Since ETFs trade like stocks, large Bid-Ask trading spreads can eat into your potential profits. As a general rule, this does not appear to be a problem with ETFs that are heavily traded. To demonstrate, at the time of this writing, I checked out the spreads for 2 ETFs that I don’t have any positions in at the moment.

Let’s take a look at EFA, one of the most heavily traded ETFs with a daily average volume of some 7.5 million shares. The current Bid-Ask spread is 76.66-76.67, which is a difference of 1 penny.

Contrast that with DGG, and an average volume of just over 7,000 shares, and you will see a Bid-Ask spread of 32.13-32.19, which is a difference of 6 pennies. If you want to look at it as a percentage of the current price, the difference becomes even more glaring.

Again, this is only one aspect of selecting an ETF, but a very crucial one. More importantly, low volume will also make it more difficult to get out when your sell stop point gets triggered and the exit doors become more crowded.

Just because new ETFs are being offered and cover a unique area does not mean that you should invest blindly. My rule is to watch newcomers for about a year or so to see how pricing and volume develops.

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

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

The bulls had the upper hand and the major indexes ended up in positive territory.

Our Trend Tracking Index (TTI) for domestic funds/ETFs moved higher to +4.03% above its long-term trend line (red) as the chart below shows:



The international index also remained +0.84% above its own trend line, keeping us still on the buy side.

MarketWatch recently featured Jim Stack, editor of the Investech newsletter as saying that “Bull Markets don’t die of old age, they die from deterioration and economic imbalances, and we are seeing economic imbalances now.”

That’s been my experience as well, and I agree with his assessment. While he did not predict a speedy end to the bull—election-year politics may help it run longer—he now advocates a cash position of some 50%. However, he also recognizes that the market run could continue for another 16 months.

While all of his arguments are valid observations, the fact remains that they are still guesses or predictions about the future. That’s the problem I have. I can’t agree with making changes to investment positions just because this or that event may or may not happen in the future.

My preference is to see actual changes in trends and prices, which can be measured, before adjusting my investments.

In my advisor practice, my mode of operation is to use both, ETFs and No Load Mutual Funds depending on what I’m trying to accomplish. Generally speaking, I prefer ETFs when investing in more volatile areas such as sectors and countries. This eliminates the problem of possibly increasing costs by having to deal with early redemption fees.

Of course, my main criterion for using either is the performance and ranking as per my M-Index. After all, only performance will grow your portfolio. However, if your preference would be the use of no load funds, how could you circumvent frequent trading rules and other charges?

MarketWatch featured a recent story titled “Trading Places,” which describes the benefits of having an account at a progressive fund company such as ProFunds. Having an account there entitles you to trade as frequently as you wish among ProFunds’ 13 single-beta funds and money market fund. Additionally, you have access to leveraged and inverse funds.

ProFunds momentum data are listed in my weekly StatSheet for easy tracking. Rydex has a similar program you might want to look into. If your preferred investment vehicle is mutual funds along with the freedom to trade as you wish, you owe it to yourself to check these companies out.

Disclosure: I have no affiliation with either company or any investments in any of their funds at this time.

Continued volatility had the bulls and bears in a tug-of-war all day. Rallies, as well as pullbacks could not be sustained and we ended up essentially unchanged. I believe that this kind of uncertainty will stay with us into next week when the Federal Reserve meets to decide if any changes in interest rates are warranted.

Our Trend Tracking Indexes (TTIs) meandered as well and are hugging their respective trend lines as follows:

Domestic TTI: +3.05%
International TTI: -0.06%

Given the current up and down in the market place, I won’t read much into the fact that the international TTI just slipped below its trend line. As I previously said, my exit point for my international positions will be a 7% trailing stop loss. Surprisingly, they closed up for the day. Go figure.

Mark Hulbert of MarketWatch wrote a piece about a technical indicator that I had never heard of. In regards to the recent low volume days he says that there is one aspect that might actually quite bullish: On three of the past trading sessions, stock market volume triggered a bullish technical signal known as a “Nine To One Up Day.”

Here’s how this phenomenon is described:

This signal is based on the volume of all New York Stock Exchange-listed stocks that go up on a given day, expressed as a percentage of the total volume of all stocks that rose or fell on that day. On a day when rising stocks’ volume is the same as declining stocks’ volume, for example, this ratio would be exactly 50%.

A “Nine To One Up Day” occurs when this ratio is 90% or higher. According to Martin Zweig, who helped to develop this indicator several decades ago, such a huge imbalance of up volume over down volume “is a significant sign of positive momentum. In other words, when daily up volume leads down volume by a ratio of 9-to-1 or more, that tends to be an important signal for stocks.” The quotation comes from Zweig’s 1986 book, “Winning on Wall Street.”

He details further how this indicator is used and quotes other statistical tests. Personally, I don’t have an opinion either way, but I am constantly amazed at what arguments people try to come up with to support their case, be it bullish or bearish.

In my view, it is totally irrelevant whether you are bullish or bearish, what matters is the direction the market is taking, which it will do with or without your bias. Most investors would be better off to discard their opinions and only pay attention to where the market is headed and not where they think it should head. Eliminating these kinds of emotions is done best via trend tracking.

Determine the trend, establish your positions and provide for contingencies via an exit strategy. That’s all there is to increasing the odds of a successful investment in your favor.