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One thing about oscillating markets is they can be pretty boring. Very little has changed from my standpoint. Momentum peaked a while ago, the Nasdaq continues to lag, and I still believe the market is forming a top. Of course picking a top is extremely difficult, so I continue to seek small amounts on the reversals when conditions get stretched.
One thing ETF traders need to be aware of is that during mid to late December many ETF’s have distributions. These distributions can sometimes be fairly large and will cause the ETF to gap down, since the value is being distributed. ETF investors that aren’t aware of this sometimes see this gap, panic, and sell.
Let’s take a look at an example from today. Below is a chart of the Turkish Investment Fund [NYSE:TKF]. TKF went ex today and will be distributing about $4.27 to shareholders. The gap down this morning, while it looked bad on the chart was actually a gap up. In the first ten minutes of trading it sold off fast and furious. Most likely the selling was accelerated by a combination of standing stop orders and panicky, ignorant, investors. Anyway, the selloff didn’t last long, as buyers stepped in and turned it into a solid trend day higher. Those that panic sold just after the open were left holding the bag. Fortunately for them, they will receive a parting gift in the form of dividends and capital gains. That should take some of the sting out their error.
ETF’s will continue to distribute dividends and capital gains over the next few days (many Ishares are set to go ex on Thursday). Make sure you’re aware of any distributions for funds you hold.
Best of luck with your trading. Merry Christmas, Happy Hanukkah, Kwanza, Boxing Day, and Festivus!
Rob Hanna is the principal of a money management firm located in Massachusetts. He has spent the last several years developing and refining methods for trading in stocks across multiple time frames. He selects stocks using both fundamental and technical criteria, and then trades them using technical analysis techniques.
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