PPR - Some Notes on Index and Commodity ETFs With Respect to Pocket Pivots

Published : July 12 2011 at 14:30 ET
A valid question that comes up is the validity of a pocket pivot when it occurs in an index or commodities basket ETF. Our view is that for market index ETFs like the TQQQ, TNA, SPY, etc. the underlying components of the ETF, namely the stocks that make up the particular underlying index, are too broad to properly interpret pocket pivot type technical action in the ETFs themselves. As the ETF's basket of stocks or commodities narrows, however, pocket pivots can become more relevant since there is generally a better correlation between all the underlying components of the ETF. Thus the DBA, a basket of 11 agricultural commodities, is far narrower than a market index ETF. Therefore a pocket pivot buy point in the DBA may be valid. Even better, however, is a single-commodity ETF like the SLV or GLD, for which we frequently employ pocket pivot buy points as valid entry points. This is something to keep in mind when evaluating a pocket pivot in the DBA vs. the SLV or GLD, for example.

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