A market drop of 1.5% over the past five days creates interest in how our basic ETFs are performing with respect to SHY, our cutoff ETF. The table below does not include the drop that is showing up today.
ETF Rankings: Several observations are in order as we see the market drift downward. We have been expecting this to happen for a few months.
- Most equity ETFs continue to outperform SHY.
- All equity ETFs that are outperforming SHY are now priced below their 13-Day Exponential Moving Average. This is not a time to panic, but it is the first warning flag. The next warning flags to fly will be the 49-Day EMA and the “Golden Cross.” The “Golden Cross” goes red when the price of the 13-Day EMA moves from above to below the 49-Day EMA. Be watchful if and when both the 49-Day EMA and “Golden Cross” move from green to red.
- Far fewer securities are showing a positive absolute acceleration (far right column). The bond and treasury ETFs are holding up best.
- Watch the ROC1 column (column 6) for decreasing returns. When this column goes flat or negative we will know we are in a correction.
- Watch the 195-Day EMA. If the 195-Day EMA is negative (red) and is positioned below SHY, sell that ETF. Examples to sell are RWX, VNQ, and VWO. Hold only a minimum number of shares so the ITA Index can be calculated. We have not held full positions in TIP, TLT, DBC, and GLD for many weeks time.
This market dip is what William Bernstein calls a “low risk” correction as we will pull out of this drawdown. Should the market drop another 5% to 15% we will find some buying opportunities, provided cash is available.