LEVERAGED ETFs? December 28, 2009
Posted by Marlowe Cassetti in Blogroll.trackback
Better holiday sales and rising commodities prices pushed stocks to their sixth straight gain and new highs for 2009.
Major indexes edged higher in light trading Monday after sales figures showed shoppers spent more freely this holiday season, a sign that consumers are feeling better about the economy. (commentary & photo courtesy of AP)
Leveraged Funds? The ETF universe has been growing by leaps and bounds. It is covering new sectors and themes almost every week, or so it seems. However, the RSI system operates on a narrower universe than the 800 plus ETFs. This universe has the largest 400 or so funds exclusive of the leveraged products. Through objective testing I have found that excluding these leveraged ETFs helps RSI’s overall performance. That is just the nature of the beast. On the other hand, RSIx operates on a smaller universe of equally balanced long and short funds and its performance is enhanced by including 2x or ultra leveraged ETFs, but not 3x leverage. Go figure??? What does all this mean? Well, under this strategy you will not see RSI issue ETF picks in the category of leveraged funds. On the other hand, if RSIx issues a pick it is probable it will be a 2x or ultra fund, long or short.
Okay then, the “take away” from all of this is that there are two baskets of ETFs that RSI evaluates at the end of each trading day. And the basket depends on the trading module in operation.
I have mixed feelings about buying and/or selling these last two weeks in this month. The market and the players are in a sleeping stupor for these two weeks. With that said, the RSI methodology issues buy and sell signals throughout the year. There is nothing in the system that says “avoid the last two weeks in December”. Therefore, I have to take the trades regardless of the month or season. That is the discipline that goes with trading a mechanical system.
RSI had no ETF picks today.
Your mention of trading during holidays makes me curious if RSI takes into account the lower average weekly or monthly trading volume that occurs around holidays.
Yes it does have a filter to ignore ETFs whose average 20 day volume falls under a threshold amount. That amount is currently set at 200,000 shares.
Interesting, if I lower the limit to 50,000 shares, RSI does generate more trades but the risk adjusted performance suffers. Someday I may dig into this to better understand why this happens.