EXCHANGE TRADED FUNDS (ETF)

 




Before we continue I’d like to introduce Exchange Traded Funds. If you don’t have the required outlay (5K -25K) for most option trading then ETF’s are are a great way to take advantage of movements within the stock market with reduced risk. In addition, ETF ownership does not have issues of time erosion as options do — this makes them good for strangle strategies with indexes and sector funds that trade in a very short range. Although you don’t have the leverage that option trading offers you still get the advantage of being able to concentrate your money on advancing sectors while eliminating the risk and expense of individual stock purchases. ETF’s can be a good start up strategy for any portfolio. ..

Unlike mutual funds with ETF’s you can enter and exit the market during the trading day. In addition you can combine this type of trading with low cost short term option strategies such as out-of-money strangles,sizzler trades and credit bull put spreads. As always Just be sure to do your research.

ETF’s come in the following categories:

Equity
Sector
International
Bond
Bear Market
Currency
commodity
Inflation Protected

There is a new vehicle coming out called ETMF, Exchanged Traded Managed fund, a hybrid of Mutual funds and ETF. I will talk more about this fund as I find out.

ETF’s provide exposure  to many areas of the economy not easily available to the average investor; such as commodities, real estate and global markets. They also work well for rotational sector trading. Even in an up market not all securities move together at the same time. To realize a profit the investor must learn to go in and out of such ETF’s as the market dictates.

These links will add some clarity to the discussion.
STOCKCHARTS
SECTORSPYDER
DYNAMIC YIELD CURVE
GLOBAL ECONOMIC CHARTS

There are 3 general cycles that can be taken advantage of: The economic cycle, the seasonal cycle and the geographic cycle.

The Economic cycle: When the market is at a bottom the consumer discretionary stocks are the first to turn higher —> XLY, XLK, XLI, XLB and finally XLE. Following these sectors the staples come into play —> XLP, XLV. As the market begins to get weaker —> XLU and finally XLF.

The seasonal cycle: Summer –> XLE, XOP.  Fall & winter—> XRT

The geographic cycle: Watch which countries are performing best. I.E. EWS (Singapore), EWW (Mexico). Currency values can be a good indicator as to the market cycle of a given country.