Give PowerShares, one of the leaders in ETF creation, some credit. They are relatively adept at creating new investment vehicles. On March 1, they served up a new “relative strength” exchange-traded fund onto the American Stock Exchange. The PowerShares DWA Technical Leaders Portfolio (PDP) tracks a 100-stock index that uses a trend-following system in an attempt to beat the market.
Although one week does not a trend make, it is interesting to track the 5-day trend for this offering against a broad market gauge like the S&P 500. While the S&P 500 tracker, the ever-popular spider SPY has lost 0.67% over 5 days, the relative strength tracker PDP has lost 2x that (-1.25%).
Once more, 5 days is by no means a trend. Yet we can say something about the difficulty of succeeding with “relative strength” measures when the market is falling; that is, the idea that a group of stocks moving higher will keep moving higher seems to work best when a broad-based bull market or a clearly defined sector bull market are roaring ahead. When the markets are moving sideways, changing dramatically or heading lower, relative strength is relatively weak.
Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.