What I learned looking at 415 ETF Charts Yesterday

Yesterday I downloaded from an online database the entire full list of all ETFS and then converted their symbols so that they could be displayed in my charting program.  I am not too sure why I did not do this before because I can tell you with zero doubt that ETS are really a superb trading and investing vehicle.

You’ve got leverage, liquidity, choice, flexibility, low fees.  I mean what more could you ask for ? Why even bother with stocks or futures or anything else for that matter when you have ETFS?  It is something to think about for sure.  Me personally I like to have as many options as possible, because you never really know where a good trading setup might come from.  Yes there could be a great ETF trading setup, but there could also be a great setup in a penny stock, a blue chip, a Canadian stock, many places!

But I can tell you after scanning through 415 ETF charts one by one in my charting program something occurred to me.  A lot of their patterns look the same and…

95% of them follow what the SP500 does!

It’s true.  Most of them bottomed in March 2009 and most of them have been moving up since then.  Some stronger than others, but their primary direction has been in line with the SP500.  Perhaps this is an obvious point since many ETFS contain sector component stocks which also trade on the SP500.  And some of them just follow specific sectors.  Even commodity ETFS followed the SP500 as well.

The few exceptions are the inverse ETFS which move in the exact opposite direction of the broad market.

So why did I bring this up?

I brought it up because it is just a good self check and reminder how crucial it really is to get the timing right of the major indices, whether it be SP500, Nasdaq, or Dow Industrials.  If we get the primary trend direction of those wrong, then it may be hazardous to financial gains.

Now I am not saying that some percentage of stocks do not care at all what they broad market does.  Of course some of them do their own thing and trade in whatever direction they like regardless of what is going on in the broad market.

But they are the Exception to the Rule

So right now the primary trend direction (longer term) still appears to be up, so it would seem we have a green light on most ETF sectors and most stocks (Isn’t that reassuring ?) But I can tell you when I see a major trend change occurring on the major indices, it will be time to rethink strategy and fine tune what’s hot and what is not!

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