ETF HQ Report – Torn

November 29, 2010 – 07:38 am EST

News of a real tragedy came through this week.  Any hope of the 29 trapped miners returning alive was lost after another massive explosion ripped through the Pike Rive Mine.  Times like this really put our own problems into perspective and remind us not to take life for granted.  My thoughts go out to the families who have lost their, fathers, brothers, husbands and sons.  Happy Thanks Giving America, it is a great holiday that you guys celebrate and I know I have so much to be thankful for.

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There have been some further signs of strength in the market over the last week; most notably SMH powering onto a fresh high while SPY declined.  This is exceedingly positive as it shows that investors are not shying away from this more risky and economically sensitive industry despite all the uncertainty across the global landscape at present.

Having said that I find myself torn in writing this weeks report as we currently have a mixed portfolio with the recent addition of some short positions.  Our major short position is in EWJ (Japan) and our major long positions are in QQQQ and IYT.  So while there are many positive signs we are not blindly bullish.

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****Thanks to all those who referred people to this newsletter over the last week. The more readers we have the more services we can provide you.

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ETF % Change Comparison

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ETF % Change Comparison

Notice how the four more economically sensitive ETFs (SMH, QQQQ, IWM & IYT) are up more over the last week, fortnight, month and from their lows than the comparitively economically stable SPY and DIA?  If times were as bad as the financial media would lead us to believe then we simply would not see this kind of behavior.

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Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

SPY has weak volume flows (still), a break of $117.50 would weigh heavily in the market.

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QQQQ

This coming week will be important for QQQQ, there are no reasons to sell at present but if it stalls here then a test of $50 is likely.

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SMH

SMH offers the #1 bullish argument.  New highs from this market leading ETF are always a good sign.

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IWM

It is time for IWM to make a higher high because without it the broad market will fail to get much higher.

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IYT

IYT has great volume flows and is very near its recent high.  A higher high confirmed by IWM would be exceptionally bullish.

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OM3 Weekly Indicator

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OM3 Indicator

Buy signals remain active across the board.  The bull alert from SMH is a very positive sign.

Learn moreThe OM3 Indicator

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TransDow & NasDow

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TransDow & NasDow

The transportation index remains dominant over the Dow and the TransDow continues to show a small profit from that trade.  The NasDow has just opened a new position in the NASDAQ as it has again become dominant over the Dow.  Historically the market has been most productive under these conditions.

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What the TransDow Readings tell us:

The TransDow measures dominance between the DJ Transportation Index (DJTI) and the Dow Jones Industrial Average (DJIA). In a strong market the more economically sensitive Transportation Index should be dominant over the DJIA.

Historically the DJTI has been dominant over the Dow 45% of the time. The annualized rate of return from the DJTI during this period was 18.47% with the biggest loss for one trade sitting at -13.27%. The annualized return from the DJIA during the periods it was dominant over the DJTI was just 4.06% and the biggest loss for one trade was -16.13%. A 4% stop-loss is applied to all trades adjusting positions only at the end of the week.

What the NasDow Readings tell us:

The NasDow measures dominance between the NASDAQ and the DJIA. Using the same theory behind the Trans Dow; in a strong market the more economically sensitive NASDAQ should be dominant over the DJIA.

Historically the NASDAQ has been dominant over the DJIA 44% of the time. Taking only the trades when the NASDAQ is above its 40 week moving average the annualized rate of return was 25.47% with the biggest loss for one trade sitting at –8.59%. The annualized rate on the DJIA during the periods it was dominant over the NASDAQ is just 8.88% and the biggest loss for one trade was –12.28%. A 8% stop-loss is applied to all trades adjusting positions only at the end of the week.

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LTMF 80 & Liquid Q

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LTMF 80 & Liquid Q

LTMF 80 continues to hold a position in QQQQ while Liquid Q remains in cash.

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Historical Stats:

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LTMF 80 & Liquid Q Stats

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How The LTMF 80 Works

LTMF stands for Long Term Market Forecaster. It reads volume flows relative to price action and looks for out performance of volume measured on a percentage basis over the prior 12 months. During a sustained rally the readings will reach high levels (near 100%) making it imposable for the volume reading to always outperform price so any reading above 80% will maintain the buy signal. This system has outperformed the market over the last 10 years but performance has been damaged by some nasty losses. It only produces buy signals and only for QQQQ.

How Liquid Q Works

Liquid Q completely ignores price action and instead measures the relative flow of money between a selection of economically sensitive and comparatively stable ares of the market. It looks for times when the smart money is confident and and can be seen by through volume investing heavily is more risky areas due to an expectation of expansion. This system has outperformed the market over the last 10 years and remained in cash through most of the major declines. It only produces buy signals and only for QQQQ. We will provide more performance details on the web site for these systems soon.

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Summary

The market continues to display great signs of strength but as a recurring theme there is a lack of volume.  While that is to be expected over the Thanks Giving Week, we really need to see volume return to back the bulls.  The time has also come for IWM to make a higher high.  If this occurs and is confirmed by IYT then there is still plenty of life left in this bull run.  If not then we are due for some more substantial profit taking.

Any disputes, questions, queries, comments or theories are most welcome in the comments section below.

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Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

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P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

The grateful mind is constantly fixed upon the best. Therefore, it tends to become the best; it takes the form or character of the best and will receive the best. – Wallace Wattles