This ETF rankings update includes the following:

1. Rankings Update
2. Performance Update
3. HeatMap of ETFs

ETF Rankings Update

This update is from close of market data on Friday January 20. It is an interim ranking (not a trade day for purposes of backtesting). The top three ranks are EWG (Germany), XLK (technology) and QQQ (Nasdaq). RSX has fallen to fourth place.

January 20 ETF Rankings (Non-Trade Day)

Prior trade day rankings were 12/30/2016:

December 30 ETF Rankings (Trade Day)

RSX has not performed very well (shown in the Performance Update section). That reflects in its updated momentum ranking.

(In both tables above, the green Screen column represents the SSS permissioning. All rankings were given the green light.)

Brief Commentary

Effective January 20, the political, economic and financial world changed. That is the date that the Wrecking Ball, Donald J. Trump, assumed the presidency of the US. Whether he was or wasn’t your candidate is irrelevant, at least with respect to trading and investing.

Major changes are coming in the US. These changes will be felt in worldwide markets.

The populist movement in Europe and the US will be disruptive. How the political drama plays out will impact markets. The US economy and likely Britain’s will improve as a result of less burdensome government. But at what pace and to what degree?  Improvements in government will produce improvement in the economy. But improvement takes time and causes its own disruptions.

A case can be made that markets will benefit long-term but not short-term. Regardless of how optimistic you might feel about new direction, do not assume that your enthusiasm will translate to financial markets and valuations.

In this light EWG (Germany) as the top ranking ETF is surprising. Germany may be on Trump’s trade hit list. What happens to the value of German stocks if Trump targets Germany with tariffs on Monday morning?

On the other hand, Trump’s win occurred over two months ago and his approach to government and trade have been known longer than that. This information, presumably, has been priced into stocks and ETFs.

EWG now ranks first in the momentum rankings and VGK (Vanguard European fund) ranks fifth. What are markets saying? Do they believe Germany will benefit from Trump’s policies? Do they believe that the EU will not disintegrate?

The point is that a high ranking for EWG is not easily understood. Markets are not dumb and presumably act rationally. The same may not be said of the political class, however.

Next Friday is a trade day. If EWG is still ranked number one, then what?

There is a week to think about this possibility and to learn more about early political actions. Perhaps some clarity or rationale will be revealed.

Performance Update

RSX has another week to run, although it is currently at a loss  of 3.39%. The table below shows performance outcomes for it and recent backtest trades:

Summary of Most Recent Trades

The 3.39% loss from RSX compares to a 1.44% gain for SPY during the same period.

None of the three top rankings from the last trade day have performed well. The following table shows their results with one week to go for new rankings:

Top 3 Rankings (Trade Day)

HeatMap of All ETFs

This heatmap tracks rankings by ETF for the last thirteen weeks. It provides a way to see the movement in ranking strength/weakness over this period:

Color-coding is based on rankings with dark green showing the top and red showing the bottom ETFs.

Future Consideration — Acceleration

At some point the concept of acceleration will be investigated via backtesting.

In simple terms, acceleration can be defined as the speed up (or down) that an ETF moves in the rankings. A simple example might look at how many ranks a particular ETF moved in a specific time period. Using the first four ranks from above and using Wkbk4 as the base point, EWG jumped 13 ranks. RSX fell 3 ranks. The other two ETFs rose but less than EWG.

Logic suggests that there could/should be a relationship between acceleration (momentum between two points) and subsequent performance. Whether that logic holds in the world of stocks is another matter and one that must be looked at empirically. If acceleration does indeed enable better prediction of future performance, what gap (2 weeks, 4 weeks or something else) provides the best relationship?

ETF Rotational Trading Manual

A free PDF on ETF rotational trading is available. If you haven’t read it yet, please do to gain a better understanding of the terms, design considerations and development trade-offs that went into the momentum rankings. Detailed backtest results are included.