Low Volume Trading Can Be Deceiving

by on August 11, 2012 | ETFs Mentioned:

Low trading volumes permeated markets and our prediction that no news could be good news turned out to be spot on as the bulls edged higher all week, taking advantage of the clear front. Investors did catch a glimpse of improving sentiment as Germany expressed its support for the ECB’s initiative to step up purchases of government bonds for the more fragile eurozone member nations. Better-than-expected data releases on the homefront including jobless claims and a shrinking trade deficit kept the bulls on track, although low trading volume environments can be deceiving as sentiment is easily swayed in either direction [see also 5 Plays In The Beaten Down Energy Sector].

Actionable ETF Trade Ideas

Last Week’s Actionable ETF Ideas
Ticker Position Week Performance
XLY

Short

-1.4%
IHF

Long

+3.1%
GLD

Long

+0.8%

Our picks from Monday’s Insider posted solid results as profits from our two winning recommendations overshadowed our losing pick. Below, we highlight how our trade ideas fared during the week [sign up for a free trial of ETFdb Pro to get actionable ETF ideas every Monday, as well as access to more than 45 all-ETF model portfolios].

Trade #1 Short XLY: Down 1.4%
This recommendation turned sour as XLY was able to creep above the resistance level which it had previously failed to summit on several occasions. Eurozone optimism spilled over onto Wall Street on Tuesday, propelling this ETF above our outlined stop-loss at $45 a share. We stuck to our rules and cut the losing trade, incurring a minimal loss on the week.

Trade #2 Long IHF: Up 3.1%
The trade was very well timed as we were able to enter into IHF before its leg-up during the week. Bullish pressures and above-average trading volumes propelled this ETF higher on Tuesday, opening up the doors for further gains. Our suspicions proved correct as IHF surged nearly $2 on Wednesday, helping to lock in our gains for the week as Thursday and Friday proved to be quite uneventful for stocks.

Trade #3 Long GLD: Up 0.8%
This recommendation produced less-than-stellar results, although our timing and suggested stop-loss proved to be on point. GLD continued to rise along its upward slopping support line every day this past week, confirming our belief that longer-term bullish momentum is returning to the gold market. This trade came off its high point on Friday, although it still ended up in green territory for the week.

ETFdb Portfolios

Retirement ETFdb Portfolios

Our Aggressive Portfolio surged ahead this week thanks to its equity-heavy composition. As investors broadly increased their risk exposure, it’s not much of a surprise to see our more conservative strategies, like our Low Volatility and Ready To Retire Portfolio, come into last place from a weekly performance perspective. 

Regional ETFdb Portfolios

Optimism permeated virtually every corner of the globe as low trading volumes and an upbeat sentiment paved the way higher for traditionally risky markets. From a year-to-date perspective, our Africa-Centric Portfolio is leading the way higher with double-digit gains, while the BRIC-or-Bust Portfolio sits at the bottom of the barrel in the same time frame. 

Themed ETFdb Portfolios

Among our themed strategies, the Energy Bull Portfolio clinched gains upwards of 5% on the week alone, bringing its previously dismal year-to-date performance figure into shallow green territory. As investors broadly moved away from safe havens and into equities, our ultra-defensive The Sky Is Falling Portfolio came into last place for the week with a minor loss. 

Disclosure: No positions at time of writing.