Thursday, February 05, 2009

Keep An Eye On This ETF



I just wanted to share with all of you an ETF which is on my watchlist. Above is a chart of TIP which is a bond related ETF. You'll notice the very low ADX reading as well as the contracting Bollinger Bands. The combination of a low ADX and contracting bollinger bands usually takes place just prior to a large trending move.

What we don't know is which way this market will breakout. I personally would prefer to see an upside breakout because the move prior to the current consolidation was up. If the breakout is to the downside, I may take the short trade but with much smaller shares. As always we'll see what happens.

2 comments:

purpleswan said...

Hi Kevin:

How do you generally interpret ADX?

The way I interpret it is the following:

A) See which line is higher or lower (green or red). That gives me the up or down trend direction

B) See if the ADX itself is going up or down... if it is going up, then the trend is getting stronger or else trend is weakening.

Makes sense?

Thanks much!

Kevin said...

You are correct. One other way to use the ADX is to let the ADX get very low (below 15) and then wait for a breakout. Many large moves develop just after a low ADX reading.

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