Show Me The Trend

As was widely expected, there was some follow through buying yesterday as a result of last week’s rebound and the major indexes moved higher. One reader had this to say in regards to my post last Sunday titled “Controlling The Urge:”

The market these days seems like the patient on the table alternating between irregular heartbeat and flat line. Helicopter Ben applies the paddles and revives it for a few days, but then disease takes hold again. No damn way I’m placing bets either way…

That’s actually a good way of putting it, because we’ve had the dance around flat line (trend line) for quite some time now and a directional break-out is not yet apparent. Here’s where the Trend Tracking Indexes (TTIs) stand as of yesterday:

Domestic TTI: -0.22%
International TTI: -7.18%

The international TTI still remains deep in bearish territory, while the domestic TTI is getting closer to crossing back above to the upside. Just a slight crossing above does not constitute a new upward trend. I need to see some staying power as well. In my advisor practice, I use a trading band of 1.5% above and below the trend line, which needs to be pierced first before I commit to either the long or short side.

Remember, just a couple weeks ago, the domestic TTI dropped to -1.64% but did not stay at that level for more than one day before reversing. If you had eagerly initiated a short position at that time, you are not a happy camper at this moment. Again, the use of this trading band will (hopefully) avoid some of those whipsaw signals, which happen during times of uncertainty.

This cautious view is further supported by the momentum figures in my weekly StatSheet. Out of 184 domestic ETFs, only the Dow Jones Transportation (IYT) has crossed its own long-term trend line to the upside, while out of the 615 domestic no load funds I track, only 5 have barely moved into bullish territory.

From my vantage point, more follow through is needed to make sure that this is not just another head fake.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
This entry was posted in Uncategorized. Bookmark the permalink.