Unanalyzed Part One

A scan of the exchange-traded funds shows this morning's wave of psar bear signals to be pervasive across the market sectors.

I find them all to be wanting, either because of a low adx or on grounds that a decline goes against the trend.

I've found that trading with the trend gives the best odds of success.


I discussed SPY, EEM, GLD and USO in an earlier post. Here are the other results from my etf scan (all are bear signals):

• QQQQ, countertrend
• XLF, countertrend
• IWM, countertrend
• FXI, low adx
• GDX, low adx
• XRT, countertrend
• IYR, countertrend
• XLB, low adx
• XME, low adx
• XLK, low adx
• XLY, counter-trend

All of this raises the question of when a counter-trend becomes a trend. The answer is, when it breaks below the lower reversal level ("support") for the magnitude of move that the analyst is tracking.

Magnitude is by its nature poorly defined  (except for the Elliott Wave people, who claim an absolute definition within the fractal nature of the waves).

Not being a very good wave counter, I determine magnitude by the scale of my chart. I use a 3-month chart, and I can easily tell by eye what the major reversal levels are. If I want a lower magnitude, I change the time-frame of the chart.

Abbreviations:
psar - Parabolic Stop and Reverse
adx - Average Directional Index
pps - Person's Proprietary Signal
ma20 - 20-day moving average
macd - Moving Average Convergence-Divergence
mfi - Money Flow Index
sto - Fast Stochastic