In the song King For A Day by Faith No More, there is a refrain that goes: Never cheer before you know whos winning. This refrain nicely sums up how we use ETF investing strategies to skillfully trade volatile markets for our clients.

In the pivotal moments after a market has bottomed out, the leaders of the rebound begin to strongly emerge. These leaders sometimes are the sectors which declined the most during the selling, and sometimes they are the sectors which declined the least. We have found no consistent statistical pattern for this aspect while back-testing and developing ETF investing strategies.

What we have learned from analyzing nearly 115 years of major trend reversal data is that when declines such as weve seen in the past 4 weeks occur (-10.2% on the Dow), the best ETF investing strategies are those that will capitalize on the inevitable rebound. The initial sector leaders during the first phases of the rebound are the greatest gainers during the recovery phase nearly 87% of the time. As far as monetizing this statistical probability with ETF investing strategies, fortunately, there are dozens of sector ETFs which enable us to target the right exposures for the market trends we must prepare for.

ETF investing strategies for market rebounds must also be flexible and adaptable, because we also must consider that reversal rallies may be short-lived recoveries. If these rebounds are short lived they represent unique opportunities for us to make money for our clients by capturing short-term gains with ETF investing strategies that apply a trading approach. Other ETF investing strategies target long-term exposures that can be efficiently accomplished during these reversal phases.

The key to making money when everyone else is losing is by immediately identifying the winners as sentiment turns around. We never Cheer before we know whos winning, or in other words, we never try to predict which sectors will rise from the ashes. Instead of predicting, we quickly react. Tomorrow at 10:15AM ET the U.S. ISM Non-Manufacturing Index will be released. The composite index from the ISM non-manufacturing survey slowed sharply in April to 53.5 from a very strong 56.0 in March. New orders posted their lowest monthly growth in six months as did business activity which in this report refers to output. The new orders index eased to 53.5 from 58.8 in March.

The non-manufacturing ISM surveys more than 375 firms from numerous sectors across the United States, including agriculture, mining, construction, transportation, communications, wholesale trade and retail trade. For the composite index, a reading above 50 percent indicates that the non-manufacturing economy is generally expanding; below 50 percent indicates that it is generally declining.

Tomorrows consensus is 53.5. If the actual number comes in better than expected, markets in the U.S. will rally. The best ETF investing strategies for a rally are ones which will maximize U.S. small cap exposure. ETFs which provide basic exposure to the Russell 2000 Index include  iShares Russell 2000 Value Index (IWN), iShares Russell 2000 Index (IWM), and iShares Russell 2000 Growth Index (IWO).

For ETF investing strategies that include leverage as part of the objective, we really like using Direxion Daily Small Cap (TNA) which provides 3X the daily return of the index. Of course, ETF investing strategies that use leverage should be approached with much greater caution. We arent predicting what the number will be (remember, no cheering before we know whos winning), but we know based on several thousand data from our algorithms that when markets have pulled back as much as they have in the prior month, a catalyst to the upside will create a major profit opportunity. In the opposite scenario, if the ISM number comes in at or below 53.5, then the selling we have witnessed since May 1 will likely continue.

Heres how we know what sectors to invest in for clients in the event that the ISM number beats expectations: We select the sectors that are winning while the majority of other sectors are losing. Take a look at our performance feed below from today to see an example. Once we know whos winning, we can cheer for them clearly when the tide turns (for us the “cheering” metaphor of course means buying). Its like betting on a team that is leading 3-0 to win in a 7 game series and is up by 20 points with only 10 seconds to go in the game. Unlike sports betting, investing doesnt have to be done before the game starts. We can wait until the very last second to place our bets. And that is exactly what we do. In fact, we wait until after the fact, in this case the ISM release at 10AM EST.

As you can see from todays feed below, Toy & Hobby Stores, Music & Video Stores, Specialty Eateries, etc. are already winning significantly. These sectors are statistically the most likely winners in a potential rebound scenario because they are already winning.

On the opposite end, sectors such as smaller banks, residential construction (sorry Wes), and Major Airlines are near the bottom. Historical data suggest these sectors will be the least profitable in a market rally scenario.

Of course, we take advantage of the vast and growing supply of ETFs to gain exposure to the targeted sectors that we wish to apply the ETF investing strategies to.

Profitable ETF investing strategies and lessons from a rock band

I will admit that I have no Idea what the guys in Faith No More are actually saying in most of their songs. My “takeaway from the refrain Ive quoted may be totally different from the context intended by the song. I just like the guitar playing, the tempo, the “gut feel” of the music. I am perfectly clear, however, about the refrain in King For A Day: Never cheer before you know whos winning, and why I like it- it’s a profitable approach to trading index reversals.

The key for investing in times of major stress within the market is waiting until you are certain which sectors are the leaders before establishing positions. We look at the chart above every day and many others like it throughout the day. It may seem like a lot of information, but that is what powerful algorithms can do well for us: monitor massive data streams and apply these data to a recommendation for the best ETF investing strategies. We monitor thousands of indices, and hundreds of sectors in 46 countries, not knowing which ones will win, but ready to seize the moment when specific sectors do win.

Perhaps the best part of this article is that even if your financial advisor, or investment strategy cannot (or will not) adapt to fast markets in the way we have described above, you can experience a new musical experience like I did back in 1990 (I do realize this song is from 1995, but It is my favorite from the band)! If you have already enjoyed Faith No More, then youll likely enjoy again. Here is a link to the song I trade major reversals to. I sincerely hope you enjoy it as much as I do, and I hope youll keep an eye on tomorrow mornings ISM release for the sake of your own investments.