Tom lydon the ETF trend following playbook prof

From the Library of Gayle M Noll The ETF Trend Following Playbook From the Library of Gayle M Noll This page intentionally left blank From the Library of Gayle M Noll The ETF Trend Following Playbook PROFITING FROM TRENDS IN BULL OR BEAR MARKETS WITH EXCHANGE TRADED FUNDS TOM LYDON From the Library of Gayle M Noll Vice President, Publisher: Tim Moore Associate Publisher and Director of Marketing: Amy Neidlinger Executive Editor: Jim Boyd ditorial Assistant: Myesha Graham Operations Manager: Gina Kanouse Senior Marketing Manager: Julie Phifer Publicity Manager: Laura Czaja Assistant Marketing Manager: Megan Colvin Cover Designer: Alan Clements Managing Editor: Kristy Hart Project Editor: Anne Goebel Copy Editor: Krista Hansing Editorial Services, Inc Proofreader: Apostrophe Editing Services Indexer: Lisa Stumpf Compositor: Jake McFarland Manufacturing Buyer: Dan Uhrig © 2010 by Pearson Education, Inc Publishing as FT Press Upper Saddle River, New Jersey 07458 This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services or advice by publishing this book Each individual situation is unique Thus, if legal or financial advice or other expert assistance is required in a specific situation, the services of a competent professional should be sought to ensure that the situation has been evaluated carefully and appropriately The author and the publisher disclaim any liability, loss, or risk resulting directly or indirectly, from the use or application of any of the contents of this book FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special sales For more information, please contact U.S Corporate and Government Sales, 1-800-382-3419, corpsales@pearsontechgroup.com For sales outside the U.S., please contact International Sales at international@pearson.com Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners All rights reserved No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher Printed in the United States of America First Printing August 2009 ISBN-10: 0-13-702901-2 ISBN-13: 978-0-13-702901-3 Pearson Education LTD Pearson Education Australia PTY, Limited Pearson Education Singapore, Pte Ltd Pearson Education North Asia, Ltd Pearson Education Canada, Ltd Pearson Educación de Mexico, S.A de C.V Pearson Education—Japan Pearson Education Malaysia, Pte Ltd Library of Congress Cataloging-in-Publication Data Lydon, Tom, 1960The ETF trend following playbook : profiting from trends in bull or bear markets with exchange traded funds / Tom Lydon p cm Includes bibliographical references ISBN-13: 978-0-13-702901-3 (hardback : alk paper) ISBN-10: 0-13-702901-2 Exchange traded funds Stock index futures Investments I Title HG6043.L928 2010 332.63'27 dc22 2009022712 From the Library of Gayle M Noll Thanks to Mom and Dad; my wife, Lisa Ann; our kids, Creagan, Cameron, and Anya; and Lily, our dog, for their love and support From the Library of Gayle M Noll This page intentionally left blank From the Library of Gayle M Noll Table of Contents Acknowledgments xii About the Author xiv Introduction: Buy–and–Hold: Rest in Peace xv Chapter Trends Are an Investor’s Best Friend Buy-and-Hold’s Funeral March Getting in Touch with Your Emotions Never-Ending Opportunities Chapter Risk and Disaster Don’t Have to Go Hand-in-Hand 11 Greed and Fear and Stocks, Oh My! 12 Running Scared 13 What Kind of Risk Level Can You Tolerate? 14 Types of Risk 16 Staying Grounded 17 Is Time on Your Side? 17 The Go-Getter (Aggressive) 17 The In-Betweener (Somewhat Less Aggressive) 18 The Almost There (Moderately Conservative) 18 The I’m Outta Here (Conservative) 18 Chapter Spotting Trends Tools of the Trade 23 23 Learning to Identify Trends 24 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK The Rules of the Game 25 Understanding the Moving Average 26 Exiting Safely and Profitably 27 Avoiding a Bursting Bubble 29 Learning to Live with “the Sell” 29 Finding the Trends 30 Up, Down, and Flat as a Pancake 31 Timing Is Everything Chapter 35 Why Trend Following Can’t Be Beat 39 Never Look Back 42 What Happens After You Sell? 43 Conquer Volatility, Don’t Let It Conquer You 44 Do You Have Any Better Ideas? 44 Buy-and-Hold: Does It Work Like It Should? 45 Where That Leaves Us 46 Chapter The Nuts and Bolts of ETFs 49 Why ETFs Are a Better Solution 50 A Fast-Growing Industry 53 Evaluating ETFs 54 Employing ETFs 56 Chapter Tools You Can Use 61 News 61 Analysis 62 Looking Under the Hood 63 Charting 64 viii From the Library of Gayle M Noll CONTENTS Chapter Navigating U.S Markets 65 Choices Galore 66 Dow Jones Industrial Average 67 The S&P 500 69 Russell Mid-Cap Index 70 The Russell 2000 70 Growth Versus Value 72 Value: Slower but Steadier 72 Trends in Value and Growth 73 Domestic Market ETFs 74 Digging in Even Deeper 75 Chapter International Opportunities 77 The Land of the Rising Sun and Profits 79 The Beginning of the End 80 Emerging Markets 82 China’s Dragon 84 Investing in Emerging Economies 86 Another BRIC in the Wall 87 International ETFs 88 Developed Markets 89 Emerging Markets 90 Chapter The Best-Looking Sector in the Room 93 Technology: High Highs and Lower Lows 95 The Bubble Springs a Leak 96 Passing Around Blame 98 One Big Financial Mess 99 ix From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK Rocco, William Samuel “Five Steps to Better International Investing.” Morningstar http://news.morningstar.com/articlenet/article.aspx?id= 189479&_qsbpa=y&globalcsection=moreinfo5&t1=1192555065 Rosevear, John “Global Investing Made Simple.” The Motley Fool www.fool.com/investing/international/2007/07/19/global-investing-madesimple.aspx Russell, Michael “How Are Currency Values Determined?” Ezine article http://ezinearticles.com/?How-are-Currency-ValuesDetermined?&id=467643 Scherzer, Lisa “An Evolution in ETFs.” Smart Money www.smartmoney.com/theproshop/index.cfm?Story=20060216 Schoen, John W “Should I Invest in Commodities?” MSNBC www.msnbc msn.com/id/15768192/ Schwartz, Nelson D “Why Gas Prices Dropped.” CNNMoney.com http://money.cnn.com/magazines/fortune/fortune_archive/2006/10/30/ 8391681/index.htm Scientific American “My Genes Make Me Invest: DNA Implicated in Financial Risk-Taking.” www.sciam.com/blog/60-secondscience/post.cfm?id=my-genes-made-me-invest-dna-implica-2009-02-10 Securities and Exchange Commission “Microcap Stock: A Guide for Investors.” www.sec.gov/investor/pubs/microcapstock.htm Securities Industry and Financial Markets Association “Investing in Bonds.” www.investinginbonds.om/learnmore.asp?catid=7&subcatid=86 Seeking Alpha “Commodity ETFs and ETNs.” http://seekingalpha.com/ article/30369-commodity-etfs-and-etns Seeking Alpha “Investor Psychology and Market Expectations.” http://seekingalpha.com/article/108776-investor-psychology-and-marketexpectations 192 From the Library of Gayle M Noll REFERENCES AND RESOURCES Seeking Alpha “Touchdown! When Do Financial Stocks Hit Zero?” http://seekingalpha.com/article/116732-touchdown-when-do-financialstocks-hit-zero?source=yahoo Siegel, Aaron “Investors Think Globally, Invest Locally.” Investment News www.investmentnews.com/apps/pbcs.dll/article?AID=/20070717/REG/7071 7019/-1/INDaily01 Simpkins, Jason “Why Crude Oil Will Present Investors with a Golden Opportunity in 2009.” Money Morning www.moneymorning.com/2008/12/ 29/oil-2009/ Sjuggerud, Dr Steve “Emerging Market Stocks.” Investment U www.investmentu.com/IUEL/2005/20050215.html Skala, Martin “ETFs: Low-Cost Way to Invest Abroad.” Christian Science Monitor www.csmonitor.com/2005/1006/p16s01-wmgn.html Smart Money “Are ETFs Right for You?” www.smartmoney.com/etf/education/index.cfm?story=right2004 Smart Money “How to Make Money in a Sideways Market.” www.smartmoney.com/investing/stocks/how-to-make-money-in-a-sidewaysmarket/ Spence, John “Barclays’ Currency ETNs Dealt a Blow on Taxes.” MarketWatch www.marketwatch.com/news/story/story.aspx?guid= %7B1C874197%2D7CAA%2D463B%2DA700%2DA3B15DD1263F%7D &siteid=rss Spence, John “ETNs Face Taxing Times: Lineup of ETF-Like Products Grows, but Tax Advantages in Question.” MarketWatch www.marketwatch com/news/story/tax-advantages-etn-investments-question/story.aspx?guid=% 7BB54182F3-3946-4CC0-A7A5-73DAE68D45CB%7D Spence, John “New ETFs Target Retirement Market.” MarketWatch www.marketwatch.com/news/story/story.aspx?guid=%7B529D466D-F123483A-B943-C0EECE97A966%7D&siteid=rss 193 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK Spence, John “Tempest in an Index Fund: Robert Arnott and John Bogle Clash over Best Indexing Strategy.” MarketWatch www.marketwatch.com/ news/story/rivals-arnott-bogle-spar-over/story.aspx?guid=%7BDAFCCB1421EA-44E0-B919-A2D484544413%7D Spence, John “Trouble in ETF Paradise?” MarketWatch www.marketwatch.com/news/story/buyer-beware-etf-strategies-become/ story.aspx?guid=%7B5C10BD7B%2D4E22%2D4C1F%2D873A%2D68081 1FF2298%7D Standard & Poor’s “S&P 500 Description.” www2.standardandpoors.com Stein, Ben “Anticipating All the Retirement Variables.” Yahoo! Finance http://finance.yahoo.com/expert/article/yourlife/43552 Steinhilber, J D “ETFs: Broadening or Perverting Index Investing?” Agile Investing http://seekingalpha.com/article/27408-etfs-broadening-orperverting-index-investing StockCharts.com “Moving Averages.” http://stockcharts.com/school/ doku.php?id=chart_school:technical_indicators:moving_averages Stockhouse “Profit from Oil’s Long-Term Gusher.” www.stockhouse.com/ Columnists/2008/April/23/Profit-from-oil-s-long-term-gusher StockMarketingTiming.com “Nikkei 225, Dow Jones Crash of 1929, and the Popular ETFs.” www.stockmarkettiming.com/nikkei-comparison.html Street Authority “200-Day Moving Average.” www.streetauthority.com/ terms/num/200dma.asp Street Authority “Simple vs Exponential Moving Averages.” www.streetauthority.com/terms/simpleandexponentialmovingaverages.asp Taulli, Tom “Playing Commodities with ETFs.” The Motley Fool www.fool.com/news/mft/2005/mft05042908.htm 194 From the Library of Gayle M Noll REFERENCES AND RESOURCES TDAX Funds “TDAX Funds FAQ.” www.tdaxshares.com/content/view/39/ 116/#faq6 TDAX Funds “TDAX Independence 2040 Overview.” www.tdaxshares com/component/option,com_xshares/Itemid,175/task,viewetf/etfid,16/ Tiburon Strategic Advisors Tiburon Conference PowerPoint Presentation on Retirement Tseng, K C “Overconfidence and High-Tech Stocks in the 1990s.” Craig School of Business, California State University Trading Markets.com “Watch the 200-Day Moving Average: Here’s Why.” www.tradingmarkets.com/.site/Swingtrading/Commentary/ todaysetfo/-51950.cfm Trading Markets.com “What Historical Market Patterns Can Teach Us About the Present.” www.tradingmarkets.com/.site/stocks/education/ WeeklyCharts/10262001-20547.cfm Vanguard “Vanguard 500 Index Fund Investor Shares.” https://personal vanguard.com Van Schyndel, Zoe “The ABCs of Currency ETFs.” The Motley Fool www.fool.com/investing/etf/2006/08/15/the-abcs-of-currency-etfs.aspx Van Schyndel, Zoe “Fixed-Income Fever.” The Motley Fool www.fool.com/investing/etf/2007/04/04/fixed-income-fever.aspx Vardy, Nicholas “Global Investing: Easy As American Pie.” Seeking Alpha http://seekingalpha.com/article/25614-global-investing-easy-as-american-pie Waldock, Lind “History of Commodities Exchanges.” www.lind-waldock com/edu/com/com_history.shtml Wall Street Journal online “Dollar’s Dive Deepens As Oil Soars.” http://online.wsj.com/article/SB120423483765800801.html?mod=hpp_us_ pageone 195 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK Wall Street Journal online “Political Interference Seen in Bank Bailout Decisions.” http://online.wsj.com/article/SB123258284337504295.html Wall Street Sector Selector “Buy the Right ETFs at the Right Time.” www.wallstreetsectorselector.com/investment_accidents.html Wherry, Rob “Are Actively Managed ETFs Worth the Wait?” Smart Money www.smartmoney.com/fundinsight/index.cfm?story= 20070719&src=fb&nav=RSS20 Whistler, Mark “Determining What Market Cap Suits Your Style.” Investopedia www.investopedia.com/articles/mutualfund/06/ mfmarketcaps.asp Wiandt, Jim “Heavy-Hitting ETFs Could Be the Industry’s Ticket.” IndexUniverse www.marketwatch.com/News/Story/Story.aspx?guid= %7BB1D7B090%2D2E02%2D49C8%2DB2DF%2D6C8D5F7982C2% 7D&dist=rss&siteid=mktw Wikipedia “Commodity Markets.” http://en.wikipedia.org/wiki/ Commodity_markets Wikipedia “Currency.” http://en.wikipedia.org/wiki/Currency Wikipedia “Emerging Markets.” http://en.wikipedia.org/wiki/ Emerging_markets Wikipedia “Fundamentally Based Indexes.” http://en.wikipedia.org/wiki/ fundamental_weighting Wikipedia “The Global Economy.” http://en.wikipedia.org/wiki/the_ global_economy Wikipedia “Short Finance.” http://en.wikipedia.org/wiki/Short_selling Wikipedia “South Sea Company.” http://en.wikipedia.org/wiki/ South_Sea_Bubble 196 From the Library of Gayle M Noll REFERENCES AND RESOURCES Wikipedia “Tulip Mania.” http://en.wikipedia.org/wiki/Tulip_mania Wilcox, Cort “Growth vs Value: What’s the Difference?” CDAPress.com www.postfallspress.com/articles/2007/07/08/business/bus03.txt Wood, Carol A “Real Estate Plays, Hassle-Free.” BusinessWeek www.businessweek.com/investor/content/jul2005/pi20050721_3055_pi051.htm WTRG Economic “Oil Price History and Analysis.” www.wtrg.com/ prices.htm Xinhua “Beijing’s Population Nears 15 Million.” www.chinadaily.com.cn/ english/doc/2005-04/15/content_434469.htm Yahoo! Finance “Vanguard Renews Cost Competition in ETF Market with Introduction of Europe Pacific ETF.” Vanguard press release http://72.14.253.104/search?q=cache:XM9trfMZhscJ:biz.yahoo.com/bw/070 725/20070725005136.html%3F.v%3D1+vanguard+etfs+assets&hl=en&ct= clnk&cd=4&gl=us&client=firefox-a Resources Books Appel, Marvin Investing with Exchange Traded Funds Made Easy: Higher Returns with Lower Costs—Do It Yourself Strategies Without Paying Fund Managers (Upper Saddle River, NJ: FT Press, 2007) This primer focuses on technical ways to buy ETFs Bernstein, William The Four Pillars of Investing: Lessons for Building a Winning Portfolio (New York: McGraw-Hill, 2002) A classic on building a sensible portfolio Bogle, John C The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Hoboken, NJ: Wiley, 2007) This condensed version of the wisdom of Jack Bogle is a little gem 197 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK Culloton, Dan, ed and Morningstar Morningstar ETFs 150 (Hoboken, NJ: Wiley, 2007) Features top ETF funds with the patented Morningstar Hebner, Mark Index Funds: The 12-Step Program for Active Investors (IFA Publishing, 2007) More than you’d ever want to know about indexing, with portfolios dominated by the IFA group Lofton, Todd Getting Started in Exchange Traded Funds (Hoboken, NJ: Wiley, 2007) A reasonably accessible primer on the subject Richards, Archie M., Jr Understanding Exchange Traded Funds (New York: McGraw-Hill, 2007) A useful resource in exploring the subject Services Bloomberg Professional Service Geared toward active market pros, this single platform tracks all listed and future ETFs through its EXTF function, among thousands of other functions 198 From the Library of Gayle M Noll Index A advisors, financial advisors, 160-162 choosing, 163 agriculture, 116-117 almost there (moderately conservative), 18 Australia, 121 avoiding bursting bubbles, 29 B bear markets, 10 2000-2002, 9, 36 value stocks, 73 benchmarks, 66 Bernstein, Peter, 46 Big Charts, 64 Bishop, John, 11 black gold, 110-114 BLDRS Developed Markets 100 ADR (ADRD), 89 Boeing (BA), 29 bond ETFs, 146-147 bonds, 133 benefits of, 135-136 bubbles, 135 considerations for, 137-139 corporate bonds, 134 credit worthiness, 137 foreign bonds, 134 high-yield bonds, 144 investors, 146 junk bonds, 134 municipal bonds, 134 risk, 133 risk level, 136 trends, 141-142 Bozakis, John, 28 Brazil, emerging markets, 87-88 BRICs (Brazil, Russia, India, and China), 83, 87-88 broad-based commodity ETFs, 119 bubbles, 43 avoiding bursting bubbles, 29 bonds, 135 technology, 96 Treasury bubble, 135 Buffett, Warren, bull markets, Bush, President George W., 100 busts, technology, 96-99 buy-and-hold strategies versus trend following strategies, 32 buy-and-hold, 4-7 buy-and-hold strategies, 45-46 C calls, 152 capital gains taxes, mutual funds, 50 Carter, Jimmy, 85 CBOE (Chicago Board Options Exchange), 153 CDOs (collateralized debt obligations), 99 CDS (credit default swaps), 99 Charles Schwab, 59 charting tools, 64 Chicago Board Options Exchange (CBOE), 153 Chile, 121 China, emerging markets, 83-88 choosing bond ETFs, 147 financial advisors, 163 Claymore, 58 Claymore/BNY BRIC (EEB), 90 Claymore/Zacks Country Rotation (CRO), 89 collateralized debt obligations (CDOs), 99 commodities, 114-116, 122 broad-based commodity ETFs, 119 199 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK energy, 117-118 futures trading, 115 gold, 107-110 oil, 110-114 commodity equities, 116 commodity ETFs, 115 commodity indexes, 116 companies, growth companies, 72 Connell, Larry, 29 corporate bonds, 134 cost of ETFs, 54 Cramer, Jim, credit default swaps (CDS), 99 credit worthiness, bonds, 137 The Cubes (QQQQ), 75 currencies euro, 125 foreign exchange market (Forex), 123 U.S dollar, 123-125 valuing, 127-128 currency ETFs, 129-132 currency trading market, 130 CurrencyShares, 130 cyclical investing, sectors, 94 D developed markets, 89-90 The Diamonds (DIA), 75 Direxion, 58 Direxion Developed Markets Bull 3x Shares (DZK), 155 Direxion Technology Bear 3x Shares (TYP), 154 Diversification, 52 DJIA (Dow Jones Industrial Average), 65-69 Dow 30, 69 technology bubble, 96 Dolan, Ronald E., 80 dollar, 123-126 domestic ETFs, 76 domestic market ETFs, 74 dotcom bubble, 96-99 double leverage ETFs, 154-155 Dow 30, current list of, 69 Dow Jones Industrial Average See DJIA Dow Jones Wilshire 5000 index, 73 downtrends, 31 drawdown, 34 Dreber, Anna, 20 E EMA (exponential moving averages), 27 emerging markets, 82-84, 90-91 BRICs (Brazil, Russia, India, and China), 87-88 China, 84-86 investing in, 86 emotions, 7-8 staying grounded, 17 employing ETFs, 56 energy, 117-118 ETF companies, 57-59 ETF Connect, 62 ETF providers, 59 ETF Screen, 62 ETF Securities, 59 ETF Trends, 61, 64, 164 ETF Trends Analyzer, 62 ETF-specific web sites, 61 ETFs (exchange traded funds), 23-24, 49 benefits of, 50-52 bond ETFs, 146-147 broad-based commodity ETFs, 119 commodity ETFs, 115 currency ETFs, 129-132 domestic ETFs, 76 domestic market ETFs, 74 double leverage ETFs, 154-155 fixed-income ETFs, 144-145 healthcare ETFs, 104 history of, 53-54 indexed bond ETFs, 145 international ETFs, 88 leveraged ETFs, 150-152, 155-157 200 From the Library of Gayle M Noll INDEX sector ETFs, 101-103 short ETFs, 151-152, 155-157 switching from mutual funds, 161-162 trends toward, 49 euros versus U.S dollar, 125 Eustace, Robert, 44 evaluating ETFs, 54-56 exchange traded funds See ETFs exit strategies, 27-28, 42 avoiding bursting bubbles, 29 sell points, 29 exponential moving averages (EMA), 27 F Fama, Eugene, 73 fear, 13-14 Federal Reserve, U.S dollar, 125 Fidelity, 59 financial advisors, 160-163 financial crisis of 2008, 99-101 financial sector, 104-105 Find Trust, 58 First Trust Dow Jones Select MicroCap (FDM), 76 fixed-income ETFs, 144-145 flat yield curves, 140 following trends See trend following foreign bonds, 134 foreign exchange market (forex), 123 foreign markets, 79 See also global markets Japan, 79-81 forex (foreign exchange market), 123 “free agent” funds, 43 French, Kenneth, 73 Fritz, Bill, 16, 43, 49, 99 futures, individual commodity futures, 115 futures trading, commodities, 115 G genes, risk and, 19-20 global crisis, beginning of, 100-101 global markets, 77-78 Japan, 79-81 returns of various markets in 2005, 78 Global X, 59 go-getters (aggressive), 17 gold, 107-108 black gold See oil reasons for run-up in price, 109-110 gold standard, 108 Google (GOOG), 23 Graham, Benjamin, Grail Advisors, 59 greed, 12-13 Green Faucet, 61 Greenspan, Alan, 12, 96 growth, 72-74 growth companies, 72 Gunn, Hamish, 12, 41 H Health Care Select Sector SPDR (XLV), 104 healthcare ETFs, 104 high-yield bond market, 144 high-yield bonds, 134 high-yield debt, 134 history of ETFs, 53-54 Holbrook, Rick, 108 Home Depot (HD), 65, 70 hot stocks, 40-42 I I’m outta here (conservative), 18 identifying long-term moving averages, 32-35 trends, 1-4, 24-26 in-betweeners (somewhat less aggressive), 18 indexed bond ETFs, 145 IndexIQ, 59 India, emerging markets, 87-88 individual commodity futures, 115 inflation risk, 16 initial public offering (IPO), 95 interest rates, currency ETFs, 130 201 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK international ETFs, 88 international opportunities, 77-78 Internet, 50, 95 Internet boom, greed and fear, 12-13 inverse ETFs, 151-152 inverted yield curves, 140 investing in emerging economies, 86 investor psychology, investors, bonds, 146 IPO (initial public offering), 95 iShares, 57, 63 iShares Aggregate Bond (AGG), 145 iShares COMEX Gold Trust (IAU), 119 iShares Dow Jones U.S Energy Sector Index Fund (IYE), 118 iShares Dow Jones U.S Financial Sector (IYF), 99 iShares Dow Jones U.S Financial Services (IYG), 105 iShares Dow Jones U.S Health Care (IYH), 104 iShares Emerging Markets Index (EEM), 90 iShares iBoxx $ Investment Grade Corporate Bond (LQD), 146 iShares Leham Aggregate Bond Fund (AGG), 147 iShares MSCI Australia Index (EWA), 90, 121 iShares MSCI BRIC (BKF), 90 iShares MSCI Canada (EWC), 90 iShares MSCI Chile Investable Market Index (ECH), 121 iShares MSCI Israel (EIS), 91 iShares MSCI Japan (EWJ), 89 iShares MSCI South Africa Index (EZA), 120 iShares MSCI Thailand (THD), 91 iShares Russell 1000 Growth Index (IWF), 76 IShares Russell 2000 Index (IWM), 75 iShares S&P Europe 350 (IEV), 89 iShares S&P Global Financials (IXG), 105 iShares S&P GSCI Commodity Indexed Trust (GSG), 119 iShares S&P MidCap Growth (IJK), 76 iShares S&P National Municipal Bond (MUB), 146 iShares Silver Trust (SLV), 119 J-K Japan market crash, 80-81 profits, 79-80 junk bonds, 134 KBW Regional Banking (KRE), 105 Keller, Werner, 31 identifying long-term moving averages, 32-35 Kennedy, Ted, 10 Kuhnen, Camelia, 19 L large-caps, 68 Leuthold Group, 71 leverage, double leverage, 154 leveraged ETFs, 150-152, 155-157 liquidity risk, 16 long-term moving averages, identifying, 32-35 Lost Decade, 31 M MacDonald, Mike, Malkiel, Burton, margin rules, leveraged ETFs, 156 market crashes, Japan, 80-81 Market Vectors, 58 Market Vectors Global Agribusiness (MOO), 117 Market Vectors Indonesia (IDX), 91 Market Vectors Russia ETF (RSX), 121 Market Vectors Steel (SLX), 119 Market Watch, 61 202 From the Library of Gayle M Noll INDEX markets bear markets, 10 currency trading market, 130 developed markets, 89-90 emerging markets, 82-84, 90-91 BRICs (Brazil, Russia, India, and China), 87-88 China, 84-86 investing, 86 sideways markets, men, risk and, 20 metals, 118-119 Microsoft (MSFT), 65 mid-caps, 71 MidCap SPDRS (MDY), 76 momentum, 47 money, 123 See also currencies Morningstar, 61-63 moving averages, 24-27 municipal bond funds, 142 municipal bonds, 134 taxes, 142-143 mutual funds, 24, 49 switching to ETFs, 161-162 trends away from, 49 N NASDAQ, 66-67, 96 technology bubble, 96 NAV (net asset value), 51 NBER (National Bureau of Economic Research), 71 net asset value (NAV), 51 neuroeconomics, 19 news, 61-62 Nikkei, 79 200-day moving average, 1984-2009, 82 O oil, 110-113 200-day moving average, 2002-2008, 111 turning trends into profits, 113-114 online brokerage firms, 160 options, 152-153 P P/E ratio (price-to-earnings ratio), 72 Paulson, Henry, 100 Pimco, 59 portfolios, 55 PowerShares, 58, 63 The Cubes (QQQQ), 75 PowerShares DB Agriculture (DBA), 117 PowerShares DB Base Metals (DBB), 119 PowerShares DB Commodity Index Tracking Fund (DBC), 119 PowerShares DB Energy Fund (DBE), 118 PowerShares DB Gold Fund (DGL), 119 PowerShares DB U.S Dollar Bearish (UDN), 131 PowerShares DB U.S Dollar Bullish (UUP), 131 PowerShares Dynamic Europe (PEH), 89 PowerShares High Yield Corporate Bond (PHB), 147 PowerShares Zacks Micro Cap (PZI), 76 premiums, 153 price-to-earnings ratio (P/E ratio), 72 profits Japan, 79-80 turning trends into, 113-114 ProShares, 57 ProShares Ultra Consumer Services (UCC), 154 ProShares Ultra Financials (UYG), 151 ProShares UltraShort S&P 500 (SDS), 154 puts, 152 203 From the Library of Gayle M Noll THE ETF TREND FOLLOWING PLAYBOOK R real estate in the 2000s, 41 recessions, small-caps, 71 recommendations for ETFs, 54 regions, targeting, 90 retirement, putting off, RevenueShares, 59 risk, 11 bonds, 133 determining what kind of investor you are, 21 genes and, 19-20 inflation risk, 16 liquidity risk, 16 men and, 20 staying grounded, 17 types of, 16 women and, 20 risk aversion, 14 risk level of ETFs, 55 risk tolerance, 14-16 Ritholtz, Barry, 46 Rockwell Automation (ROK), 29 Rockwell Collins (COL), 29 rules of identifying trends, 25-26 Russel Mid-Cap index, 70 Russell 2000, 66, 70 Russia, 121 emerging markets, 87-88 Rydex 2x S&P Selector Sector Technology (RTG), 154 Rydex Inverse 2x S&P MidCap 400 (RMS), 154 Rydex S&P Equal Weight Financials (RYF), 105 Rydex S&P Equal Weight Health Care ETF (RYH), 104 Rydex S&P Equal Weight Utilities ETF (RYU), 103 S S&P 500, 66, 69 200-day moving average, 1997-2008, 39 S&P 500 Index with 200-day moving average, 2000-2003, 40 sector ETFs, 101-103 sectors, 93-94 cyclical investing, 94 technology, 95-99 Security Global Investors/Rydex Investments, 58 currency ETFs, 130 Seeking Alpha, 61 sell points, 29 selling, 30 what to after you sell, 43 short ETFs, 151-152, 155-157 short selling, 149-150 sideways markets, sideways trends, 31 timing, 35-37 simple moving averages (SMA), 26 single-country funds, 120 small-caps, 71 Smart Money, 61 South Africa, 120 South Sea Company, 42 SPDR Gold Shares Fund (GLD), 119 SPDR Gold Trust (GLD), 57 SPDR S&P BRIC (BIK), 90 SPDR University, 63 SPDRs (State Street Global Advisors), 57 The SPDRS (SPY), 74 Spickler, Ted, 13, 28, 113 Standard & Poor’s 500 See S&P 500 State Street Global Advisors (SPDRs), 57, 63 steel, 118 steep yield curves, 140 Stock Charts, 64 stocks, 23 hot stocks, 40-42 subsectors, 93 switching from mutual funds to ETFs, 161-162 204 From the Library of Gayle M Noll INDEX T targeting regions, 90 tax liabilities, 56 tax-exempt bond market, 142 taxable equivalent yield (TEY), 143 taxes capital gains taxes, mutual funds, 50 ETFs, 52 municipal bonds, 142-143 technology, 95 bubbles, 96 bust, 96-99 Internet, 95 NASDAQ, 96 television, news, 61 TEY (taxable equivalent yield), 143 time horizon, 17 almost there (moderately conservative), 18 go-getters (aggressive), 17 I’m outta here (conservative), 18 in-betweeners (somewhat less aggressive), 18 timing sideways trends, 35-37 Tokyo Securities and Stock Exchange, 79 Toyota, 79 Treasury bubble, 135 trend following, 39-40, 44 200-day moving average, 46 disciplined approach to, 47 exit strategies, 42 volatility, 44 trend following strategies versus buyand-hold strategies, 32 trends bonds, 141-142 downtrends, 31 identifying, 1-4, 24-26 turning into profits, 113-114 U.S dollar, 126 uptrends, 31 tulips (Holland, 1634-1637), 42 turnover, 55 200-day moving averages, 24-25, 46 gold, 107 oil, 111 U U.S dollar, 123 versus euro, 125 rocky road of, 124-125 trends, 126 U.S Treasury bonds, 10-year bond, 1970-2008, 137 United States Gasoline (UGA), 118 United States Oil Fund (USO), 118 uptrends, 31 utilities, 103 utilities ETFs, 103 Utilities Select SPDR (XLU), 103 V value, 72 trends in, 73-74 value stocks, bear markets, 73 valuing currencies, 127-128 Vanguard, 57 technology, 98 Vanguard Small Cap Growth (VBK), 76 Vanguard Utilities ETF (VPU), 103 Vanguard Value (VTV), 76 volatility, conquering, 44 W whipsaws, 26, 39 Wisdom Tree, 58 currency ETFs, 131 women, risk and, 20 Y Yahoo! Finance, 61-64 yield curve, 139-140 Z Zweig, Jason, 155 205 From the Library of Gayle M Noll From the Library of Gayle M Noll