BP index and trading with the trend

The next bit I am laying with is to trade with the trend.

There are various timeframes as well as various frames of reference to apply this idea. My spread trading has little to do with trend trading and now that I have a trend neutral plan in place that is proving to be profitable, easy to execute and track I am moving into trading with the trend to boost potential profits in other areas.

Timeframes are going to be daily weekly and monthly even though I do not plan on using weekly or monthly charts. I will be running longer time frames just to be sure of established trends and possible trend reversals.

Other frames of reference include using the S&P 500 as an overall gauge of market sentiment while drilling down to the sector level to look for the various sector trends that are driving the overall market. In an SPX down trend the best thing to do is short the poorest performing sector and in an up trend long on the best performing sector.

Within this frame of reference the next step is to drill down one more level, or two if you have that inclination, to the ETFs. Same rules apply as in an SPX downtrend, pick the poorest sector and the poorest ETF within the sector and, perhaps, pick the poorest stocks that make up the ETF. In an up trend of the SPX pick the best sector, the best ETF within the sector and perhaps again the best stock within that ETF.

How to determine which is the best and poorest is not rocket science either and there are many ways to manage this. Dual linear regression applied to the respective charts could be used, Oscillators to look for over sold/bought conditions under varied timeframes, P&F charted performance.

The Investors Intelligence site is a good cue to work from though. The Bullish Percent Index comparison for the sectors works as seen by the correlation with the BP and SPX charts. This is the CTP part as this represents the over sold/bought indication. There is no identical comparative setup for ETFs but going over to Stockcharts.com and looking at the Performance Charting (this is still free and works exactly the same as if I had a paid subscription). I used this when playing with the Pankin method to compare ETFs in sectors before. I can place 10 symbols onto the chart and it compares the relative performance of all 10. I can look at the line chart of a bar chart, there is a cool tool to slide to change the timeframe and period. Esignal can point me to the top ten performers in the last 12 month period and Stockcharts can apply those top ten against each other in the various timeframes to choose which one might be best to trade at the time.

Mentioning Pankin reminds me that this is really just a modification of his strategy that worked for him for many years. While the idea was unique then it is much easier to see and apply now as the online charting and data available is far far superior to what was available to traders back in the day.

Jeff.