Although I have read your column avidly for a good while, I did not buy on the last buy signal. (I am in the UK so the funds etc are not directly equivalent). I have a 401k equivalent which buys a number of ETF’s on a monthly basis at low trade costs. BUT I also have a separate online broker account that I can use.
So accepting that none of us can predict the future but based on current momentum are you still investing new money for clients?
If I was starting at this point (slowly following the 1/3 then the second 1/3 after 5% uplift rule with a strict 7% Sell discipline), would I be best to look at ETFs with positive M-Index (not the highest), BUT with positive scores in 4, 8, 12, YTD.
Does it matter that DD% is negative in this choice or is it best to chose funds/ETFs at their current highs (0.00%)?
First, my mode of operation is to evaluate the risk profile of a client (or you should evaluate your own) as discussed in “New Money.”
Second, I do look at the M-Index first along with the %DD to see how a fund/ETF is doing compared to others. Sure, a %DD of 0.00 is something I like to see, because it means the fund is making new highs and upward momentum is still present. Right now, primarily bond funds fall into that category.
As far as equity funds are concerned, even a pull back of up to 2% in the %DD column is acceptable to me. For example, one of the ETFs we’ve owned since June 2009 is QQQQ, and it has only come off its high by -1.02% and never dropped more than -6.55% for the past 6 months.
Third, I look at the individual momentum figures, but my main focus will be on the 4wk number. I do not want to see anything negative there as it represents the most recent past. In the case of QQQQ, the 4wk number is at +4.24%.
Keep in mind that this is not an exact science; I merely try to ascertain that upward momentum has not reversed too much by looking at these numbers.
More importantly, whichever fund/ETF I end up selecting, I know that my downside is limited because of my trailing stop loss discipline. That’s what lets me sleep at night.