ETF Prophet

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BZB Trader


I haven’t posted to the Prophet for a while as most of my efforts have been focused on the Mosaic site.’s an update to the T2 model that just invests in the top 2 momentum ranked ETFs from a basket of 11 sector ETFs.  We use an RSQ (linear regression) stop to further avoid drawdowns and apply strict risk control.On the market scene we’re seeing a bounce today, possibly pushed by some short covering.. but here’s the cautions:

1.  The NYAD (advance decline line) has pooped out after rising from .34 to 1.50 (slightly positive) and

2.  The TICK has trended consistently at the zero line.

The techs are showing some strength as Apple starts to stabilize (maybe). Numerous prognosticators have called it the buy of the year at these levels (no comment from here).

For intra day analysis its always important to be aware of the HFT (high frequency trading) programs running which still account for 70% of daily market volume.  A common HFT algorithm buys a short term downtrending market with a heavy presence causing the downtrend to fizzle and reverse.  The HFT program then dribbles on more buy orders to give the appearance that the target is improving.  Then, once momentum wanes to the upside, all the orders are closed.  This whole process can occur in minutes, or less, and its important to be aware that this little market “tickler” can sometimes start rallies with no real underlying foundation, technical or otherwise.

What we haven’t seen so far is a high volume capitulation day where the NYAD falls to levels of .07 or below, which would represent true bearish sentiment and selling desperation.  That’s a common scenario for the turnaround of selloffs of the current magnitude.  Best to just watch and wait for now.

Consumer sentiment hits a 5 year high in November while the fiscal cliff showdown looms and a dysfunctional Congress dithers.  Somehow, these “crises” have always been resolved at least short term at the 23rd hour and that’s the likely outcome here.  When it does come expect a whopper rally that will extend for at least a couple days and which likely cause all our technical signals to be virtually useless.


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