May 31, 2011 – 07:15 am EDT
It was great week to put ones patience and intestinal fortitude to the test. We were very close to closing out our bullish positions but the criteria set out was not quite achieved. Lets take a closer look…
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ETF % Change Comparison
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SMH has been lagging behind for the last month and if this bull market is to continue the semis will need to rejoin the party. On a positive note IWM (Small Caps) picked up the bid over the last week which suggests that the market is not so weak.
Learn more – ETF % Change Comparison
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A Look at the Charts
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Support has held, now lets see some volume!
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Back above its 200 Day SMA, QQQ is still alive.
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SMH held onto support by the skin of its teeth and kept us in this market.
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(IWM) The Small Caps are looking well poised to advance further.
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The fact that IYT has held onto its 50 Day SMA for so long shows great strength and makes this a dangerous market to sell short.
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OM3 Weekly Indicator
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The OM3 Indicator is now mostly bearish.
Learn more – The OM3 Indicator
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TransDow & NasDow
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TransDow – The Transports remain dominant over the Dow and the position in DJT is showing a loss if 1.93% after 28 days.
NasDow – The NASDAQ remains dominant over the Dow after 14 days during which time the NASDAQ has declined 1.12%.
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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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Historical 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
The current market leaves much to be desired particularly with volume into SPY and QQQ being so sluggish. That said though, support levels remain and economically sensitive areas like the Small Caps and Transports have been showing some impressive relative strength. The time for consolidation has now passed and a convincing attempt at new highs is going to require participation from SMH.
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
“Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away.” – Antoine de Saint-Exupéry
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Derry,
In your SPY, QQQ and SMH charts, you mentioned the “200 day SMA”, but they (the red lines) are so far away. Do you really mean the 100 day SMA (the purple lines)?
Wow, what a massive oversight of mine. Yes you are 100% correct. Thanks for pointing that out.
Derry,
Could you comment on the American Banking Index and the Emerging Markets Index? Both these leading indicators are in down trends…… Those tend to leave me feeling bearish, especially when you consider that the U.S. government is pumping some 6-8 billion a day into our markets…. Come June 30th we will find out if the U.S. market really has legs, aye?
Mike
Well Mike, if Wednesday was anything to go but then we won’t have to wait until June 30. XLF certainly is in a down trend, EEM has been basically flat since Oct. It will certainly be interesting to see how the market reacts to the end of QE2, I wouldn’t be surprised if we see some kind of QE3. We are ready to jump ship if need be, came very close today.
Derry
Well Mike, if Wednesday was anything to go but then we won’t have to wait until June 30. XLF certainly is in a down trend, EEM has been basically flat since Oct. It will certainly be interesting to see how the market reacts to the end of QE2, I wouldn’t be surprised if we see some kind of QE3. We are ready to jump ship if need be, came very close today.
Derry
Intestinal Fortitude 0, E. coli 1.
Sorry, just try to inject some humor into a dismal week.
Haha, you are not wrong. We moved into mostly cash today.