ETF Trading Clusters

I’m pleased to offer with my compliments a reference sheet called “ETF Trading Clusters.”

It’s a tool I use to trade around indexes based on the behavior of their 2x, 1x, -1x, and -2x vehicles. The financial sector, energy sector, Russell 1000, and Russell 2000 now include 3x and -3x ETFs as well.

The beauty of viewing each index as a cluster of ETFs is that it enables you to see confirming opposite signals. For example, let’s say you’ve been following the financial sector and wonder if its current bounce will continue. You would analyze the following cluster:

FAS | 300% the Russell 1000 Financial Serv (3X)
UYG | 200% the DJ U.S. Financials (2X)
IYF | Same as the DJ U.S. Financials (1X)
SEF | Inverse of the DJ U.S. Financials (-1X)
SKF | 200% inverse of the DJ U.S. Financials (-2X)
FAZ | 300% inverse of the Russell 1000 Financial Serv (-3X)

If FAS, UYG, and IYF all give bullish indications on their charts, that’s a good signal. However, it’s an even better signal if SEF, SKF, and FAZ all give bearish indications at the same time. By thinking in terms of ETF clusters around indexes, you will get a clear picture of the current situation.

This reference sheet is good for any time period. Short-term traders and long-term investors adjust their charts accordingly, but still use the same clusters of ETFs.

Here’s a tip: create a free portfolio watch list at your favorite financial site with all the symbols on it in the same order they appear on the reference sheet. Then, you can get a quick overview of the market at any time.

I hope you find this tool to be helpful, and that you prosper in the market.

Download the reference sheet for free here.

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