The ETF Digest studies markets from a technical chart perspective trying to identify and invest in emerging market trends. This is done through a careful analysis of "daily", "weekly" and "monthly" charts of indexes and related ETFs or securities.

Our focus is to identify trends that may prove long-lasting and profitable.

Our objective is to make “two-thirds” of long-term market trends.

Our methodology is as follows:

• On the "Position Status" page are listed all ETFs and securities that we follow routinely and may also be included within suggested portfolios.
• The "Method" [Trade Methodology] indicates that we analyze markets first based on [W/D] "weekly" chart technical analysis to spot emerging trends and secondarily from "daily" chart views.
• Infrequently, we may reduce or eliminate open positions from "daily" chart analysis especially when "weekly" charts indicate serious market overbought/oversold conditions.
• DSP [Dave’s Special Portfolio] follows a more unique methodology outlined here.
• Our criteria for shorting is more rigid than for long positions since we respect the "bullish bias" inherent in stock prices.
• Occasionally two important indicators may not quite agree on a trend when viewing "weekly" charts.
• Our position then would be to take a partial position until they agree or exit if they confirm in the opposite direction.
• Should our actions in exiting extended markets prove either premature or just temporary, we'll re-enter based on "weekly" charts if so indicated.
• Managing the risk is done via propriety trading methods rather than utilizing rigid "stops" since their use has proven to result in over-trading of open "partial positions". While rigid percentage-based stops seem standard in most trend-following systems, their benefits have proven more an illusion and counter-productive toward achieving our stated goals.
• "Event Risk" stems from unpredictable exogenous events (Market Crash 1987, Iraq's invasion Kuwait 1990, East Asian Financial Crisis 1997, Long-Term Capital 1998, 9/11 2001, and so forth) that can always occur. IF we're not already out of markets or short, we will move to "daily" chart analysis to monitor markets and positions.
• Monitoring trends in bond markets and their current correlation to stock market behavior (Bond Police/Vigilantes) is woven-in to our methodology and "may" cause us to alter our positions abruptly when interest rate policy is of concern. It has often been observed that bond market trends often lead Fed Policy changes.
• Markets evolve. Yesterday's biggest winners may be tomorrow's losers; markets that were once disrespected globally now emerge; long slumbering commodity markets suddenly awaken, and so forth. Our job is also to understand and incorporate these dynamics rather than dismiss them.
• Once full positions are in place, the ETF Digest continues to monitor markets daily.
• Once actionable conditions exist, "Action Alerts" are emailed to subscribers and posted on applicable areas in the members' site.
• Subsequently, positions may be further modified as market conditions change and the process is repeated.
• ETF Digest position prices are generally executed and posted as market orders based on prices 15 minutes after market open.
  
  This is to allow better execution given unsettled conditions at the open often affected by third market activity. Further when executed on the first trading day after a weekend market distortions at the opening can be extreme.
  
  When trading commodity-linked securities subscribers may benefit by being sure the linked commodity is open for trading on that day or time.
  
  More care should be given when utilizing leveraged products given their intraday swings away from the linked sector being covered.
• We incorporate price trend exhaustion/reversal techniques based on Thomas Demark's seminal work. Explanation of Demark's work can be viewed here (PDF).

DSP is targeted and designed for the more active and aggressive investor while still maintaining our core trend-following competency.

There are four major differences with DSP to the main trading programs time, activity, open-menu and leverage.

There are many different hedge fund strategies where DSP is involved including:

Aggressive Growth, Global Macro, Long/Short, and Alternative Investments.

Therefore, we classify the approach as Multi-Strategy and optimal performance is the desired result.

TIME

Where the basic program emphasizes a monthly/weekly chart analysis routine, DSP will utilize a weekly/daily technical chart analysis approach.

The objective is for profits to very much outweigh losses. But, there will be losses and more activity. That's the trade-off. When trading actively, losses are a necessary cost of doing business to experienced traders.

ACTIVITY

There may be dozens of trades in the course of a year.

Based on analysis of just trading the NASDAQ for example from 1982-2006 would have yielded 12 trades per year. If we utilized 10 securities over the course of a year that might mean 120 trades total.

If you were paying normal retail commissions, the process would be prohibitively expensive.

However, if you utilize an online firm paying $10 commissions, the cost might be $1,200 for the year.

Is that a cost you wish to bear?

If your firm offers an inclusive "wrap-fee" allowing you unlimited free transactions in exchange for a low annual fee that might also work for you.

Finally, using this method would almost guarantee "short-term" versus "long-term" tax consequences.

Do you wish to be this active? Some do, while others may choose a slower approach.

ACTION ALERTS & ORDER ENTRY

Every subscriber is on their own to utilize alerts.

Primarily action alerts are transmitted via email on the weekend for the first day of trading in a new week, typically Monday.

Fills are posted to the table based on prices obtained roughly 15 minutes after the opening from what would be typical "market orders". This is due to the advent of increased third and electronic market activity which can negatively impact market orders at the open given routing.

Further using leveraged issues raises tracking issues and subscribers are advised to use diligence when placing these types of trades. Given our communication limitations we'll nevertheless be posting fills in the manner noted above.

Intraweek action alerts can occur at any time but are generally much less frequent.

OPEN MENU

The basic menu of ETF/ETNs, notwithstanding the deluge of new issues, is relatively fixed.

We attempt to use securities with at least $25 million in assets under management and daily trading volume exceeding 100,000 shares.

With some new issues linked to common indexes or commodities whether oil, gold or even the euro we're not as concerned with previously noted limitations trusting instead high demand for these products.

Generally speaking we utilize the most liquid and popular securities available for optimal performance, tracking and liquidity.

LEVERAGE

Leverage will be incorporated when the potential for profits seems promising. Often we may use partial positions in leveraged issues initially hoping to add to them over time as trends strengthen.

As time and systems dictate positions will be reduced or eliminated.

ProShares and PowerShares [via Deutsche Bank commodity products] are the current leaders in leveraged products and their issuance continues to rapidly expand.

Van Eck and Rydex also have products available. Again, we'll use those products that work best with our systems while keeping an open mind to new issues.

CASH

Holding large cash positions when markets are, from our perspective, either in a trading range or undergoing a trend change is a valuable tool and we're not afraid to use it.

OTHER FEATURES

DSP may have "long or short" positions which are contrary to positions in the "basic" programs. In other words, we could be "long" a position in DSP and "short" or in "cash" in the other programs. This should not be a surprise given the different time perspectives involved.

There are times when the basic program will out-perform DSP and visa versa.

What are those situations?

When markets are in very long protracted and extended (up or down) trends, the basic program will excel since you can ride the trend longer. On the other hand, if markets are more range-bound and choppy, we believe DSP will offer more opportunities.

For subscribers who choose to follow the basic programs, DSP can help you augment your own gauge of market conditions.

If you're a new subscriber, DSP can assist you with entry points to existing trades if both programs are out of sync for one reason or another.

TRADING NOTES

Positions: L= Long, S = Short, C= Cash, P= Partial

Price: Per share transaction cost not including commissions.

Total Cost: Extension of share price multiplied by number of shares.

Cash Position: Amount of money in money market fund of choice.

G/L Month: Percentage gain/loss for most recent month end.

G/L Since Inception: Percentage gain/loss from inception of program.

YTD: Percentage return for year-to-date.

Total: Total dollar value.

G/L: Dollar gain/loss for position.

% G/L: Current gross percent gain/loss per position.

DSP was launched September 19, 2005.

Like any program, there's NO GUARANTEE any of our programs will be successful or effective.