Update on XLY, XLP vs SPY

 

What a difference a few days make.

Prices as of the close on Thursday, January 12, 2023.

 

TACK ETF looks like a winner.

In the current issue (December 2022) of Technical Analysis of Stocks and Commodities, there is an interview with Katie Stockton,  a founder,

and managing partner of Fairlead Strategies LLC.

Fairchild, which uses technical analysis as its main focus, has developed a sector-focused actively managed ETF; Fairchild Tactactical Sector (TACK) which started trading at $25.00 on March 22, 2022.

The universe of ETFs for TACK includes the 11 Select Sector SPDRs as well as SPDR Gold (GLD) and SPTL and SPTS, the long and short-term SPDR ETFs.

The fund, according to the article, holds from five to eight positions in the portfolio at any one time.

The fund rebalances, that is, adjusts on a monthly basis. It uses monthly data only.

I assume it uses some sort of relative strength algorithm.

 

The relative performance to the overall market ETF SPY has been very nice.

The following chart shows that from the funds’ inception to the close yesterday, December 21, 2022.

TACK, from its inception of $25.00 to the close of December 21, 2022, of $23.70 has lost approximately 5.48%, while the SPY on that date was at 446.53 and at the close of December 21, 2022, was at 363.23,  a loss of approximately 18.65% Excellent relative performance of plus 13.17%  over the approximately eight-month period.

There are numerous ways to trade this rising star ETF. A pair’s trade or outright long when it has high relative strength with positive momentum.

Early Warning Indicator

SHOPify in news

SHOP has been in the news lately regarding the acquisition of a logistic company.

Prices are as of the close of Friday, May 6, 2022.

As in all previous illustrations, Green lines are periods of LONG, Red lines show periods of SHORT, and Blue lines are periods of NO POSITION.

The weekly is the dominant signal. So in this example, the only possible daily position in the year 2022 is SHORT.

 

AbbVie Earnings coming next week.

“Wall Street expects a year-over-year increase in earnings on higher revenues when AbbVie (ABBV) reports results for the quarter ended March 2022. While this widely-known consensus outlook is important in gauging the company’s earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.

The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on April 29. On the other hand, if they miss, the stock may move lower.” Zacks Equity Research, April 22, 2022

The following pictures of ABBV Daily and Weekly show that some expect lower results than projected. Prices are as of the close of Friday, April 22, 2022.

The weekly chart is the dominant position.  The green line indicates BUY. The RED line indicates SELL, and the BLUE line indicates CLOSE position.

As in all past posts, When and only when the Weekly indicates BUY, then if the daily is also Green, the position should be long. The BLUE line indicates CLOSE position.

Swing Trading

Selecting candidates for Swing Trading positions is difficult. I have found that finding moat-type businesses make the best initial candidates. Good financial underpinnings are essential. Joseph Belmonte of Buffett and Beyond has developed a screening tool based on Clean Surplus ROE(Return on Equity). His conclusion is that “portfolios made of stocks with high Clean Surplus ROE’s outperform all other portfolios”. An example is portrayed below. Salesforce (CRM) first qualified with a higher than average Clean Surplus ROE during 2016 when the shares were trading between $70 and $80.                                                                                                                                                                                                                                                                                                                                                                                                                                                         Closing prices are as of the close on Friday, November 5, 2021.                                                                                                                                                First, find the candidates and then use weekly technicals to find the overall trend.  Use the daily as a trend decision trigger. The weekly signaled a buy decision at the end of June 2021. That is, only trade LONG from that date. The daily concurred with a long position on October 13, 2021.

Back to the Beginning

In 2010 when I started this post, I recommended that one of the better methods of selecting equities was to find those sectors that were showing high relative strength with positive momentum. Selecting the highest relative strength sector with positive momentum should outperform.

I chose four sectors as illustrations.

XLE: Energy (Green)

XLY: Consumer Discretionary (Red)

XLU: Utilities (Cyan)

XTN: Transportation (Yellow)

The following chart as of the close of Friday, July 9, 2021, shows the current relative strength of these four sectors.

Artificial Intelligence and Trading.

In the last few weeks, I have investigated a few AI(Artificial Intelligence) platforms in the hope that one or more vendors of this new technology could enhance my trading results.

The quick answer is maybe, but the research has found a troubling example of what could go wrong.

A new  ETF that is based on AI is was offered on October 17, 2017: AEIQ.

To quote from its informational site:

“The fund applies proprietary algorithms to artificial intelligence (AI) technology which can process over one million pieces of information per day to build predictive financial models on approximately 6,000 U.S. companies. The technology continually analysis data and models in its active stock selection process, and derives an optimal risk adjusted portfolio consisting of companies with high opportunities for capital appreciation. The fund is actively-managed and discloses all portfolio holdings daily.”

The informational information About AEIQ also states that “The system mimics a team of 1,000 research analysts working around the clock analyzing millions of data points each day.”

“Harnesses the power  of IBM Watson.”

The performance of this ETF should answer the basic question that I have had in my investigation; Does AI work?

The answer as it relates to the AEIQ ETF is sometimes yes, sometimes no.

The following graph of the relative performance of AEIQ and the SPY ETF, which represents the S&P 500 index starting in August 2020.

The AEIQ ETF started life on 10/17/2017 at an offering price of $25. On Friday, April 9, 2012, it closed at 39.48, an increase of 57.92%

The S&P 500 on 10/17/2017  was 256.25. It closed on Friday, April 9, 2021, at 411.49, an increase of 60.58%

The above chart, like all the other charts on this bog, has green, blue, and red vertical lines.  Green vertical lines are the place where AEIQ is performing, on a relative strength basis, better than the SPY ETF and AEIQ has positive momentum. Red vertical lines show the times that AEIQ is performing worse than the SPY on a relative strength basis and has negative momentum. Blue lines are the indication to close the current position.

The better way to use the AIEQ ETF would be to invest in  AEIQ  when, on a relative strength basis, it is stronger than the SPY ETF and AEIQ has positive momentum. The basic swing trading method I have been talking about in this blog since day one.

Gates Foundation Shuffles Portfolio

Dow Jones reported that The Bill & Melinda Gates Trust, which manages the funds of the foundation, exited positions in  Alibaba Group and Uber Technologies, halved its stake in Apple, and increased investment in Schrodinger in the fourth quarter.

The following shows the relative performance between APPL and SDGR from June 2020 until the close yesterday, February 22, 2021.

As per all my previous charts, Green vertical lines represent that the top security, in this case, Schrodinger, is, on a relative strength basis, outperforming AAPL. A red vertical line, the Second security (AAPL) is doing better.

Bravo to the trust, so far.

 

 

Relative Strength

In the many past posts, I have recommended that to be successful in swing trading, one has to be aware of the individual securities relative strength as it compares to some index of its peers.

The following chart is an example of  OIH which is the oil VanEck oil services ETF. I have compared this ETF to SPY, which represents the Standard & Poors 500 index.

 

The prices are as of the close yesterday, January 12, 2021.

The rules are very simple, and the action indicated by the up and down arrows reflects the result of following the rules.

  1. Buy when the target security is stronger, on a relative strength basis than the index.
  2. Buy ONLY when the target is stronger, has positive momentum, and the index is also going up.
  3. Close the position when any condition is violated. Shown by blue vertical lines.
  4. The rules apply to shorting when the actions are the opposite of the buy rules.