ETF Shark Alerts
Methodology
Too often, individual investors squander their unique advantages. Unlike the institutional whales of Wall Street, individuals have the ability to use their speed and flexibility to quickly identify and participate in market trends and themes, which often develop into major market moves. Furthermore, if they make a mistake, they can escape with minimal damage. These unique advantages are the foundation of my approach to the stock market. My goal with this service is to spot emerging trends early and use its primary investment vehicle, exchange-traded funds (ETFs), to potentially profit from them.
In addition to a superior investment return, my other major goal is to protect capital and minimize volatility in the ETF Shark Alerts model portfolio. It takes a lot of additional work to make up losses, so I want to quickly move aside if I am on the wrong side of a trade. Thus, there will be times when I maintain substantial amounts of cash in the model portfolio if I find nothing worthy of your hard-earned capital.
For more than 10 years I have used a unique style of investing and trading that combines behavioral economics, market psychology, modern portfolio theory, technical analysis and certain fundamental factors, such as the financial health of individual companies and sector earnings momentum. This comprehensive strategy gives me an edge in identifying investment opportunities.
While many investment professionals quantify their style as a top-down or bottom-up approach — analyzing either broad economic trends or individual company information to direct their investment thesis — I generally combine both approaches. Because I am a trader at heart, I go through thousands of stock charts each week. As I do this, there are always themes that pop up among the individual charts that may be showing relative strength or prudent entry points. Often, these charts are the first sign a sector is starting to attract money and may be in play for some time. When this type of theme develops, I typically explore investment options within the sector and take action accordingly. Furthermore, at times when I see certain developments — such as a change in investor sentiment or consumer confidence — I use a top-down approach. I evaluate these events from an economical or psychological perspective, and then explore investment options within the ETF world, based on my assessment of these developments.
My time frame for holding investments in the model portfolio will vary widely, as determined by ever-changing variables, which my team and I review continuously. However, I will highlight some longer-term investments for those looking for investments with low turnover.
Unlike many analysts, investment writers or professional stock traders, I will not offer a price target or trading range for the ETF Shark Alerts investment ideas. The investing environment is too dynamic to place a static price target. However, once an investment is made in the model portfolio, I will continue to monitor the price and volume action closely, and I will always send out an Alert prior to making any changes in a position. Also, although I will not set specific stops, I will suggest price areas that would become a concern should the selected ETF move in that direction.
In order to maximize the model portfolio's returns, I expect the portfolio will be fairly concentrated. Each individual investor has the ability to close out a position quickly should it go against us or cross the stop area, so extreme diversification is not a concern. Also, while I may at times make a recommendation that seeks to profit from a decline in the general market, I will always use an inverse ETF — as mentioned in my bonus report — rather than shorting an ETF, so that investors using retirement funds will not be excluded.
Spotting Opportunities
Let's go through an example of one way in which I might find an ETF investment idea.
One weekend in January, I spent several hours scanning stock charts. Even though it was not an encouraging endeavor, I did notice a possible theme developing in the semiconductor area. At that time, many individual semiconductor charts appeared to be showing relative strength vs. other sectors in the broader market. Here are a few that I noticed.
Intel (INTC) had been drifting lower for two months until Bank of America raised its profit forecasts for the company the previous week, sparking buyers to bid up the stock on high volume and causing the stock to recapture its 50-day moving average. Since then , Intel has been basing out and holding on to recent gains. This is bullish action and something investors want to see. While the stock could still break either way, the technical picture here is much improved and worth noting.
Applied Materials (AMAT) has been choppy lately, but has been steadily inching higher since forming a double bottom in October. What I find very interesting about this chart is the higher volume in the past few days. This stock may be under accumulation, and its action is another clue that this sector could turn higher from here.
Amkor Technology (AMKR), a small semiconductor company with solid fundamentals, also shows an attractive chart setup. Like Intel, the stock bounced last week and has been consolidating gains since then. This action is interesting because it shows that not only is money flowing into the bigger names, such as Intel and Applied Materials, but also into the small-caps, which typically attract more speculative money. This gives me the impression that a move in the semiconductor sector could be broad-based, and not just concentrated within the large-caps, which are driven more by slow-moving institutions.
So after making note of a few attractive setups such as these, I would consider adding the Semiconductor Holders (SMH) ETF to the model portfolio.
However, the interesting thing about this ETF's chart is that the relative strength I am seeing in the individual charts is not yet being reflected in this fund. This means I would likely wait for an attractive entry point. On the chart below, you can see that the SMH remains under resistance in a downtrend trading channel and does not yet show the upside potential of Intel, Applied Materials or Amkor. This would lead me to believe that even though these other semi charts are starting to set up as profitable investments, it is still a bit too early to put any significant capital behind a move in this group.
Either the individual charts are predicting a coming sector move, or the SMH is telling the true story. Either way, the semis in general would be placed high up on my watch list.
Long-Term ETF Ideas
I realize that some individuals want to improve their investment performance by pursuing a longer-term strategy that does not involve frequent trading. So this service will also offer some long-term ETF investment ideas to identify and potentially profit from longer-term trends that I see developing in certain sectors or specific markets. For this group, I will use much broader-based ETFs, such as the S&P Depositary Receipts (SPY) or iShares Russell 2000 (IWM), when I believe the market or particular sectors will continue in a longer-term uptrend. My goal for this segment of my service will be to make only a few changes in these investments each quarter.
I am very excited about TheStreet.com ETF Shark Alerts service. I look forward to working very hard to find and reveal trends and themes so that you can potentially profit from these ideas before the media recognizes which ETF investments are working. That way you can swim along with the Sharks.
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