Market Recap

Last week I posted my Death Cross & a Test article and a few weeks before that my article on How Passive Investing Saved my Life. It turns out some of my readers found it useful so I decided to post a market recap from last week. I’m not sure how long I’ll keep these up but it’s fun to write about for the time being.

I don’t keep up on ALL the market gyrations but I’m aware that earnings season is coming and several companies are already ‘warning’ of possible misses. While some of that’s due to the Trump administration not know what they’re doing (tariffs, threatening to fire Chairman Powell, etc), some of it could be due to Bull Market exhaustion. Whatever the case is, I expect plenty of volatility going forward for the rest of January and even into February.

Market Rebound?

It looks like the S&P 500 (my main go to chart) is firming up. I look at the booth the weekly and daily charts and noticed that the daily chart is rebounding nicely from the lows in December. There appears to be some weakening happening in volume as it’s nearing the 50 DMA. Strong volume and crossing the 50DMA line is really important here. This is a wait and see.

S&P500 Daily Chart through 2019-01-11, market recap
S&P500 Daily Chart through 2019-01-11

I’m not overly concerned right now as the weekly chart in the S&P500 is still very positive but the price action is below the 50WMA line. Not a good omen if the price action stalls below it and we might see some stalling in the daily chart (above). Still, those white hollow candles and decent volume on the weekly chart makes me want to take a wait and see position.

S&P500 Weekly Chart through 2019-01-11, market recap
S&P500 Weekly Chart through 2019-01-11

I haven’t market timed or moved any money out of my retirement accounts. My mad money — aka small stock investments in my Brokerage account — is not doing so well. Meh. That’ll be a topic of another post soon.

Despite all this, I’m still long but I expect weakness going forward this year. That’s not bad, it lets me dollar cost average better in 401k.

ETF Pick of the Week

This pick of the week is mostly me remembering something from my past trading days. I really like ETF’s and I plan on rotating out many of my individual stock holdings into ETF’s over the next few years. I find that they’re easy for me to think about and keep track of.

This weeks ‘pick’ is EEM, the iShares MSCI Emerging Markets Index. Let’s look at the daily and weekly charts.

EEM Daily Chart through 2019-01-11, market recap
EEM Daily Chart through 2019-01-11

EEM just plain sucks on the daily chart. It had a death cross many months ago and has been riding the 50DMA average down ever since. While the recent price action since early 2019 is nice, it hasn’t broken above the last high beginning last December. If it does, then yeah I’d be watching it more closely. If it takes that high out and the high last October, while breaking above the 200DMA, then I’d consider buying.

Still, there’s so much craziness going on right now with the Trump Tariffs, Brexit, and whatever else you want to blame.

EEM Weekly Chart through 2019-01-11, market recap
EEM Weekly Chart through 2019-01-11

The weekly chart looks a bit better. The 50WMA is still above the 200WMA, a test of the 200WMA in late October 2018 and again in December 2018 held, so that’s positive, BUT the 50WMA racing toward the 200WMA is cause for concern. Weekly moving averages that make a ‘Death Cross’ are big deal for me.

Famous Last Words

Still long and Bullish overall, but very cautious. I’m keeping an eye on the S&P 500 and might buy EEM for my long term portfolio if it perks up more and the charts keep going from the lower left to the upper right.

Now, go out and do something fun.

Build an ETF Trend System in Excel

Today I wanted to share with you a part of the algorithmic back end to my ETF Trend System. Note, I said part, I’m not giving away all my secrets. It’s written completely in Excel, incredibly simple, and is a macro that you can import. The system works by using something called linear regression slope.

What’s that?

The easiest way to understand what linear regression slope is, is to think back to your basic statistics class. Linear regression is the best fit” line between a bunch of data points. A line is defined by the formula: y = mx+b, where y is your data point’s position on the y-axis, m is the slope, x is your data point’s position on the x-axis, and b is the slope intercept. What this ETF Trend following system does is place a best fit” line across several price data points (8, 13, and 26 weeks) and then calculate the slope of the line. If the slope is positive, you have an upward trending ETF. Conversely, if the slope is negative then you have a downward tending slope.

As the ETF trades in the markets, the price goes up, down, and sometimes consolidates inside a trend. When that happens the linear regression slope begins to flatten” out, meaning the slope becomes more horizontal. When combined with two or more periods, like an 8, 13, and 26 week period, you can see the overall short-term, medium-term, and long-term trends in a particular ETF. This makes for a great indicator that warns you of either a change in trend or a dip buying opportunity.

Ready to try it out for yourself? Just follow these easy steps and you’ll be ETF Trend following in no time. First you have to make sure you have Excel 2003 or a later version installed and access to ETF data.

Step 1: Get two years of ETF data. You’ll need your favorite ETF and two years of weekly closing data. Make sure you include the date, open, high, low, and closing prices. You can cheat, and follow along with my example by downloading this XLS: GSPC ETF Trend Example

In the example contained in this lesson, I use the S&P500 weekly data but you can substitute that with any ETF or index you’d like to follow

Step 2: Copy the macro code below and paste it into your Excel Visual Basic Editor. You can find this editor by going to Tools > Macros > Visual Basic Editor.

Sub ETF_TREND()

′ LinReg Macro
′ Macro recorded 3/8/2007 by Thomas Ott

Clear Data
Columns(“G:Q”).Select
Selection.ClearContents
Calc ETF Trends
Range(“G1”).Select
ActiveCell.FormulaR1C1 = 8 Week”
Range(“H1”).Select
ActiveCell.FormulaR1C1 = 13 Week”
Range(“I1”).Select
ActiveCell.FormulaR1C1 = 26 Week”
Range(“G9”).Select
ActiveCell.FormulaR1C1 = =SLOPE(R[-7]C[-2]:RC[-2],R[-7]C[-6]:RC[-6])”
Selection.AutoFill Destination:=Range(“G9:G54”), Type:=xlFillDefault
Range(“G9:G54”).Select
Range(“H14”).Select
ActiveCell.FormulaR1C1 = =SLOPE(R[-12]C[-3]:RC[-3],R[-12]C[-7]:RC[-7])”
Selection.AutoFill Destination:=Range(“H14:H54”), Type:=xlFillDefault
Range(“H14:H54”).Select
Range(“I27”).Select
ActiveCell.FormulaR1C1 = =SLOPE(R[-25]C[-4]:RC[-4],R[-25]C[-8]:RC[-8])”
Selection.AutoFill Destination:=Range(“I27:I54”), Type:=xlFillDefault
Range(“I27:I54”).Select
Format Columns
Range(“G9”).Select
Selection.FormatConditions.Delete
Selection.FormatConditions.Add Type:=xlCellValue, Operator:=xlLess,
Formula1:=“0”
Selection.FormatConditions(1).Font.ColorIndex = 3
Selection.FormatConditions.Add Type:=xlCellValue, Operator:=xlGreater,

Formula1:=“0”
Selection.FormatConditions(2).Font.ColorIndex = 50
Selection.Copy
Range(“G9:I54”).Select
Selection.PasteSpecial Paste:=xlPasteFormats, Operation:=xlNone, _
SkipBlanks:=False, Transpose:=False
Application.CutCopyMode = False
Selection.NumberFormat = 0.000000”
Selection.NumberFormat = 0.00000”
Selection.NumberFormat = 0.0000”
Selection.NumberFormat = 0.000”
Percent Change Function
Range(“J1”).Select
ActiveCell.FormulaR1C1 = % Change”
Range(“J2”).Select
ActiveWindow.SmallScroll Down:=18
Range(“J53”).Select
ActiveCell.FormulaR1C1 = =(RC[-5]-R[-51]C[-5])/R[-51]C[-5]”
ActiveWindow.SmallScroll Down:=6
Selection.Style = Percent”
Selection.NumberFormat = 0.0%”
Selection.NumberFormat = 0.00%”
Selection.AutoFill Destination:=Range(“J53:J54”), Type:=xlFillDefault
Range(“J53:J54”).Select
End Sub

Step 3: Save the file and then activate the macro by clicking Run. You should see that the macro created four new columns and color coded the slopes. It should look something like this XLS: GSPC ETF Trend Example 2

Step 4: This step is optional but I highly recommend you do this. You should build a chart from that 8, 13, and 26 week slopes. This will help you identify the peaks and valleys in the ETFs (or index’s) trend. See our last XLS example: GSPC ETF Trend Example 3

There you have it! A very simple and fun way for you to build a basic ETF trend system. Please feel free to modify the macro, or add to it as you see fit. If you have any questions or comments, please feel free to contact me.