The Dow Jones Industrial Average took a triple-digit nose dive Tuesday ahead of President Donald Trump’s State of the Union Address where many expect him to boast about the equity market rally. If recent history is any indicator, any market pullbacks may be received as a buying opportunity for equities and stock exchange traded funds.
The DJIA closed down around 363 points after falling over 400 points earlier in the day, marking the benchmark index’s worst day since August and its first two-day losing streak in over a month.
As investors grow wary of an aging bull market run and predict a drawdown to rein in a frothy market, investors should monitor market trends and potential buying opportunities. A broad market trend usually comes in two flavors: an uptrend in price of higher highs and higher lows, or a downtrend in price of lower highs and lower lows.
Here at ETF Trends, we adhere to a disciplined investment strategy as a way to enhance portfolio returns, diversify and reduce downside risk. Investors should stick to a plan and not let emotions take over. Once you start thinking with your gut, it can be hard to kick-start your logic. Even neutralizing emotions will serve the trader well in the investment process. Specifically, you need to know what to buy, when to buy and when to sell.
At ETF Trends, we typically advocate adhering to a trend following strategy in all seasons and market conditions. One should keep an eye on the trend so that if your ETF declines below its 50-day average, it is not a good sign. If the same ETF declines below its 200-day average, it is time to sell.
The first and perhaps most important screening process for ETFs is knowing the 200-day moving average of each ETF investment and where it stands in relation to it. We advocate investors should only invest in ETFs trading above their 200-day moving averages.
We look for uptrends, and then examine those trends using fundamental analysis. Once a position is entered, we stay in the investment until the trend turns sour or declines below its trend line.
For more information on the trend following strategy, visit our trend following category.