Welcome to RSI-ETF bog number one. I have a lot of ground to cover, I cannot do it all in one session, so I will have to spread it out over several entries.
The phrase Rocket Science as it applies to the financial/investing world gained popularity in the 1980s into the 1990s. It signified the use of more exotic techniques to assist the investor/trader in making superior trades. Since these techniques were not readily available to the average investor there was an air of mystery and excitement about them. Some of the methods included neural networks, genetic algorithms, chaos theory, fuzzy logic, and similar exotics. Since my background was with the NASA space program solving operational problems I was immediately attracted to this field. I’ll talk more about this in the future but for now let me jump to the exciting area of Exchange Traded Funds (ETF). When I use the acronym RSI I am referring to my application of advanced techniques to this process.
ETFs are mutual funds that trade like stocks. There are lots of sites on the web that will give you a good education on ETFs. If you are not knowledgeable with ETFs and CEFs please educate yourself, since I will be dealing with these investment vehicles. I have applied RSI technology to the endeavor of trading ETFs. And I’ll start off with relating my methodology to the here and now. For the week ending July 7, 2007 I have uncovered the following ETFs as potential buy candidates in alphabetical order:
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ASA -ASA Limited
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CEE -Central Europe & Russia Fund
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CSQ -Calamos Strategic Total Return Fund
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DFE -WisdomTree Europe Small Cap Dividend Fund
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ETG -Eaton Vance Tax-Advantaged Global Dividend income Fund
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EWD -iShares MSCI Sweden Index Fund
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EWL -iShares MSCI Switzerland Index Fund
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EWP -iShares MSCI Spain Index Fund
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IJR - iShares S&P Small Cap 600 Index Fund
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IYC -iShares Dow Jones U.S. Consumer Services Sector Index Fund
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MXF -Mexico Fund
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TRF – Templeton Russia & East European Fund
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XLY-Consumer Discretionary Select Sector SPDR Fund
Wow, that is a pretty full list and I have observed that strong weeks produce fat lists of candidates. Sometimes RSI pumps out a lot of names per week and other times it is rather meager depending how the markets do for the week. If you peruse this list you will notice that these funds are not all ETFs. In the universe of investments I analyze I have included some Closed End Funds (CEF). Do your homework and discover the difference between ETFs and CEFs. A great site to evaluate these is www.etfconnect.com. Discover the yield, premium/discount, expense ratio and other fund particulars. Also go to http://finance.yahoo.com find out more about these funds and look at the three-month average daily volume. Is this fund liquid enough for you? Please do your due diligence before ever committing money to any investment. You will discover that EWL, the ETF that tracks the Switzerland index, has an average daily volume of only 143,604 shares. For some investors this might be too illiquid for their investment size. For others it might be acceptable. Also you will find that ETG is a closed end fund that trades at a 7.46% discount to its underlining securities, yields 6.08% in dividends, and has an expense ratio of 1.10%. Investors who are looking for yield and global exposure might be interested in this fund. Let me stress the fact that individual investors, and for that matter traders, need to assess these results on the basis of their individual investment objectives and risk tolerance.
One of the fascinating aspects of the results of RSI number crunching is to look at what the implicit message the market is telling. The themes this week are Europe [CEE, ETG, EWD, EWL, TRF], consumer services & discretionary [IYC, XLY] (not consumer staples) and precious metals [ASA] (gold and silver ETFs [SLV, GDX,] were high in the ranking, but didn’t make the final cut). I will be commenting on emerging themes in future blogs.
Last but not least is the sell strategy; that too is an individual decision. For a trader it means setting a tight stop for both a stop loss point and then after achieving a price objective. For a longer term investor it is different. I prefer to set a stop loss and then monitor the progress of the fund price. I continue to move my stop level up to a level where if it fails that price would be good reason to exit that position. I know that sounds vague but I’ll expand on selling techniques in future blogs.
I promise to disclose more of the techniques utilized in RSI. It gets a bit involved and it will take a bit more time and blog space.
Now for full disclosure … I presently hold EWP -iShares MSCI Spain Index Fund and EWP -iShares MSCI Spain Index Fund in my IRA account. If and when my wife holds one of the mentioned funds in her account I will also disclose this fact. Also I am currently not a Registered Investment Advisor, however in 1999 I was one and had my brokerage licenses Series 7 and Series 65, both of which are not current. In future blogs I will give more of my background such as my role in putting US astronauts into space and on the moon, building my first personal computer in 1974, my investing history and experience, starting RSI newsletter in 1993, being written up in Barons in June 1993, and much more. But this begs the question, should you trust my recommendations? The answer is you should be a skeptic when it comes to investing your money and the advice you get from others, especially on the Internet … I am. You must do your homework and decide for yourself. I hope you find my blog enlightening, educational and occasional entertaining. Until next time …
