For example, XLE, the Energy Select Sector SPDR, has the best seasonal pattern right now. Over the next 13 weeks, XLE has risen an average 8.8%, with gains in 15 out of its 17 year history (an 88% ‘win rate'). That sounds tradable. But just over the next few weeks it has averaged only 2-3%, and the ‘win rate' is much lower (13 out of 17 years, or 76%). I'm not inclined to take a longer-term chance right now, with the market and the economy in flux, and that short-term track record doesn't interest me.
Another thing I look for is evidence of institutional accumulation within one or more sectors. I look at volume patterns on daily charts, but something else I look at is the Up/Down Volume Ratio, popularized by Investor's Business Daily.
Up/Down Volume Ratio (U/D) is the ratio of total volume on up-closing days, divided by the total volume on down-closing days, over 50 trading sessions. A value > 1.0 usually indicates more buying than selling interest, and a value < 1.0 indicates greater selling. In practice, I use a value greater than or equal to 1.3 to indicate strong accumulation, and a value less than or equal to 0.8 to indicate distribution.
So my list of 24 ETFs is:
DIA, EFA, EEM, GLD, IWM, IYC, IYE, IYR, IYF, OIH, QQQ, RTH, SMH, SPY, TLT, XLB, XLE, XLF, XLI, XLK, XLY, XLP, XLU, XLV.
I looked up the current U/D ratio for each of them, to see what volume patterns are telling me. So for the ETFs of the major indexes, DIA, SPY, QQQ, and IWM have ratios of 0.9, 0.9, 0.9, and 0.7 respectively. These numbers all point to moderate distribution in the major indexes. There is certainly no evidence of a building-up of upward pressure.
Only two of them had U/D ratio's greater than or equal to 1.3, which I found usually indicates strong accumulation. The first one is TLT, the iShares Barclays 20+ Year Treasury Bond ETF. Its U/D comes in at 1.5. But TLT is not an ETF I usually think of as tradable. It remains an interesting datapoint that I sometimes look at, but I don't trade it.
The other ETF is a tradable one. Can you guess which one it might be?
The other ETF that is showing signs of accumulation over the past 50 trading sessions, with a U/D of 1.3, is a very tradable one – it is GLD, the SPDR Gold Shares ETF. And have you noticed GLD is breaking above the August 2015 highs on higher volume?
I thought you might like to know this.
Of course, there's much more you need to know and many more stocks you can capitalize upon each and every day. To find out more, please click on the following link: www.markettamer.com/seasonal
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