical analysis puzzle that we will describe in another post.