Trading with Intermarket Analysis

CHAPTER 10

Exchange-Traded Funds

Although exchange-traded funds (ETFs) first appeared in 1993, they didn’t start attracting serious attention until after 2000. Funds invested in ETFs grew at an impressive pace of 30 percent per year between 2000 and 2010. By 2012, ETF assets had grown to $1.5 trillion. Some industry estimates called for that number to double by 2015. The growth of ETFs has represented a huge step in the evolution of the financial markets and has made the task of investors a good deal easier. That’s especially true in the area of intermarket work. When I first wrote about intermarket relationships 20 years ago, it wasn’t that easy to implement all of the strategies involved. That’s because intermarket analysis encompassed bonds, commodities, currencies, foreign markets, and the U.S. stock market. It also included market sectors and industry groups.

Outside of the futures markets, it wasn’t easy to trade commodities or currencies. Sector trading wasn’t that easy either. Although mutual funds offered a large menu of sector funds to their clients, they made it difficult to move in and out of those sectors. Frequent trading is discouraged in the mutual fund industry. That’s not true with exchange-traded funds. You can trade them as often as you want. Buying or selling an ETF is as simple as buying or selling a stock. That has been a giant leap forward for the more active trader and investor.

■ What Is an ETF?

An exchange-traded fund (ETF) is an investment vehicle that ...