Reader Frank had the following question:

You say that you sort the stat sheets by the M-index. For funds that have the same M-index are they truly in descending momentum sequence?

For example, there may be 10 or 15 funds with an M-index of 4. Does the 1st #4 fund have a higher momentum than the 2nd or are they just listed randomly within the ranking? Am I better off choosing a fund listed higher within a given ranking?

Let’s say there are 10 ETFs all ranked with an M-Index of 4. That means they have equal weighting, but they are randomly listed within the ranking.

You now need a tiebreaker to decide which one maybe appropriate for you. While there are several approaches, I focus on only two other numbers:

1. The DD% column: It tells me by how much a fund has come off its recent high. The number 0.00% means that it has just made a new high and is in tune with current market momentum.

2. The 4wk column: That too shows more recent strength as opposed to longer term momentum, which is represented in the M-Index itself.

For example, take a look at the chart above (listing of Top 100 funds as of 9/9/10). There are 3 funds listed, which have an M-Index of “6.” Based on the DD% column, DEF would be my choice since it has just made a new high, while the other 2 have come off their highs considerably.

Despite their higher 4wk momentum numbers, my choice would still be DEF. Assume for a moment that all 3 had DD% numbers of 0.00%; then my selection would be FKASX, since it has the highest 4wk momentum number.

Again, as I have posted before on several occasions, if you are selecting ETFs, be sure to use only those with high daily average volume figures due to lower bid/ask spreads and superior liquidity.

Disclosure: No holdings

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Slow and steady was the theme of the week, as the S&P; 500 knocked against overhead resistance.

Our Trend Tracking Index (TTI) for domestic funds/ETFs held above its trend line (red) by +3.74% (last week +3.03%) and remains in bullish mode.



The international index broke back above its long-term trend line by +4.21% (last week +2.76%). A new Buy signal was triggered effective 9/7/10. If you decided to participate, be sure to use my recommended sell stop discipline.

So far, overhead resistance, pegged to be the 1,130 level of the S&P; 500, held twice yesterday, as the index backed off, but still closed within striking distance.

It seems to me that the rally from the lows of the trading range appears to be getting a little tired as the market may have gotten way ahead of itself. Evidence of more economic growth is nonexistent, but is the most important factor in sustaining this rally.

Yesterday’s weaker than expected growth in industrial production was largely ignored as was the announcement that the Japanese government sold the yen in an attempt to push it lower against the dollar. History has shown that those types of interventions can have the desired effect, but only on a temporary basis. Long term, all past currency interventions have failed.

Today, the market will face important earnings reports. Among others, FedEx is the most watched as it often signals the direction the economy may be headed. Additionally, initial jobless claims will be reported, which can always be a market moving event.

Try not to get too sidetracked by day to day fluctuations and keep the big picture in mind.

While we’ve bounced nicely of the bottom of the trading range, we have now reached the top level. To my way of thinking, smoke and mirrors will not be enough to push this market decisively higher.

Real supportive economic evidence will be (eventually) required to justify these lofty levels. In the absence of real facts, we could find ourselves moving back down to the lower end of the range in a hurry. Always be aware that markets move down a lot faster than they move up.

While the S&P; 500 slipped yesterday, after 4 days of gains, gold rallied and closed at a record high. Speculation has it that the Fed will purchase some $1 trillion in bonds to support the economy. At the same time, the dollar fell, which helped silver and commodities and pushed interest rates lower.

The major indexes, with the exception of the Nasdaq, slipped slightly as overhead resistance remained. The pullback was minor, and I would not be surprised to see another attack at the 1,130 level of the S&P; 500.

The Fed’s purchase of $1 trillion in treasuries is widely regarded as a play to improve economic stability in the financial markets while, at the same time, be a boost to GDP by as much as 0.4%. Whether this is just simply ivory tower theory or will actually work as planned has yet to be seen.

Retails sales climbed for the second straight month, which was interpreted as reassuring since economists actually had expected a decline. Some stimulus via bigger back-to-school discounts, tax-free holidays and extended jobless benefits may have lent support to these climbing numbers.

It makes me wonder if anything can possibly be sold these days without prodding or the use of special incentives.

Chart courtesy of marketwatch.com

The cheapest S&P; 500 ETF was brought to the market as reported in ”Vanguard Launches New, Cheaper S&P; 500 ETF:”

It’s been a long time coming, but an S&P; 500 ETF from Vanguard is finally here. The Valley Forge, Pennsylvania-based firm rolled out the Vanguard S&P; 500 ETF (VOO) on Thursday, nearly 35 years after the company introduced an S&P; 500 index mutual fund that laid the groundwork for the rise of indexing as an investment strategy. Earlier this decade Vanguard got caught up in a legal dispute with S&P; over the licensing of the index, leading the company to build its line of ETFs around indexes maintained by MSCI–a relative unknown in the industry at the time.

Each of these products will also compete very closely with existing ETFs, primarily products offered by iShares. Expense ratios on the new Vanguard funds range from 15 to 20 basis points, making them competitive from a cost perspective. “The new Vanguard index funds and ETFs offer our trademark low costs and tax efficiency, and aim for the utmost tracking precision. They will appeal to financial advisors and institutional investors seeking to build portfolios based on S&P; benchmarks,” said Vanguard Chairman and CEO Bill McNabb in a press release. “In particular, the new ETFs will offer additional choices to investors and help Vanguard continue to build momentum in the ETF marketplace.”

Sure, the competition for lower prices in the ETF universe has heated up and will be a benefit to the investing public. However, to my way of thinking, price is one thing and volume is another.

Just because an ETF has low annual expenses does not make it appropriate. You want to be able to place a trade quickly and see it executed without much slippage and/or a large bid/ask spreads.

To accomplish that, you need to use ETFs with high average volume. For example, if I want to trade the S&P; 500 in my advisor practice, I only use SPY, which, with over $1 billion (with a “b”) average daily volume, is the mother of all S&P; 500 ETFs; no one else comes even close.

Large orders get filled with lightening speed, which can be important if you need to get out in a fast moving market. While low annual expenses are important, be sure to give average daily volume an equal consideration.

Disclosure: No holdings