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Technical Analysis&ETFs: Generating HigherReturns inallMarkets

PaulBaiocchi,Moderator
ETFAnalyst,IndexUniverse

TomDorsey,Presenter
President &Founding Member Dorsey,Wright&Associates

ETFsAcrossEveryMajorAssetClassNowWhat?

With1,300ETFsalso comestheneedto chooseamongthemand determineamannerin whichtousethem together

ForAdvisorUseOnly.NotForUseWithThePublic.

WHERE DID IT ALL BEGIN?


History ETFshadtheirgenesisin1989withIndex ParticipationShares,anS&P500 proxythat tradedontheAmericanStockExchange and thePhiladelphiaStockExchange.Thisproduct, however,wasshortlivedafteralawsuitbythe ChicagoMercantileExchange wassuccessfulin stoppingsalesintheUnitedStates.

WIKIPEDIA
SpidersDebut1993anditsofftotheraces OptionsonXAUIndexesbegantradingin1983.

ETFWorldCirca2000:30ETFs

Theinvestmentlights oftheworldhavebeen turnedon


ETFWorldCirca2012:approx.1,300ETFs

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ForAdvisorUseOnly.NotForUseWithThePublic.

TheDowhasexperienced8major structuralmarkets,eachlastingan averageof14years.


Mustbeabletonavigate throughbothBullandBear markets.

12+years (sofar)

ForBroker/AdvisorUseOnly.NotForUseWithThePublic.

ForAdvisorUseOnly.NotForUseWithThePublic.

AGamePlanBasedonSupplyandDemand
Weallunderstandthebasic forcesofsupplyand demand. Thesameforcesthataffect pricesinthesupermarket alsoaffectpricesinthestock market. Stocks,sectors,andasset classesmoveinandoutof favorjustlikeproduceinthe supermarket.
For Broker / Advisor Use Only. Not For Use With The Public.

Original Point & Figure Chart


Dates back to the late 1800s
59 58 57 56 55 54 53 52 51 51 50 50 50 49 49 49 48 48 58 57 56 55 54

Depicts the battle between supply & demand

64 64 64 63 63 63 63 63 62 62 62 62 62 61 61 61 60 59 58 57 56 55

45 44 43 42 41 41 40 40 40 40 39 39 39 39 39 38 38 38 38 37 37 36 35

40 39 38 37 36

42 41 40 39 39 38 38 37 37 36

45 44 44 43 43 43 43 42 42 42 42 42 42 41 41 41 41 41 41 41 41 40 40 40 40 40 40 40 39 39 39 39 39 38 38

54 53 52 51 50 49 48 48 47 47 47 46 46 46 45 45 45 44 44 44 44 43 43 43 43 42 42 42 42 41 41

53 52 51 50 49 48 47

For Broker / Advisor Use Only. Not For Use With The Public.

Point & Figure Method: The Most Basic Patterns


Double Top
45 O O O O O X O X O X O X O X O X O B O X X O X O X O X O X O O 45

Double Bottom
X X X O X O X O X O X O O X S X O X O X O X O X O X O X X X X

40

40

35

35

30

30

For Broker / Advisor Use Only. Not For Use With The Public.

QuizQuestion:WhosinControl?

Knowing nothing about this security. Does the chart suggest demand, or supply, is controlling the price movement? What would you do?
ForBroker/AdvisorUseOnly.NotForUseWithThePublic.

How Did So Many Get it Wrong


New York Times- December 31st 2000 How can so many who are paid so much to scrutinize companies have blown it so spectacularly for their investor customers? Anthony Noto at Goldman, Sachs sums the situation up quite well. Article suggests he remained positive on the internet stocks he followed until after they lost 98% of their value during the 52 week period. Our research is driven by fundamental analysis and is not influenced by anything else, Mr. Noto said. He went on to explain that the companies he follows had their stock prices drop last spring not because their operations were failing, but because market psychology had changed. He downgraded the stocks much later because only then had it become clear through his research that the companies results were deteriorating. In hindsight, he said we should have lowered our ratings sooner. We regret that.

Citigroup (C): 2008 - 2009

ForBroker/AdvisorUseOnly.NotForUseWithThePublic.

Relative Strength Staying on the Path


Allmajorsportshavearankingsystem.ThePoint& FigureRelativeStrengthtoolistherankingsystem weuseforETFs.

DailyCalculation: Stock/ETF X100=RS


MarketIndexReading ThisreadingisplottedonaPoint&Figurechart whichthentellsuswhetherwecanexpectthat stockorETFtooutperformorunderperform the baseindex.

For Broker / Advisor Use Only. Not For Use With The Public.

Stock vs. Market Relative Strength


Apple (AAPL) vs. S&P Equal Weighted Index (SPXEWI)

RelativeStrengthBasics: StockRS
Thisrelativestrengthchartis onaPoint&FigureBuySignal andinacolumnofXs AAPLhaspositivelongterm andshorttermRSversusthe broadmarket. Ithasbeenonabuysignal sinceMarch10th,2004
(to11/7/11)

AAPL=+2788.22% SPXEWI=+38.36%

ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

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Peer Relative Strength


Medtronic (MDT) vs. The DWA Healthcare Sector (DWAHEAL)

With Positive RS vs. Healthcare Sector (7/2/97 3/1/01) MDT: + 119.27 %

DWAHEAL: + 62.31 %

With Negative RS vs. Healthcare Sector (3/1/01 1/31/2011) MDT: - 22.11%

DWAHEAL: + 123.91%

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SML gave buy signal versus SPX on 2/18/2000 to suggest Small Cap Stocks should outperform Large Cap stocks. Since 2/18/2000 SML: + 100.65% SPX: - 6.31%

What lost decade?


*Returnsthru11/7/11

Buy Signal = Favors Small Caps Sell Signal = Favors Large Caps
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ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

ETFs in the Pantry = Ingredients


Curry Shrimp BlackPepper Butter Croutons Celery Lettuce TomatoSauce HeavyCream Squash Oysters LemonJuice Flour Turkey Almonds Lobster Sausage Onions WhiteSugar GratedCarrots ChoppedPecans Tomatoes Basil RedPepper Nutmeg GarlicSalt GroundBeef Eggplant Yeast Salmon PorkShank Cauliflower Eggs Ginger Steak Salt Cinnamon Cheese Asparagus Chicken Mushrooms Rice Beets Parsley Milk Chives Apples Pineapple Honey FetaCheese Eggs BakingSoda VanillaExtract BakingPowder Capers DryMustard Cabbage SnapPeas Vinegar Bacon SweetPotato LasagnaNoodles Potatoes Spinach MintLeaf CornSyrup WasabiPowder VegetableOil

Ingredients For ?
Curry Shrimp BlackPepper Butter Croutons Celery Lettuce TomatoSauce HeavyCream Squash Oysters LemonJuice Flour Turkey Almonds Lobster Sausage Onions WhiteSugar GratedCarrots ChoppedPecans Tomatoes Basil RedPepper Nutmeg GarlicSalt GroundBeef Eggplant Yeast Salmon PorkShank Cauliflower Eggs Ginger Steak Salt Cinnamon Cheese Asparagus Chicken Mushrooms Rice Beets Parsley Milk Chives Apples Pineapple Honey FetaCheese Eggs BakingSoda VanillaExtract BakingPowder Capers DryMustard Cabbage SnapPeas Vinegar Bacon SweetPotato LasagnaNoodles Potatoes Spinach MintLeaf CornSyrup WasabiPowder VegetableOil

Directionsfor CarrotCake
1. 2. 3. 4. Preheatovento350degreesF(175degreesC).Greaseandfloura9x13inchpan. Inalargebowl,beattogethereggs,oil,whitesugarand2teaspoonsvanilla.Mixin flour,bakingsoda,bakingpowder,saltandcinnamon.Stirincarrots.Foldinpecans. Pourintopreparedpan. Bakeinthepreheatedovenfor40to50minutes,oruntilatoothpickinsertedintothe centerofthecakecomesoutclean.Letcoolinpanfor10minutes,thenturnoutontoa wirerackandcoolcompletely. ToMakeFrosting:Inamediumbowl,combinebutter,creamcheese,confectioners' sugarand1teaspoonvanilla.Beatuntilthemixtureissmoothandcreamy.Stirin choppedpecans.Frostthecooledcake.

Example: FirstTrustFocus5Model
All Sector Funds from First Trust (25 ETFs)

RS Screening Sieve
(Top 5 Rank on a Relative Strength Matrix)

WeeklyMonitoring (DWA Website subscription)


For Example Purposes only

PowerShares ETF LineUp

BestRanking

FocusBuyingon thetopoftheRS Matrix

Avoidthoseat thebottomof theRSMatrix WorstRanking 19


ForInternalUseOnly.Not

PowerShares DWA Technical Leaders Portfolio (PDP)


UniverseofOver1500 Names RelativeStrengthArm WrestlingMatch RankedStrongestto Weakest

CurrentPDPAllocations
Source:www.invescopowershares.com

100Holdings,65%MidCap LargestSectorWeightingin Industrials,Consumer Cyclicals,andTechnology


FOR BROKER USE ONLY. NOT FOR USE WITH THE PUBLIC

RS Matrix Application: Buying Germany

ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

WWW.DORSEYWRIGHT.COM <-> WWW.DIF.PT

Notification Received, Ordered Placed


Order placed On 13-Jan-2012 at 8:37:43 AM (GMT) You placed order to buy 195 MRCG:xetr shares @ 76.900 limit G.T.C. . Front office order id: 135126700 Account: 63000 400624 Order placed On 13-Jan-2012 at 8:24:44 AM (GMT) You placed order to sell 63 PUMG:xetr shares @ 225.850 limit G.T.C. . Front office order id: 135125824 Account: 63000 400624

AseamlesstransactionthroughtheuseofTechnology:ThisistheFuture!

REPLACINGONECOUNTRYWITHANOTHER

ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

Finding Leadership: Relative Strength


InWhatWorksOnWallStreet,JimOShaughnessyfoundthatrelativestrengthwasafactor inall 10ofthetopperformingstrategies.Healsofoundthattheworststrategy inhis testingwasbuyingthestockswiththeworstrelativestrength.

Large Losers

Most Trades

Large Winners

ForAdvisorUseOnly.NotForUseWithThePublic.

BuildingaBusinessAndaBrand
RinseWash Rebalance

MeanVariance Optimization

Source:wealthfront.com

StrategicAllocationReportCard
Question: Whatwasthecumulativereturnof thisStrategicAllocationApproach since12/31/1999withannual rebalancing? (Forperspective,MoneyMarket gained30.4%duringthistime.) A. B. C. D. +0%,orless +30% +60% +150%,ormore

December 31, 1999 - December 31, 2011 December 31, 1999 - December 31, 2011 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2000 - 2011 2000 - 2011

Money Int'l Money Int'l Commod. Market Commod. Equities Commod. Market Commod. Equities 14.39% 3.33% 18.42% 40.83% 14.39% 3.33% 18.42% 40.83% Money Fixed Foreign US Money Fixed Foreign US Market Income Currency Equities Market Income Currency Equities 5.91% 1.81% 9.75% 27.37% 5.91% 1.81% 9.75% 27.37% Fixed Foreign Fixed Strategic Fixed Foreign Fixed Strategic Income Currency Income Allocation Income Currency Income Allocation 4.18% -5.33% 2.37% 24.24% 4.18% -5.33% 2.37% 24.24% Money Money DWA6040 DWA6040 Market DWA6040 DWA6040 DWA6040 Market DWA6040 -4.07% -6.82% 1.58% 15.26% -4.07% -6.82% 1.58% 15.26% Strategic Strategic Strategic Foreign Strategic Strategic Strategic Foreign

Int'l Int'l Commod. Equities Commod. Commod. Equities Commod. 21.44% 26.65% 17.24% 21.44% 26.65% 17.24% Int'l US Int'l Int'l US Int'l Commod. Equities Equities Equities Commod. Equities Equities Equities 12.47% 16.62% 13.34% 12.63% 12.47% 16.62% 13.34% 12.63% Strategic Strategic Strategic Foreign Strategic Strategic Strategic Foreign Allocation Allocation Allocation Currency Allocation Allocation Allocation Currency 11.10% 7.30% 12.93% 7.62% 11.10% 7.30% 12.93% 7.62% US US Strategic US US Strategic Equities Equities Commod. Allocation Equities Equities Commod. Allocation 9.84% 3.65% 9.19% 6.25% 9.84% 3.65% 9.19% 6.25% Foreign Money Money Foreign Money Money Market Market 3.01% 3.01% DWA6040 DWA6040 7.79% 7.79% Foreign Foreign Currency Currency 6.93% 6.93% Money Money Market Market 4.74% 4.74% Fixed Fixed Income Income -0.70% -0.70% DWA6040 DWA6040 3.61% 3.61% US US Equities Equities 3.47% 3.47% Fixed Fixed Income Income 2.74% 2.74% Market Market 4.36% 4.36%

Int'l Int'l Equities Equities 20.91% 20.91%

Fixed Fixed Income Income 2.05% 2.05% Money Money Market Market 1.33% 1.33% Foreign Foreign Currency Currency -10.06% -10.06% DWA6040 DWA6040 -23.01% -23.01%

Int'l Int'l Equities Equities 33.79% 33.79% US US Equities Equities 23.89% 23.89% Strategic Strategic Allocation Allocation 22.14% 22.14% Commod. Commod. 20.07% 20.07%

Commod. Commod. 25.19% 25.19% US US Equities Equities 14.18% 14.18% Strategic Strategic Allocation Allocation 10.36% 10.36% DWA6040 DWA6040 8.92% 8.92% Int'l Int'l Equities Equities 8.69% 8.69% Foreign Foreign Currency Currency 5.86% 5.86% Fixed Fixed Income Income 2.14% 2.14% Money Money Market Market 0.16% 0.16%

Fixed Fixed Income Income 4.07% 4.07% DWA6040 DWA6040 0.62% 0.62% Money Money Market Market 0.05% 0.05% US US Equities Equities -0.14% -0.14% Foreign Foreign Currency Currency -1.63% -1.63% Strategic Strategic Allocation Allocation -4.67% -4.67%

Commod. Commod. 117.43% 117.43% Strategic Strategic Allocation Allocation 30.54% 30.54% Money Money Market Market 30.40% 30.40% Foreign Foreign Currency Currency 27.97% 27.97% Fixed Fixed Income Income 15.91% 15.91% Int'l Int'l Equities Equities 12.96% 12.96%

Strategic Allocationand MoneyMarket haveidentical returnssince 12/31/1999

Allocation Allocation Allocation AllocationAllocation Allocation Currency Currency Currency Currency -4.58% -4.58% Foreign Foreign -8.70% -8.70% US US -7.72% -7.72% 14.93% 14.93% 6.27% 6.27%

Commod. Commod. -27.05% -27.05% Strategic Strategic Allocation Allocation -28.89% -28.89% USUS Equities Equities -37.81% -37.81% Int'l Int'l Equities Equities -43.48% -43.48%

DWA6040 DWA6040 14.37% 14.37% Foreign Foreign Currency Currency 8.93% 8.93% Money Money Market Market 0.21% 0.21% Fixed Fixed Income Income -0.48% -0.48%

Currency Currency Equities Equities DWA6040 DWA6040 Commod. Commod. DWA6040 DWA6040 DWA6040 DWA6040 -6.65% -6.65% US US -11.77% -11.77% -13.13% -13.13% Int'l Int'l 11.32% 11.32% Money Money Market Market 0.98% 0.98% Fixed Fixed Income Income -0.67% -0.67% 5.32% 5.32% Money Money Market Market 1.40% 1.40% Fixed Fixed Income Income -0.39% -0.39% -1.96% -1.96% Fixed Fixed Income Income -2.04% -2.04% Foreign Foreign Currency Currency -7.99% -7.99%

Equities Commod. Commod. Equities Equities Equities -8.03% -8.03% Int'l Int'l -17.18% -14.95% -14.95% -17.18% Int'l Int'l US US

Commod. Commod. -9.20% -9.20% Int'l Int'l Equities Equities -16.07% -16.07%

DWA6040 DWA6040 -0.41% -0.41% US US Equities Equities -6.09% -6.09%

Equities Equities Equities Equities Equities Equities -15.31% -19.73% -22.53% -15.31% -19.73% -22.53% Legend: Legend:

Money Market Money Market Fixed Income Fixed Income Foreign Currency Foreign Currency Commodity Commodity International Equities International Equities US Equities US Equities

Tactical Allocation Inventory Tactical Allocation Inventory DWA Money Market (MNYMKT) DWA Money Market (MNYMKT) Vanguard Total Bond Fund (BND) Vanguard Total Bond Fund (BND) DWA Foreign Currency Index (DWAFXI) DWA Greenhaven Foreign Currency Index (DWAFXI) Commodity Fund (GCC) Greenhaven Commodity Fund (GCC) SPDR MSCI ACWIsm ex-US ETF (CWI) SPDRiShares MSCI ACWIsm ex-US ETF (CWI) S&P 1500 Index (ISI) iShares S&P 1500 Index (ISI)

Strategic Allocation Inventory Strategic Allocation Inventory Vanguard Total Stock Market ETF (VTI)* Vanguard Total Stock Market ETF (VTI)* Vanguard MSCI EAFE ETF (VEA) Vanguard MSCI EAFE ETF (VEA) Vanguard MSCI Emerging Markets ETF (VWO) Vanguard MSCI Emerging Markets ETF (VWO) Vanguard REIT Index ETF (VNQ)* Vanguard REIT Index ETF (VNQ)* iPath Dow Jones-UBS Commodity Index ETN (DJP) iPath Dow Jones-UBS Commodity Index ETN (DJP) Vanguard Total Bond Market ETF (BND) Vanguard Total Bond Market ETF (BND)

Weighting Weighting 26.70% 26.70% 19.40% 19.40% 10.40% 10.40% 7.30% 7.30% 6.20% 6.20% 30.00% 30.00%

DWA 6040 Index (DWA6040) represents a daily rebalanced index of 60% S&P 500 Index (SPX) and 40% Vanguard Total Bond Index (BND) DWA 6040 Index (DWA6040) represents a daily rebalanced index of 60% S&P 500 Index (SPX) and 40% Vanguard Total Bond Index (BND) * Prior to 2002, EUSA was substituted for VTI for hypothetical returns, and IYR was substituted for VNQ * Prior to 2002, EUSA was substituted for VTI for hypothetical returns, and IYR was substituted for VNQ

iShares International Model:


80/20 Rule at Work

The majority of the trades in the iShares International Model were marginal versus the benchmark. However, notice the big winners to the right. Perhaps more importantly, the portfolio did not experience any big losers.
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Education is not the filling of a pail, but the lighting of a fire.


WilliamButlerYeats

ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

Have a Vision

ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

To:Thomas,Mitch,Samantha From:Dad Subj:Vision

"Imaginationwilloftencarryustoworlds thatneverwere. Butwithoutit,wego nowhere." ~CarlSagan AstronomerandAuthor

All through your lives I've told you to DARE TO DREAM. Imagination is another term for dreaming. It's also called vision. You know well, vision is what carried my company 25 years thus far. Imagine what you might do in this world. Think of your wildest dreams, and then make them happen. Mitch you have shifted gears giving up a great position at one of the most prestigious hotels in the world to follow your dream of culinary arts. As I write this you are getting ready to head to the subway for a grueling day in the kitchen with your instructors. But by fitting this piece into your dream puzzle the picture of your future becomes a little more clear and within reach. Thomas you have found your passion in the Billiards Industry. How will you change the world and your industry now that you clearly know your direction? Samantha you are slowly but surely beginning to focus on exactly what your passion is. You will shortly find a way to get someone to pay for you to live your passion of travel. To this day I imagine, dream, and think of what can be. Its never left me since I was a kid. I surround myself with people like Watson, Tammy, Sue, Jay, and the rest of the DWA crew. They keep me thinking, and imagining. Surround yourselves with these kinds of people. We live in the jungle of entrepreneurship, which means you must have vision, imagination and drive to do something special or you will end up on someone's dinner plate. Oh and keep the "F" word active in your vocabulary, FUN. Dad

TheHolevs.TheDrill

VS.

"Peopledon'twanttobuy aquarterinchdrill.They wantaquarterinch hole! TheodoreLevitt

ForFinancialProfessionalUseOnly.NotForUseWithThePublic.

Technical Analysis&ETFs: Generating HigherReturns inallMarkets

PaulBaiocchi,Moderator
ETFAnalyst,IndexUniverse

TomDorsey,Presenter
President &Founding Member Dorsey,Wright&Associates