Regular readers know that most of the data that I use when deciding on trades is fundamental. That is a good reason why our picks have averaged 60% this year. But we do also use some technical factors such as moving average, highs and lows. It’s not the most important factor but last year we got burned on a couple of picks simply because the momentum was too strong. Going short on Baidu is a painful memory but once that serves me every week when doing stock picks.

The main factors that I consider are:

-News and general momentum (traffic, data, etc)
-Earnings per share
-P/E ratio
-Estimated P/E ratio for next year
-Return of the stock year-to-date
-Sales growth
-Analyst ratings
-Stock momentum (trend analysis)

While I am more than happy with the 60% return (obviously!!), I’m always looking for ways to improve the performance or help it be more sustainable.. and so I found one way to do just that

I am now ready to add one more criteria, trend analysis. While I had been looking at charts to get a general sense of the technical momentum, it was somewhat of a imprecise science. That is now changing as I am now using Ino’s Trend Analysis. Just a bit of background.. Ino is a website that offers technical information about stocks and futures. One of the tools that I have been playing with is their trend analysis.

What is it?

It takes technical data such as moving averages, highs and lows and converts it into a score between +100 and -100. Obviously, the higher, the better. Here is an example of the result I got for Google today:

The score of -65 is not very surprising given everything that is going on with Google lately but obviously I’m still a bull. So this, like every criteria will become another usefull tool for me in my stock picking. I mentionned to Ino that I would be discussing this tool and they offered to give any users a 2 week trial. You do not need to enter a credit card or anything of that nature, a true 2 week trial. It’s well worth the try in my opinion.

If you are interested in the 2 week trial, simply click here

There are many many different features available with this trial and I honestly have only beeen using this trend analysis up to now but you can certainly give the rest a try.

1-It takes about 30 seconds to sign up
2-Once that is done, you will receive your user & password by email
3-When you log in, simply type the ticker in the upper right corner

Then, you will get this result:

You can also get these results by email but again, I have not tried that out yet.

Let me know your thoughts on it, I honestly think that it will help me in making the “technical trends analysis” a lot less subjective thanks to the score. Will keep you posted on the progress.

Have you tried it?

So my question would be, have you ever tried this service or another one that is comparable? How have they worked for you? I would not trade on this data alone, but that is nothing negative. There is no factor that I would trade alone.

One of the more popular forms of active investing is macro economy based on the different economic news around the world. The three major investment arenas are commodities, currencies and international stock/bonds. I personally have always been interested in the third one through my traveling.

That being said, such investing used to be reserved to fund managers because of the complexity involved. First there were tax issues as every country has different laws that made it very complex and costly to invest in. But even bigger challenges came from operational issues:

-opening accounts in foreign countries
-currency conversions
-specific rules for foreigners
-etc

ETF’s save the day

As many of you know I am a big fan of ETF’s for many reasons but the amazing variety of ETF’s now makes it possible for almost anyone to get involved into International investing. Buying the entire stock market (more or less) of a country is something that can now be done in any brokerage account. Gradually, these ETF’s have gained popularity and while Ishares remains the biggest player thanks in large part to the fact that it was first in the game, others have made inroads in offering products in other countries. Just take a look at the map below to see all of the alternatives out there:

Also, I thought it could be interesting to take a closer look at the relationship between the actual macro-economic performance of these countries and the performance of the various ETF’s. There are other factors of course that could contribute including currency movements. But it is still an interesting exercise to do in my opinion. Also, even on an individual country level, the relationship between GDP and stock market performance is far from direct. All of this is because stock market performance is generally not related to actual economic performance but rather the actual economic performance compared to what was anticipated.

Without further wait, you can see the actual map , as you can see there are a lot of choice when it comes to single country ETF’s :

Best GDP Growth in 2010

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Best GDP Growth over 5 years

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Best Single Country ETF’s  so far in 2010

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Best Single Country ETF’s in the last year

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And finally you can see the entire data set for the countries that have an ETF:

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And for those ETF’s

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What does the future hold?

It is certainly fascinating to see the possibilities with all of these ETF’s. That being said, I expect many more ETF’s to eventually open. First off, many countries will probably soon get their own ETF, here are some of them:

Argentina
Colombia
Czech Republic
Denmark
Greece
Hungary
Iceland
New Zealand
Norway
Philippines
Portugal
Venezuela

And also, I would expect bond ETF’s to become a lot more diversified. You can buy Chinese or Brazilian stocks, why can’t we buy Chinese government bonds or Brazilian corporate bonds? I’m convinced that over time these will also appear in the market.

And finally, this has already started but I expect many more specialized ETF’s to appear. For example, you can trade all of these sub-sectors in China. I would expect that would be available in other countries over time.

Conclusion

Not a big surprise but the relationship between GDP and ETF performance seems weak in many cases but the most obvious case is China which has had an amazingly strong economy but the ETF’s that track the Chinese market have performed very poorly which is normal since the Chinese market has indeed suffered a great deal this year. Are you surprised by these results? Have you tried out any of these single country ETF’s?

It’s crazy and almost makes me angry. Last week, my wife had cut out an article in our local newspaper where the journalist argued that the explosion of ETF’s was useless, confusing, dangerous and even perhaps an immoral attempt for the financial industry to make more commissions. I think this guy, like many others is confused about the role of ETF’s, how they can and should be used depending on the investor type and specific profile.

Just how many ETF’s are there?

This number changes every day of course as some of them open while others are closed. But there are a few more than 1000 ETF’s right now traded in US markets in a large variety of asset and subasset classes. Any trader can get involved in small or large caps, real estate (REIT), bonds, gold, oil, other commodities and many many more. I hope you noticed the distinction though, I said CAN not MUST.

Why are there over 1000 ETF’s?

The answer to this is very simple. Supply is provided for demand. No ETF issuer will create a Uranium ETF if there is no clear demand. There are high costs associated with issuing and creating ETF’s, it’s not the lemonade stand experiment that you can take down in a few minutes, far from it. There are investors interested in specific exposures and it can be cheaper and more effective to do so through ETF’s. So no, I don’t know how someone could argue that an ETF is useless. They can be used for hedging or speculation purposes. If an ETF is created and there is no demand for it, it will end up closing and costing a lot of money to the issuer, just like any other product. Not all investing is for passive, retirement purposes. Important flows are used for more active investing where these ETF’s are often a perfect fit.

How many ETF’s does Joe the plumber need?

Here is where the confusion often comes from. While I think that 1000 ETF’s is NOT too much, I would also argue that most investors can build a solid, efficient and cheap portfolio with less than 10 ETF’s. I had wrote about fixed income ETF’s and how you could have a solid portfolio with 3 to 5 ETF’s. The same could easily be done with equities.

I don’t think anyone could argue this honestly. Regular investors should have a simple and effective retirement portfolio that relies more on passive (index) investing. But for those who can afford to have another more agressive portfolio with specific investments, it is more than possible that investing in more specialised ETF’s would be a better fit.

If you have an investor who strongly believes that the price of gold will increase, it is now very easy to make an invesment based on that theory. It used to be a lot more complex before such specialised ETF’s existed as the investor would have needed to open a futures account, post collateral and trade in a more complex and volatile environment.

Not fraudulent

The theory of this journalist was that these ETF’s were being created to create commissions for brokers. How? More ETF’s would mean more trades and more commissions being paid out. This is complete nonsense.

1-There are almost no cases where an ETF issuer is also associated with a broker and so this relationship almost never exists. In the rare instances where it does, the issuerbroker has used the relationship to provide free commissions on the ETF’s. Not exactly fraud is it? Charles Schwab is one such example.

2-There are already thousands of stocks. If a broker wants to make “useless” trades in order to generate more commissions, there is no need to use ETF’s and using them does not make it look any better.

3-Actually the most abuse is taking place when financial advisorsbrokers are purchasing mutual funds instead of ETF’s for their wealthy clients. These clients end up paying almost 1% more of annual fees but the brokeradvisor gets trailor fees or a portion of that additional commission.

So when looking for abuse and fraud, look in other places first as ETF’s remain a very attractive choice and even if thousands more are created, that is not a problem in itself but rather an opportunity for the right investors.

Do you agree? Or do you think there are too many ETF’s? If so, would you agree that the free market will settle things in the end or do you think regulation is required?