ETF HQ Report – Political Confusion, Technical Clarity

March 28, 2011 – 07:02 am EDT

The market bounced quite impressively off support over the last week and did so on strong volume.  New highs in the not too distant future remain likely but over the short term things are more uncertain so lets take a closer look…

**Note QQQQ has been changed back to QQQ.  Why?  Just to annoy us all and mess up our programming I am certain.

 

**** We had a big jump in subscribers this week so welcome to our new readers.  Thanks for continuing to spread the word.

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ETF % Change Comparison

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ETF % Change Comparison

This is very healthy; the leaders for the week were SMH and QQQQ followed by IWM and IYT.  These are four highly economically sensitive ETFs so when they are picking up the bid during a bounce off support it shows confidence from the smart money.  Plus despite SMH being the furthest from its peak it has also bounced the hardest from its recent low.  All of this indicates that the bull market has plenty of life left in it.

 

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

Don’t get too excited about SPY being back above its 50 Day SMA, another test of support is a real possibility.  If it happens then we want to see it occur on light volume.

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QQQ

QQQ is a touch below its 50 Day SMA, while a close above this level would be great there is no harm in a bit of consolidation first.

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SMH

SMH has had strong volume behind the recent bounce however if we see some profit taking and OBV moves to a new low then the market will be in trouble.

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IWM

IWM is ever so close to its Feb high and if it can lead the market into new highs this would be an epic vote of confidence for the bulls.

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IYT

The Transports have lacked direction for the last 4 months but they have also established great support.  A new high would be a real jewel in the bullish crown.

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OM3 Weekly Indicator

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OM3

The OM3 indicator is confused and mostly providing no signal.

Learn moreThe OM3 Indicator

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TransDow & NasDow

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TransDow & NasDow

TransDow – The Transports remain dominant over the Dow after 7 days during which time they have advanced 3%.

NasDow – The Dow remains dominant over the NASDAQ after 105 days, during this time the Dow and NASDAQ have advanced 7.10% and 4.00% 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 just opened a new position in QQQ on Friday.

Liquid Q continues to hold a position in QQQ that is showing a loss of 3.09% after 35 days.

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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

From a political and economic perspective there are a multitude of reasons to be concerned.  But this newsletter is not about using politics or fundamentals for trading, it is about technical analysis.

From a technical perspective there are few reasons for concern.  Support levels held across the board, the market then bounced off that support and on solid volume was lead higher by the more economically sensitive ETFs.

I will not be concerned if we see some profit taking or another test of support over the short term.  However there will be reason for concern if we see OBV on these ETFs making lower lows and our friends like SMH, IWM and IYT behaving comparatively badly.

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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Hypocrite of the Week:

“The president does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.” Obama Bin Lyin’ December 20, 2007