Sometimes great minds think alike, but often they do not. In the financial world the leading experts often disagree, especially on specific trades.
Regular readers know that I like to use the sports world for examples, particularly the realm of handicapping. Let us imagine that we have four different football experts:
- The fundamental football analyst looks at team strengths and weaknesses, injuries, and the matchups he sees on tape;
- The "smart money" analyst looks at the line moves in the market;
- The psychological analyst looks at the schedule to see if this is a "must game" or a possible let down;
- The modeler runs power ratings and makes his own independent prediction.
The very best practitioners of these methods may all be winners. On a specific forecast, they may disagree.
So it is with investments. There are many successful investment methods, including a close parallel for each of the football handicappers.
My Favorite Methods
I described my favorite approaches in this article. To summarize, I have a long-term perspective that plays upon market themes. It is a long-only program, but it is not "buy and hold." I also use short-term trading methods. Finally, I recommend a dynamic asset allocation program that protects investors against big moves.
Each investor is different, but some combination of the methods works well for most people.
Not surprisingly, the methods sometimes disagree. Let me look more carefully at the trading approach.
Traders all seek rewards but they
have differing appetites for risk. It is important to find a method
that suits your personality and needs. Our short-term trading systems are
basically Trend-following, but also include recognition of Cycles and a
touch of Anticipation. Since we apply the method to ETFs, we call it
the TCA-ETF system. We follow two versions of this method, designed for
two clients (Oscar and Felix) with different needs and risk appetite. [New readers can
find more information about the models at the end of this article.] For convenience, we have named the models based upon the intended clients.
This Week's Results
Felix, the cautious approach, has moved to the sideline. This does not mean a prediction for a lower market. If Felix had that forecast (briefly in place last week), the inverse ETFs would be in the buy range. Instead, everything is in the penalty box. Felix just sees the world as too unpredictable right now.
Oscar, the more aggressive approach, is always looking for a way to win. Oscar is unafraid of the volatility and recommends the short side, holding all three inverse ETFs. (We do not endorse or use leveraged ETFs).
Individual Stock Analysis
With encouragement from Vince (our modeling expert) I have been looking at individual stocks to see if Felix approves. The results this week are interesting.
Felix is not ready to move on my Dow 20K concept! Felix has every member of the Dow in the penalty box, although two stocks have positive ratings. I plan to provide regular updates on this analysis if there is reader interest. I often use Felix to assist when starting a new position, so this could be a useful assist to those considering dipping a toe in the Dow waters.
The NASDAQ 100
The fussy Felix has assigned 99 of the 100 stocks to the penalty box. The sole survivor is O'Reilly Automotive (ORLY). Here is the chart.
Now here is the fun part. Tonight on his popular Mad Money program Jim Cramer cited ORLY as a top choice. Catch this:
First on the list were auto parts makers Advance Auto Parts (AAP),
O'Reilly Automotive (ORLY) and AutoZone
said this trend makes sense, when things get bad, people keep their cars
longer and fix them up.
Felix was operating on official closing data, without knowledge of the Cramer pick. This will be fun to watch. Will Felix and Cramer agree in the future?
Weekly TCA-ETF Rankings
We are currently out of the market in our Felix ETF
program and short for those following Oscar. (We are happy to
report and discuss performance with
interested investors. We also offer a report on how we use the models,
and a free weekly email update. Write to etf at newarc dot com. Our
actual trading is a
combination of both models and some weekly timing).
As recently noted, I am changing the timing schedule for this weekly article. It
will now appear mid-week, with a one-day delay in the ratings. The
ratings below are from Tuesday's close.
note that these are not recommendations. Investor needs and risk
varies. We hope everyone finds the ratings to be a useful supplement to
their own work. The recommendations can change quite rapidly in this
Here are the
both Oscar and Felix.
Note for New Readers
Our weekly ETF Update is designed to assist both investors and
traders interested in ETF's and Sector Rotation. We also have free
upon request to etf at newarc dot com. These reports describe how we
use the system, compare results from Oscar and Felix, and contrast the
method with our long-term trading approach.
In this past article, we described our basic methodology
and why we believe the rankings are useful for fundamental traders and
technical traders alike. While we urge readers to check out the entire
article, the key point is that ETF's pose challenges and opportunities
different from investment in individual stocks. The fundamentals may be
more difficult to assess. Even with a good grasp on fundamental
trends, there is a lot of technically-based trading in ETF's. This
means that those trading with a fundamental approach (and we
do this as well) want to monitor the "hot money" moves. Here is an article on that point.
synopsis. We look at Trending sectors, Cyclical Sectors, and build
in an element of Anticipation for both entry and exit — thus the name
of the model, TCA-ETF. While we do not reveal the exact methodology for
spotting trends and cycles, the system is not a "black box." The basic
elements are used by many, and widely reported. We even discuss the need for human analysis as opposed to black box
We report the rankings each week, now on the
weekend with a one-day delay, using the Thursday output from the model.
We monitor and trade this daily, and offer a free report (request via
the email address on the top left of the site) for those interested in
our weekly trading program.
Oscar and Felix. We follow two
versions of this method, designed for
two clients with different needs.
- Oscar believes in the long-term strength of the economy and the
stock market. He has a lovable and irrepressible enthusiasm. When
things go wrong, he steps back for a bit, but soon tries again. He
expects to do better than others during good times. Oscar understands
that this approach involves more risk. Oscar is opportunistic.
- Felix also has a positive long-term outlook, but he is something of a
fussbudget. He is much more cautious, with an emphasis on capital
preservation. He is perfectly willing to step aside from the market
when there are signs of danger. He knows that he will miss some moves,
but that is OK. He scores big gains when the market moves lower and he
escapes the loss.