Welcome to the ETF Sector Plus Strategy!

This page is the best place to begin. Here you’ll find:

• A brief overview of what this strategy is all about
• Precise instructions on how to trade the model
• A tool for you to to track your trading
• And more!

Introduction to The ETF Sector Plus Model

The ETF Sector Plus Model uses trading signals generated by a quantitative strategy that MarketGauge developed based on the concept of sector rotation. When we use the term ‘model’ we are describing the combination of a way of selecting ETFs with a systematic way to calculate our ranking and manage our trades.

The “Plus” in the name references the inclusion of several trading instruments not normally found in a “sector rotation” strategy like the Short S&P 500 ETF and several bond ETFs.

The model takes the historical and real time ETF prices and applied our unique sector-based ETF strategy to generate trading signals. By following these signals combined with using either of our trade management techniques outlined below, we have demonstrated that it is possible to generate trading profits well above a buy and hold index strategy.

If you follow the model, you will know the three best ETFs to be in going forward. We have a proven, back-tested method of taking advantage of these signals, however, these signals can be used to successfully trade the ETFs in many different ways.

QUICK START: How Our Model Portfolio Executes the ETF Sector Plus Strategy

Starting A Portfolio

There are two key things to decide first before you actually make any trades:

Which model are you going to trade?

Three Options: Conservative / Moderate / Aggressive

We have three different ways to trade the ETF Sector Plus model. The Conservative and Moderate model both use stops and targets and only differ on how much leverage/risk/volatility they experience. The Aggressive model is a pure rotation model with no stops or targets and employs up to 3x leverage and can have very volatile swings.

The “Conservative” model:

This is a “stops & targets” model. This model takes its holdings from the rankings and holdings from the list of ETFs, but doesn’t use any leverage on its holdings.

Most of the trades are generated from the sector rotation principles, however, the model also takes profits at certain levels and if it gets stopped out of a trade it will go to cash until the model either generates a fresh entry signal or a re-entry criteria has been triggered. Performance-wise, this model is the most conservative of the three. This model rebalances the three positions in January and July.

The “Moderate” model:

This is a “stops & targets” model. This model takes its holdings from the rankings and holdings of the Sector Conservative model, however, its trades a leveraged ETF variant when one is available. For instance, if the Conservative model is holding SMH (semiconductors) the Moderate model will hold the 2x version of the semiconductors ETF. It also employs stops and targets.

Most of the trades are generated from the sector rotation principles, however, the model also takes profits at certain levels and if it gets stopped out of a trade it will go to cash until the model either generates a fresh entry signal or a re-entry criteria has been triggered. Performance-wise, this model tends to hold the middle ground between the Conservative and Aggressive models. This model rebalances the three positions in January and July.

The “Aggressive” model:

This model is a “pure rotation” model (i.e. it does not use explicit stops or targets, however the rotation methodology can act as a synthetic stop or target). The instrument list includes 20 different ETFs including some broad and specific sector ETFs as well as a selection of long and short index and treasuries ETFs.

Rankings are determined based on the combined TSI scores for both leveraged and non-leveraged ETFs. Performance-wise, this model had the highest historical return but also the highest volatility and largest potential drawdowns – for this reason we recommend using the “Conservative” or “Moderate” models. This model rebalances the three positions in January and July.

How much capital are you going to put towards trading the model?

This is your own personal decision based on your financial situation and personal risk tolerances. If you are just getting started, we recommend that you start small or paper-trade the positions until you are comfortable with how the model works. You can add capital or change the amount you are trading with at any time (this will, however, cause your total performance to differ from the model). Once you have determined your starting capital, you can use the “Start a Portfolio” page to determine your precise positions.

Starting a Portfolio

To get started you will enter the same positions the model portfolio is holding and make each position replicate the percent holding of the portfolio. For instance, if the model portfolio position #1 is equal to 33% of the portfolio value, then your position #1 should be 33% of the capital you have allocated to this strategy. We have two tools that will make this very easy to figure out.

When you setup your ETF Sector portfolio this way it will follow the performance of the model portfolio. Note, there will be some discrepancies in your performance vs. the model’s due to slippage and commissions.

For a detailed description of how to get started and access to the simple tools to help you determine your initial position sizes go to the “Starting a Portfolio” section in the “Tools” area of the member area.

Tracking Your Trades

We have created a free Excel spreadsheet for you to download that will help you easily track your trading (simulated or real) of the ETF Sector Plus alerts. Use the link, “Trade Tracking Tool” on the right side navigation bar in the member area to get this tool.

Maintaining A Portfolio

At the close of market every day, the strategy processes the trading information and generates the next set of signals. These results may generate new exit or entry signals, or tell us to stay in the current positions.

It is not uncommon to experience the passing of a week or two without any changes to the portfolio.

If an exit signal is generated on a day when there is not an entry signal to replace the position that has been sold, then that percentage of the allocated portfolio remains in cash until an entry signals is generated. There is nothing wrong with holding cash as part of this strategy.

Executing Protective Stops and Profit Targets (Moderate Only)

The initial stop loss levels are 15%. When the model hits a stop, it sells out of the full or remaining position in that stock.

When any of the positions hit the first target, it sells 1/4th or 25% of the initial position.  It is the same for the second and third targets where the model sells an additional 25% (of the initial position). At the fourth target, the model sell half of the remaining position (12.5% of the original position), and at the final target, the model sells the remaining position and remains in cash until a fresh signal is generated.

Additionally, after the model reaches any profit target, it moves up the trailing stop. After the first target, the stop is moved to the break-even entry price. After the second target, the stop is moved to the first profit target.

We will also occasionally send out alerts to take profits early ahead of the published targets.

Re-balancing

The model rebalances twice a year in early January and early July. We will inform our members when a rebalance occurs and you can use the information found on the Tools page to find the current allocation. You can then rebalance your portfolio so that it has the same proportions.

Trading Alerts & Position Updates

If any changes are being made to the Model Portfolio we will send you a trading alert, via email and text messaging (if you elect to receive text messages). All alerts are also recorded in the “Position Updates” section of the website which you can navigate to in the right side navigation area of this page.

The alerts will be issued in the evening and they will contain all the information you need to know to execute the trade on the open of the following trading day.

The instructions will be very simple because we always enter and exit the entire position all at once (we don’t enter or exit partial positions in this strategy like we do in other strategies). Additionally, we always execute the trades on the open of the day following the trade alert.

As you can see the rules are very simple and structured. They enable you to receive these alerts with plenty of time for you to easily make preparations or even place the orders to execute at the open of the next trading day.

Managing Your Text Alerts

If you would like text alerts in addition to email alerts, simply go to the “Manage Mobile Alerts” link in the navigation panel on the right side of this page and register your phone number.

Monitoring The Strategy Portfolio

You can easily see any recent trade alerts in the “Position Updates” section of the website. This page is updated anytime a trade alert is issued.

The Model Portfolio area of the website tracks the current open positions, recently closed positions, historical performance metrics, and daily changes in all the models components. The data on this page is update at the end of each trading day.

More Than One Way To Utilize The Model’s Alerts

You can maintain a consistent portfolio from these trade alerts, or simply use them as excellent trade ideas for independent trades.

Do You Want To Learn More About The ETF Sector Plus Model?

The ETF Sector Plus Model is based on years of market experience and internal research. Many well-known stock market professionals and hedge fund managers use a “sector rotation” concept as a core part of their trading systems. We at MarketGauge have developed our own proprietary version of this concept with a few unique and powerful features that help it overcome some of the problems with other sector rotation strategies.

ETF Selection

The uniqueness of our strategy starts with our carefully selected group of ETFs that we monitor. They not only include the most highly traded sector-based ETFs, but also a short S&P 500 ETF and several Bond ETFs. This allows the model to keep us invested in the right places even when the broader market isn’t cooperating. To further improve our performance, we have included some of the latest leveraged ETFs. These instruments allow us to improve our performance while maintaining our sector focus.

Your can follow the daily performance of all 21 ETFs in the model on the “Model Portfolio” page. There you’ll see a table called “Daily Performance of Model Components” which displays all the ETFs with end of day performance and ordered by their latest ranking based on our proprietary Weighted Average Return (Av Ret.) indicator.

Here is a list of the 21 ETFs  divided into categories that further define some of the differences with the list.

Just Three Holdings

There are several factors that account for the models out performance. While the ETF selection and intelligent use of short and leveraged ETFs plays a big role, limiting our holdings to three concentrated positions also plays a important role in allowing us to ride the major trends that are driven by economic and market forces, like the liquidity cycle. During this cycle, certain sectors have a tendency to outperform at different times. The model seeks to find the correct sectors and then place us in the ETFs that have the most opportunity to benefit from major moves.

The Trend Strength Indicator (TSI)

The final key piece of our model is our proprietorially-developed Trend Strength Indicator. Through years of research, we have found that trend strength and persistence is one of the best predictors of a stock or ETFs performance going forward. We have developed and back-tested a customized way to calculate this metric.

This number can also be used to “rank” the ETFs in our portfolio based on relative trend strength. By navigating to the “Model Portfolio” section of the site, you will find the “Daily Performance Of Model Components” table where you can see how all the ETFs in our selection universe compare to each other and, over time, you can see how the various sector trends rotate up and down.