With the recent volatility in the markets, we have seen some price swings in exchange traded funds (ETFs). Michael Bommarito of ETF Central looks at the volatility and possible arbitrage opportunities created by the fluctuations.
For the individual investor, one shouldn’t worry about the daily ETF price movement; having an investment plan is the priority. When there is a discipline in place, it can help guide investors through the volatile times. In the short-term, the 1% to 2% daily price changes do not affect the overall trend. It’s the long-term trend that affects whether or not you should be in or out of the market. If you use the 200-day moving average as a guide, you can see in the chart below the S&P 500 is still above it’s trend line – even with the recent volatility. Participating in the uptrend is nice, but having an exit strategy to get out when the market does decide to correct is even better. Set your stop-loss points, for example, if the market or individual ETFs go below their 200-day moving average, sell. Or if a holding is 8% off of the high, get out. It can certainly help when there are fluctuating weeks like this one.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.