Index Funds

Since there are so many choices of Exchange Traded Funds (ETFs), we’ve done analysis to recommend specific funds.  Our suggestions here are based on the funds track record delivering against their stated objective.  A 2x fund is designed to provide double the performance of the market, but its actual performance will have variability from day to day.  The best ETFs minimize this variability and deliver per their target objective.   Here are the ETFs that do the best in achieving their target performance:

 

NASDAQ 100

Russell 2000

S&P 500

 

There are many ETFs, and new ETFs are created from time to time.  A resource that lists existing ETFs is the Stock-Encyclopedia website

2x Leverage

QLD

UWM

SSO

 

3x Leverage

TQQQ

URTY

UPRO

 

Inverse 2x Leverage

QID

 

SDS

 

Inverse 3x Leverage

SQQQ

SRTY

SPXU

 

 This table is based on analysis last performed in May, 2011.

Index funds are investments designed to track a market index, such as the Dow Jones Industrial Average or S&P500.  Index funds are highly advantageous for use with market timing for the following reasons:

  • Passive management by the fund company means less costs, resulting in better returns versus actively managed funds.  For a complete explanation we recommend the book Common Sense on Mutual Funds by John C. Bogle.
  • Index funds allow you to invest in the entire stock market with one trade, making portfolio diversification easy.
  • For market timing, having to execute only one trade to buy or sell is extremely simple, not to mention fast when using internet brokerage services.

There are two types of index fund: Mutual Funds and Exchange Traded Funds.  Mutual Funds have existed for many years, so we’ll assume you know what they are.  Exchange Traded Funds are a hybrid between a Mutual Fund and Stock in a specific company.  An ETF is made up of many stocks like a mutual fund, but you can buy and sell it anytime of day when the market is open, like a stock.  A Mutual Fund can only be purchased (or sold) once per day, and the price of the sale is calculated at the end of the trading day.  For this reason, we recommend ETFs for trading with any market timing strategy.  If you place an order for the ETF when the market is closed, your trade will be executed as soon as the market opens.  Finally, ETFs have lower internal fund costs, so their results are better.

Unleveraged ETFs are designed to have the same performance as their underlying index.  Leveraged ETFs are designed to perform at multiples of the index.  A 2x (or 200%) ETF would thus move up (or down) twice as much as the market index.  An inverse 2x ETF would move in the opposite direction of the market index at twice the amount.  We encourage the use of leveraged ETFs with market timing.  See our Profit Potential for a discussion of why.  There are many ETFs provided by different companies for you to choose from.  When using our market timing system, we encourage you to use ETFs that invest in US Equity markets.  Which index to use is up to you.  The most common are the S&P 500, the Russell 2000, the NASDAQ 100, the NASDAQ Composite, and the Dow Jones Industrial Average.  Our system creates its signals based on the S&P 500, so we encourage S&P 500 ETFs.  Still, if you think a particular sector of the market will do better than others, such as Technology stocks or Medical stocks, you can combine our signal with sector ETFs.  This is up to your discretion.

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