ETF HQ Report – Back To Normal

March 21, 2011 – 08:34 am EDT

Does anyone else get the feeling that the market has returned to something that feels more like home?  I am not sure if that makes sense but it is like things are all of a sudden returning to a more normal pattern of behavior.

Over the last week every single one of the targets we set were reached (or very nearly so).  Most importantly however; every single one of the support levels have held strong.  Where to from here?  Lets take a closer look…

 

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ETF % Change Comparison

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ETF % Change Comparison

The two best performers over the last week were IWM and IYT; both are highly economically sensitive ETFs so to see them showing relative strength is a positive sign.  Also notice how SMH declined less than QQQQ?  The companies in SMH supply components that are particularly integral to many of the companies in QQQQ.  When things are bad SMH should lead QQQQ lower so to see the opposite is a show of confidence from investors.

 

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

Volume was strong behind the declines but support has been found.  Keep an eye on $125, it would be very positive if this level holds.

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QQQQ

Support has been found on the November high and indications are this level will hold.

 

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SMH

Volume is very bearish but important support has been found around $32.  This is a MUST HOLD level for the bulls!!

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IWM

This chart should inspire confidence and belief in the longer term prospects of the market.

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IYT

The Transports keep holding their head above $90 and to continue to do so would be very bullish.

 

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OM3 Weekly Indicator

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OM3 Indicator

For the first time in about 6 months we have a clean sweep of sell signals.  However while support remains, now is not the time to be selling.

Learn moreThe OM3 Indicator

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TransDow & NasDow

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TransDow & NasDow

TransDow – The Transports became dominant over the Dow on Friday and initiated a new long position.

NasDow – The Dow remains dominant over the NASDAQ after 98 days, during this time the Dow and NASDAQ have advanced 3.93% and 0.23% respectively.  In theory the dominant index should outperform, as it has in this case.

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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 has shifted to cash after 182 days in QQQQ and locked in a profit of 13.67%.  This is well off the high of around 22%.  It will be interesting to see if this sell signal was well timed or not.

Liquid Q continues to hold a position in QQQQ that was initiated almost at the very top of the market and currently shows a loss of 7.29%.

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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

All of the declines so far have been healthy and appear to be within the context of a longer term bull market.  If key support levels such as SMH $32, IWM 100 Day SMA and IYT $90 are lost then I will have been wrong and the market will probably fall apart in short order.  But while support remains, new highs remain likely at some point this year.

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

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Cheers

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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Quote Of The Week:

“The only mistake you can ever make is the one you make twice.” – Unknown