Tuesday, July 3, 2018

"This oddball indicator may foretell the direction of the stock market through 2018"

Yesterday morning, with the major indices in the red, this ETF was a cheery green. It made the screens look sort of Christmas-y.
All day. And eventually the rest of the market started to catch up.

We've done no tests for predictive ability or even accuracy of any statements in the article.
Proceed at your own risk, your mileage may vary etc. but it is interesting, so, just putting this out there.

Also, the headline with it's "may" is MarketWatch's. If we want to hedge we're usually more blatant about it, would be, could be maybe, should be.

"The only perfect hedge is at Sissinghurst"

From MarketWatch:
In the stock market, the second half of the year often looks different from the first half. And this year, things might be very different.
There are a lot of indicators for investors to follow. But many investors are busy people. So if you could watch only one thing in the second half, what would make the most money or help you lose the least money? Let us explore with the help of a chart.
Please click here for an annotated chart of First Trust Dow Jones Internet ETF FDN, +1.44% My longtime readers know that normally when discussing the market direction, I use charts of the Dow Jones Industrial Average DJIA, +0.15% S&P 500 SPX, +0.31% Nasdaq 100 NDX, +0.81% or Russell 2000 RUT, +0.73% So why use this oddball internet ETF to make the point? The answer will become clear as you read on. Please observe the following from the chart:

• The chart is a long-term chart that covers the period of the 2008 stock market crash.
• Each candle on the chart represents one quarter calendar year.
• The chart shows the parabolic indicator. The parabolic indicator is best used in strong trending markets. In this case, it is plotted below the price as a series of horizontal lines. As the price rises, the horizontal lines first rise slowly and then the rise accelerates as the trend gets stronger. Since the parabolic indicator’s rise accelerates with time, the indicator ultimately approaches an intersection with the price. At such time, the horizontal line is placed above the price.

• When the parabolic indicator reverses — the horizontal line going from below to above the price — it indicates that the trend may be over.
• The chart shows that in the long history since the 2008 crash, the parabolic indicator reversal happened only once for a short period. This is unusual.
• After the reversal shown on the chart, the internet ETF resumed its uptrend.
• The chart shows that, this time, the price is accelerating much faster than the parabolic indicator, which is also inherently accelerating. Historically, this is late-stage action.
• The chart shows that the volume is increasing as the trend accelerates. However, the volume is not excessive. This typically indicates that even though the trend is in a late stage, there is more to go. When the volume becomes excessive, it is often the end stage.
• Of significant interest is that during this long bull run in the stock market, the internet ETF never got oversold, as shown on the chart.
• Currently, the relative strength index (RSI) is very overbought. In this case, this is to be interpreted as bullish but with very high risk.

What’s so special about the internet ETF?
The internet ETF counts Amazon AMZN, +0.82% Facebook FB, -1.23% Netflix NFLX, +0.58% and Alphabet GOOG, +1.06% as its largest holdings. It also includes popular technology stocks Salesforce.com CRM, +2.95% PayPal PYPL, +0.74% Twitter TWTR, +0.71% and Snap SNAP, +0.46% In addition to technology stocks, it contains popular online brokers E*Trade ETFC, +0.75% and TD Ameritrade AMTD, +0.80% that have been outperforming.

This ETF, more than most other ETFs with long histories, contains the top-performing stocks.

What to look for...MORE