Trend Tracking: What’s A Selective Buy?

Reader Stewart emailed the following question:

What does Selective “Buy” mean? I understand–from the How-To– what “Buy” means: choose from the top few funds. Presumably, “Selective” restricts that further, but what do you mean specifically? For instance, how would I apply a selective buy to country ETFs?

As you know, to generate buy/sell signals for domestic and international funds/ETFs, we use their respective Trend Tracking Indexes (TTIs) as a guide.

TTIs are not available for Sector and Country ETFs, because each dance to the tune of a different drummer. Consequently, you need to look at each Sector/Country ETF on an individual basis; hence the term “selective buy.”

You should review these investment arenas via their M-Index and their prices in relationship to their individual long-term trend lines. The column titled “%M/A” (% above/below moving average) shows how far above or below its long-term trend line the price of a fund/ETF is currently positioned.

Ideally, you want to make a new purchase in the early phase after a crossing to the upside has just occurred. If you enter later on, drop down on the M-Index ranking food chain (if you are conservative) as the top listings will have crossed their trend lines by a larger percentage, which makes them more susceptible to corrections.

Since Sector and Country funds are notoriously more volatile, I recommend the use of a 10% trailing sell stop discipline as opposed to 7% for domestic and widely diversified international equity ETFs.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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