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Price Averages Can Predict ETF Winners

TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.

Trying to figure out which exchange traded funds to buy? Most speculative investors know that analysis based on quarterly earnings is too slow to generate viable signals.

That's why many turn to "technical analysis," which focuses on a security's price movements. These methods help investors spot price trends so they can try to go along for the ride. Ratings

Two of my favorite strategies compare a security's average price over different time periods, a measure known as its "moving average."

One indicator that's useful for short-term trading evaluates the moving averages of two time periods. When the fast average, the one with fewer trading days, surpasses the longer, slow average, it suggests upward momentum. When the slow average moves ahead of the fast one, it's a sign of potential bearishness.

I also favor the "moving average convergence divergence" indicator, a more complicated measure that's commonly referred to as the MACD. In short, this approach compares exponential moving averages, which give more importance to recent price data, of different time periods to find turning points in prices.

Based on those measures, it might be time to sell these ETFs: the iShares Barclays Short Treasury Bond Fund (SHV), the iShares Barclays U.S. Treasury Inflation Protected Securities Fund (TIP), the ProShares UltraShort Industrials Fund (SIJ) and the Direxion Daily Small Cap Bear 3X Shares Fund (TZA).

These ETFs have five-day moving averages that lag their 10-day averages. Their MACD indicators have been offering sell signals for the past two days.

Technical analysis suggests these funds have more potential to gain: the iShares S&P Target Date 2030 Index Fund (TZL), the Claymore/Zacks Mid-Cap Core ETF (CZA), the First Trust Financials AlphaDEX Fund (FXO) and the SPDR Dow Jones Mid Cap Value ETF (EMV).

These ETFs have five-day moving averages that moved ahead of their 10-day averages, and MACD indicators that show it might be time to buy.
Kevin Baker became the senior financial analyst for TSC Ratings upon the August 2006 acquisition of Weiss Ratings by, covering mutual funds. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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TZL $41.48 0.00%
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