ETF HQ Report – Waiting and Seeing

May 23, 2011 – 08:25 am EDT

I was MIA last week sorry!  Was at the comedy festival and the festivities became more involved than anticipated.  Any way the market has not moved far since we last spoke although it is certainly looking weaker than it was.  Looking at the futures now they are all down quite sharply so we could be off to an interesting start to the week.  We are still holding onto our long positions but that will change if support is lost, lets take a closer look…

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ETF % Change Comparison

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ETF % Change Comparison

SMH and QQQ have been the worst performers of late which is not a good sign and not one that the Bulls can afford to see continue.  On a positive note the Transports are still performing very well which is a reminder that despite what the headlines say this market is not that sick.

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

SPY still has very weak volume but the price action remains in a bullish trend and above support.

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QQQ

Watch for a critical test of the 200 Day SMA by QQQ this week!

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SMH

Keep an eye on SMH this week to confirm any moves by QQQ.

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IWM

Can IWM hold onto its 200 Day SMA?  We will soon find out.

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IYT

The Transports are again the most positive aspect of the current market.

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OM3 Weekly Indicator

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OM3 Indicator

A mix of buy and sell signals with bear alerts across the board.  The OM3 indicator is not providing a clear 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 and the current trade is showing a loss of 1.20% over 21 days.

NasDow – The NASDAQ has become dominant over the Dow and the resulting trade is showing a loss if 0.89% after one week.

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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

Both the LTMF 80 and Liquid Q have open positions in QQQ.

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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 QQQ.

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 QQQ. We will provide more performance details on the web site for these systems soon.

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Summary

This coming week is likely to be one that either makes or breaks this market.  If we see QQQ and SMH and IWM close below their 200 Day SMAs then I will be the first to admit I have been wrong about the longevity of this bull market.  At which point we will be unwinding most of our long and short term bullish positions but until then it is a matter of waiting and seeing how things unfold.

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 Day

“We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.” – Jim Rohn, 1930 – 2009

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Leave A Reply (4 comments so far)


  1. Guest
    6 years ago

    Glad to read your report again!  May I suggest next time you AWOL, please leave a short note stating when you expect to be back. 


  2. Mike
    6 years ago

     Derry,
    IWM topped on May 2nd about the time that it was announced that QE-2 would end on June 30th. Since that day IWM has been building a down trend line and has not traded beyond that line since May 2nd……  TZA has been a very profitable trade since then…. I’m betting that the selling going on in the institutional end will begin to overwhelm the QE-2 injections as we get closer to June 30th….  July 1st is a Friday and I’m beginning to believe that it could rival October 17, 1987 as one of the worst Fridays in history….  Well at least the worst since the period of 1929 and 1930….  Harbingers of things to come? I’m beginning to believe that is increasingly possible… 
    Mike


    • Derry Brown
      6 years ago

      That’s an interesting forecast Mike.  Would love to be on the right side of the next big crash.  Have my doubts that we will see one in the next few months though.  Time will reveal all.  Still long at this stage but Tuesday could change that.

      Thanks for your insight
      Derry

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