In this article the Dow Experts will show you why a combined rational investment approach is always the way to go.

In many instances the market proves to be irrational, by sending qualitative companies lower as a result of their participation in these highly traded ETFs, at times when those funds are vulnerable. This is a trend that is expected to continue in the future, as the ETF market has continued to grow at an annual rate of over 20% CAGR since 2005. Global ETF assets, which totaled just $417b in 2005, had reached $4.4t by the end of September 2017.
The strong inter-market correlation model that Dow Experts have developed provides every intelligent investor with a useful insight for identifying future price movements across different industries and sectors. Furthermore, it also shows short-term traders as well as long-term investors, how to allocate their capital efficiently and profitably, by picking the right stocks to buy/sell following our multi-layered confirmation approach.

Once a technical trading pattern is spotted on the broad S&P500 market index, the Dow Experts always turn towards their highly sophisticated and carefully calculated correlation model in order to find, which sectors are most vulnerable or respectively have the highest growth potential from this trading setup. This allows us to find the best in class publicly traded companies, with the proper weight representation within the specific ETF sector that we observe and issue a high-probability recommendation on a stock with multi-level confirmations across 3 different charts and multiple different sector ETFs

We mainly focus on the strong positive correlation between the major US sector ETFs, as by being derived from the S&P 500 benchmark index they tend to capture the pulse of the market perfectly. Our cross-sector correlation matrix monitors the following 8 ETFs and uses their respective strong positive correlations in order to establish our overall market approach: SPDR S&P 500 ETF (SPY); Consumer Discretionary Select Sector SPDR Fund (XLY); Technology Select Sector SPDR Fund (XLK); Consumer Staples Select Sector SPDR Fund (XLP); Financial Select Sector SPDR Fund (XLF); Health Care Select Sector SPDR Fund (XLV); Industrial Select Sector SPDR Fund (XLI); Materials Select Sector SPDR Fund (XLB).

SPY-XLY = 0.93; SPY-XLI = 0.92; SPY-XLK = 0.89;

SPY-XLB = 0.85; SPY-XLF = 0.83; XLY-XLI = 0.83;

XLY-XLK = 0.82; SPY-XLV = 0.79; XLY-XLB = 0.77;

XLI-XLK = 0.74; XLY-XLV = 0.72

You can find more information regarding each individual ETF that we are following on our website.

We at DowExperts, always implement a combined rational investment approach in our analysis including both fundamental and technical aspects, as only the combination of these two approaches could yield consistent higher market returns. The fundamental side of our analysis gives us a deeper look into the major forces that are driving the market each and every day including economic reports, political developments, geo-political tensions, earnings reports, major press conferences, monetary policy adjustments (interest rates, QE, inflation projections etc.) fiscal policy adjustments (government spending, tax cuts, legislations etc.), as these are the long-term trend builders. At the same time, technical analysis must be an inseparable part of every investor’s decision-making process, as it provides you with the outstanding opportunity of timing your trades perfectly, controlling your risk-reward ratio constantly and further helps you to understand the psychological aspect of trading and investing. After all, let’s not forget that we are all human and we all share a large number of similar behavioral traits, which are very often translated into our decision-making process in the market. Understanding how technical analysis works, is understanding how traders and investors think, which in turn will allow you to outsmart the masses, avoid most of the traps out there and generate higher returns for yourself in the process.

The more you understand what these ETFs represent and how they are correlated, the better you will be able to position yourself in the market, thus ensuring your long-term financial success.

Don’t forget that educated investors are profitable investors!


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