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The strongest 50 ETFs are listed here and kept updated. Strategies & ways to build an ETF portfolio based on these lists are explained. Our strength rank algorithm goes far beyond the simple RSI used at many Web sites. "Strength" & "The Strongest" When we say a stock or ETF is "strong," we are referring to strength that goes far beyond that measured by the Relative Strength Index (RSI), a mathematical tool popular with traders. The Relative Strength Index is an oscillator that ranges between 0 and 100. The word "relative" is misleading. It is actually more of a measurement of how strong a stock or ETF is internally, not how strong it is relative to other stocks. Traders look for a divergence between the Relative Strength Index and the price action of the security (stock or ETF). If the security makes a new high but the Relative Strength Index does not, this divergence suggests a reversal is likely. The Relative Strength Index is a rather simplistic measurement that is determined by the ratio of upward price changes to downward price changes over a certain period of time (usually 9, 14 or 25 days). The ratio is added to 1, the result divided into 100, and that result is subtracted from 100. Our own strength indicator is far more complex. If you scan 2000 stocks with the Relative Strength Index, you will find most of the stocks that rank high are not attractive because of overhead resistance or because the surge of strength measured is not really significant for some other reason (a non-significant rebound in a bad pattern). The list selected by our own strength screens, however, will look much more attractive. The more stocks that are screened, the greater the difference in output will be. When you look at our highest ranked "strength" stocks, especially when they are selected from among thousands of stocks as in StockAlerts, you will know you are looking at stocks that are strong. Because ETFs have become so popular, investment houses have been in a mad rush to churn out new ones in an attempt to profit from the craze. In order to do this, they are focusing on narrower and narrower market niches. This is a great marketing ploy because they can argue "we have it all...do all your shopping here." Much of this stuff is pure junk and not worth considering. Currently, there are hundreds of ETFs. Many of these trade only a few thousand shares a day. Some trade only a few hundred. Low trading volume means low liquidity. That means it can be very difficult to trade at a good price when you want to buy or need to sell. Low volume also means a person is likely to pay more when buying or get less when selling. Our universe of candidate ETFs consists of the more actively traded (higher daily volume) ETFs. This universe is then subjected to our "strength" algorithms (compare 50 stocks selected by using the Relative Strength Index with those selected by our own strength filter. The difference will be quite obvious). The ETFs we post in the following ranking list will be the "strongest" 50 at the time of posting (ranked in order of strength). This list can also serve as a "Market Monitor" because it indicates which markets and sectors are "hot" here and abroad. The list is updated daily.
Remember that these are ranked relative to the others in our database. If there is nothing attractive in the market, we will still get a list, but the individuals in that list may not be very attractive. They will simply be more attractive than the others. However, this is very unlikely because of the great diversity of the ETFs covered.
Updated For Market Opening Friday A.M. (12/5/08)*
(Tuesday's after-market updates are usually delayed. See the "Notes" page for timing of updates)
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There is a new "Strategy Tip" at the bottom of the Home page. Click on Strategy Tip and then scroll down.
Using The List* This report does NOT constitute a recommendation that you buy or sell any securities. As mentioned above, the list can serve as a "Market Monitor" because it indicates which markets and sectors are the strongest here and abroad. Though some people might want to use the list to create a discipline for their real portfolio, we are not making investment recommendations here. We are merely presenting the list as a learning tool. For example, you could use it in constructing one or more paper portfolios. In the following discussion the words "buy" and "sell" refer to imaginary transactions in a paper portfolio and not to transactions in a real account. You can create a variety of strategies based on the ranking list and see how each strategy performs. This is one way you can refine your skills as a trader/investor while testing your disciplines. For example, you might monitor the ETFs on the list daily and wait for one of the top 30 ETFs to decline to its rising trendline (the 30th ranked ETF is in bold blue letters in the above list). Then, as it begins to rebound off this support line on increasing volume, you could buy it for your portfolio. You might continue following this procedure until you have 5 to 10 ETFs in your trading or investing portfolio. NOTE: Please remember that the terms "trading" and "investing" mean the same thing to us. To do either correctly, you must have a discipline or strategy for the "buy" and "sell" part of the enterprise. How long you wait between these two actions is based on your own preference, and you must adjust your "buy" and "sell" rules accordingly by permitting more or less "deviant" behavior by the ETF. We prefer basing our rules on the activity of the stock rather than on the length of time it is held. Other strategies might be to select those from among the top 30 (or from a larger or smaller subset of the top 50 listed) that look the most "timely" (the most likely to move up soon) or to select those that have just moved up in rank (a move up in rank suggests new momentum or an increase of public interest in that market or sector). Sometimes a stock that is highly ranked might not be as attractive as a stock that is not ranked as highly but that is more likely to rise soon from current levels (perhaps because it is nearer to support or in the process of rebounding from support). An important consideration here is your anticipated holding period. Short-term traders will want to capture their gains quickly. That means they will be a little more "picky" about the ETF's "setup" and the timing of the purchase. Yet another option would be to buy as many ETFs from the top of the list as you can and then sell those in your portfolio that fall out of the top thirty. You could then replace the stock that is no longer on the top 30 list with the newcomer on the list or one of the others in the top 30 you may have wanted but couldn't buy without selling something first. Whatever method you use, your selections will be from among the 30 strongest ETFs. (Note: there is a discussion of the meaning of "support" and "resistance" that can be found by clicking on "Free Tutorials" on the navigation bar and scrolling down to the section titled "Charts." Read all of that section.) Your sell strategy might consist of selling any ETF that falls below its supporting trendline. Or, you might sell if it drops out of the top 20, top 25, or top 30. Another approach might be to sell any ETF that drops 5%, 7%, 10% or some other percentage below your purchase price, or below the highest high, low or close reached by the ETF since its inclusion in your paper portfolio. Alternatively, you could combine strategies so that a sale occurs if an ETF falls out of the top 30 or if it declines 8% since its inclusion, or if it falls 5 levels (or some other amount) in its ranking. Of course, some of the strongest selling disciplines factor in the volatility of a stock or ETF. For example, when the decline of a stock or ETF is such that there is only one chance in a hundred that it would fall that much "by chance" or as a result of its "normal fluctuation" given its current level of volatility, a sell migh be appropriate (because it represents a move beyond the "excursion probability envelope"). This is where the Stops tool can be a big help. Click on Stops or StopsPlus (on the navigation bar or in the set of links at the bottom of this page) for more information on this. Of course, there is another obvious way to use the ETF rank list. You might want to find out what sector is ranked the highest so you can begin your search for stocks in that particular sector. That is, the list could function as your preliminary scanner. For example, you could narrow your search for strong stocks to those that are included in the top five ranked sectors. The strength algorithms used in generating the list are the same as the ones used for The Valuator. We have said that the calculations are far more complex than the simple RSI Index calculations used to measure "strength" at most Web sites. Lists based on RSI screens too frequently have "setup" problems). Our strength model is proprietary. However, to give you an idea of what we mean by "more complex," we will say that it requires 6 algorithms for the first sort and then 3 more algorithms are applied to the results of the first sort to derive the final scores. The results of the latter are then ranked and the top 30 are listed here. We provide a simple descriptor and the symbol. The full name is usually available with most of the charts provided by Web sites. To see a few places where charts are available, click "Links" on our navigation bar. Some ETFs have a number after their name (.25, .90, etc.). These numbers are used for our internal purposes. Please disregard them. .
Links To Other Places On This Web Site
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Copyright 2008 by Stock Disciplines, LLC No part of this publication may be reproduced or distributed in any form by any means. |
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