Relative strength is one of our primary tools as Technicians, but we're not talking about the Relative Strength Index.
Instead, we're talking about the relative performance of one security relative to another. By identifying those assets that are outperforming or underperforming, we know which have institutional support and which do not. Institutions are looking for relative strength and momentum
Much like the Relative Strength Index, we utilize this tool as a confirmation tool for price. When relative strength diverges from price, we can identify potential turning points in the trend.
With over 5,000 ETFs trading globally, there have never been more vehicles out there for a market participant to choose from, each with their own spin on a traditional asset.
Today I want to take a look at two WisdomTree ETFs that put what's becoming an ever-more popular spin on the vanilla Emerging Market and China indexes out there.
Although I'll briefly discuss the goal/methodology of these vehicles, our primary goal is to look at them from a Technician's perspective. What does this ETF's construction mean for the underlying holdings and exposure it's providing, and more importantly, its effect on price action?
We had a lot of "do nothing" responses this week, many of which were caveated with the fact that the structural trend is lower, thus anticipating an eventual breakdown but waiting for more data to come in to confirm it first.
We also had a number of responses with conviction to buy the test of support and plenty of others who wanted to sell into it or "look to get short." The majority took a neutral approach, preferring to see how prices react at this key level of interest before choosing a directional bias.
I think that is the most prudent thing to do in this situation as well, so with that as our backdrop let’s take a look at this week’s chart.
The near-term issues we're seeing in the broader market make this an interesting environment.
On the one hand, there's reason for caution as breadth and momentum concerns weigh on the leaders and major indices but on the other hand, there are still plenty of opportunities for those with short-term time horizons and those with longer-term ones. Our primary intermediate-term timeframe is where things get messy.
With that said, let's take a look at two stocks we discussed during our Members-Only Conference Call earlier this week as they test key levels with mixed results.
We've been fading gold since September for a variety of reasons, but primarily due to the overwhelming amount of selling being done by Commercial Hedgers.
While many of those conditions still exist our risk management for this thesis has always been Gold closing above 1,600.
This week we're getting that, so let's take a look at what's next and how we're taking advantage of it.
Despite our cautious outlook for Equities, there's one stock setting up for a potential short squeeze...and the skewed reward/risk has gotten our attention.
Unfortunately, with the last week or two of action, we've seen an expansion of stocks participating to the downside which suggests this near-term weakness could continue for the rest of the fourth quarter. Rather than the weakest stocks catching up to the leaders, the leaders are now catching down to the weakest names.
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
