ETF Core Strategies
Aim: To trend-trade general equity ETFs so as to ride rallies and buck busts in the Australian share market.
For starters, an Australian market timer will be required to hold a current Australian Financial Services Licence. Being licensed means that MarketTiming meets stringent requirements in relation to staff training, organisational competence, management expertise, financial control and compliance disciplines. American timers are not subject to such requirements.
Nevertheless, because the ASX seems to largely track Wall Street, some might still be tempted to apply timing signals sourced from US timers (based on US share market indexes) to Australian securities or ETFs. That would be a mistake, for a number of reasons.
The following chart compares movements in the ASX All Ordinaries Index (green) with those of the NYSE’s S&P 500 (blue).
ASX All Ordinaries Index compared with the NYSE S&P 500: 2002-2012
While casual inspection suggests that the turning points of the two series closely correspond, it is also evident in the period covered by the above chart that the S&P 500 between October 2009 and August 2012 lurched upwards whereas the ASX All Ords lurched downwards. Such divergence is quite common, although the two markets take turns at overtaking each other. For those applying market timing principles, this can result in conflicting signals even if market turning points coincide.
The impact of small shifts forward (or back) in signal dates should not be under-estimated. MarketTiming’s back-testing reveals that being a day or two out in executing a timing signal can be costly.