Portfolio Theory $DBC $EEM $IWN $IYR $PLW

A look at the 5 least correlated liquid ETFs.

Commodities have stabilized over the last two months, but DBC technically remains in a downtrend. Long positions are remain speculative, but my gut tells me that there is more risk being short than long.

The bounce I was looking for in emerging markets never materialized, and EEM remains in a downtrend. The potential for a massive head and shoulders pattern remains, but caution is warranted for those looking to invest abroad.

Small cap value stocks remain in a downtrend, but there isn't much volume to confirm the recent price action. IWN continues to flirt with the lower Bollinger, so there is little reason to look for upside, even though a new X has been printed.

Real estate remains the weakest sector, and volume appears to increase during sell offs, confirming my bearish outlook. IYR is not showing signs of recovery, and that does not bode well for the rest of the market.

Despite market weakness, Treasuries weakened this past week. This is a bullish sign, and I love the prospects of TBT. Nevertheless, a strong bounce off the trend line is likely, so another run to risk free yield may be in the works this week.

Day trading remains the name of the game, but in the next few weeks, I hope to reveal a longer term strategy that takes advantage of the incredible volatility. TBT remains my favorite long, but I'm still unwilling to hold large positions overnight. The real estate and financial sectors remain the primary tells for the market, but also look for small cap out performance if a bullish trend emerges.

Portfolio Theory $DBC $EEM $IWN $IYR $PLW

Here is the weekly rundown of the 5 least correlated liquid ETFs.

DBC is showing some signs of life on minuscule volume. Intuitively, I'm bullish commodities, but since they remain in a technical downtrend, I remain cautious.

Emerging markets are bouncing within a newly formed downtrend. EEM looks capable of rallying from this point, and may be forming the right shoulder of a HS pattern.

The small cap value sector is showing a light volume bounce, but remains in a downtrend. Short term optimism for IWN isn't unwarranted, but stay cautious.

IYR still looks like an unmitigated disaster, but it is putting in some upside work. Real estate remains incredibly volatile, so a run up to the upper Bollinger may be in the works.

Treasuries have started to show some convincing weakness, a new low would be a boon for equities. Though PLW is in an uptrend, I'm preparing to buy TBT.

Equity markets are incredibly weak, but the potential for a rally abounds. Although few stocks are in bullish formations and volatility remains high, a bounce through inauguration is not out of the question. This remains a day trading environment as weakness in the financial sector can turn a 3% rally into a 4% dip.

Portfolio Theory $DBC $EEM $IWN $IYR $PLW

This week's look at the 5 least correlated liquid ETFs.

After a hefty rally, commodities have resumed their fall, and DBC remains in a massive downtrend. Heed the words of famed economist and failed trader John Keynes, "the market can stay irrational longer than you can stay solvent."
Momentum in emerging market's waning, and the bounce in EEM is beginning to look like a dead cat. Perhaps the fiasco at Satyam is just a glimpse of the Madoffness abroad.
The small cap value sector suffered a failed breakout and has pulled into support. Although the IWN technically remains in an uptrend, nearly 40% of this ETF is allocated to financial service, so it's fragile and may be a short.

As mentioned here last week, real estate remains in danger as the IYR is ready to touch the lower Bollinger and retest the recent bottom. The selling this week came with increased volume, so buyers beware.

Bonds remain in a massive uptrend, and though I made some nice coin in TBT, now is not the time to be short the US Government. Though Treasuries are Ponzi up the Yangtze, nobody seems to care so long as the trend is up.

A century ago, a fellow asked the banker Pierpont, "what will the market do?" and the elder Morgan replied, "it will fluctuate." This timeless quote, along with "it will open at 9:30 and close at 4:00," underscores the absurdity of predicting the future, and the importance of adapting to the market environment.

The markets propensity to fluctuate, neatly described by the VIX, is beginning to rise and that poses a significant danger to nervous investors. Moreover, the selling on Friday was strong ~9:30 and ~4, suggestive of a broad desire to GTFO. If you're looking for a tip, take your money, put it in a MMA, go play with the kids, and come back next week.

That said, how about a gap up on Monday to make some bears shit, and then a fade to lows below Friday to demoralize the rest? Volatility is rising and the market will spoon feed excrement to those who fail to adapt. We are entering the fifth wave, assume the position.

Portfolio Theory $DBC $EEM $IWN $IYR $PLW

A weekly look at the five most liquid but least correlated ETF's (excluding inverse's).

Last week's call made here is playing out rather well. DBC is in a great rally from it's lows, and has a volume pattern that often appears during bottoms.

EEM has bounced nicely, and looks poised to breakout. Expect bulls to come late to the party if it makes a new high.

IWN has finally broken it's downtrend, and has violated the upper Bollinger on increasing volume. Longs are sure to be interested next week.

IYR closed higher this week, but it continues to languish relative to other sectors. There are good fundamental reasons for this under performance, so there is little incentive to buy.

PLW got absolutely hammered this week, and you should probably buy TBT.

The weakness in Treasuries and strong bounce in oil suggests a major shift in market sentiment. If commodities can sustain a rally amidst increasing bond yields, the emerging market economies will be the greatest beneficiaries. As always, trade what you see and not what you think.

Portfolio Theory $DBC $EEM $IWN $IYR $PLW

A weekly look at the five least correlated ETF's.

Although oil made new lows, DBC has yet to do the same. If I see a X with volume, I may begin accumulating.

EEM is pulling back within an uptrend, and once I see a X, I'll get on board with a stop below last weeks low.

IWN looks poised to break the downtrend and violate the upper Bollinger for a second time. Last weeks low is a critical boundary.

IYR needs to stay above last weeks lows, otherwise we will see a sell off across the board.

Even with the brouhaha this past week, PLW didn't rise to new highs, which may signal waning momentum.

It is likely that equities from the Emerging Markets, Small Cap Value and Real Estate sectors will share a similar fate if they breach their weekly lows. If that should happen, PLW will continue to rise and DBC will probably fall some more. As always, stay flexible and manage your emotions.

Portfolio Theory

I was browsing here when I decided to start this column. I'm going to track 5 uncorrelated ETF's with the premise that a combination of them will yield better risk adjusted returns than the SP500.

Till I can find a better proxy, DBC will serve as my commodities aggregate, even if it is oil heavy. The volume suggests that a potential bottom is forming, but the trend is still down. This is a very high risk long, exclusively for masochists and daredevils.

EEM is a good emerging market proxy, and now that it is in a newly confirmed uptrend, this looks like a good time to start buying the dip.

IWN is my stand in for the small cap value sector. Now that it is trading above its upper Bollinger, buying the dip is in play, but we're still in a long term downtrend.

IYR is a nice liquid way to play Real Estate. While we're getting more bullish, the volatility of this sector make the returns here tricky without proper position sizing.

PLW is a proxy for the total bond market, but I might replace it for a more liquid ETF like TLT. The trend is up, but the asymptotic move is bubbly.

The emerging markets are establishing a new uptrend as the bond market enters the vertical ascent often seen before volatile reversals. The commodities markets continue to be dragged down by oil, so one can only feel a reversal coming, hardly the kind of one should trade one. Another bullish theme is the out performance of small caps over large, and the sector does seem to be finding its legs. Finally, real estate is improving, but the risks are still very high. Cash is still a reasonable position, but with weakness in the dollar, the 'fraidy cats may stand to loose the most.