ETF HQ Report – Still Range Bound

July 11, 2011 – 08:40 am EDT

I hope all our American readers had a fantastic independence day.  Sorry about my absence last week, I am incredibly busy at the moment with a few other business projects as well as training for the Auckland Marathon in October.  To the markets… The pocket of safety we were talking about two weeks ago evolved into a sharp and violent rally that certainly took me by surprise.

Could this be a continuation of the rally that ended in March?  Lets take a closer look…

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ETF % Change Comparison

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ETF % Change Comparison

Here we are seeing most of the leadership from QQQ and IWM which is certainly good.  The under performance by SMH however is likely to act as an anchor holding this rally back.

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

SPY looks good but where is the volume?

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QQQ looks good but SMH is not offering confirmation.

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SMH

SMH has weak volume and the price action does not inspire confidence.

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The Small Caps are can do little wrong.  This is not the behavior of a sick market.

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IYT

When the Transports are playing with new highs the dooms day stories don’t hold much water.

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OM3 Weekly Indicator

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OM3 Indicator

Buy signals with bull alerts across the board… apart form SMH which is not ideal.

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 this position is showing a tasty little profit of 7.56% after 21 days.

NasDow – The NasDow remains on no signal.

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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

The LTMF 80 has had an open position in QQQ for a week now 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 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
Two weeks ago the small caps were giving us reason to look on the bright side of life and now they are saying that the bulls are full steam ahead.  Just about every other area of the market suggests that we are range bound.  This is a challenging market for the trend follower but that is no reason to sit on your hands if a trade goes bad.  Make sure you work your strategy, define your trading plan and stick to your rules.

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

I hated every minute of training, but I said, “Don’t quit.  Suffer now and live the rest of your life as a champion.” – Muhammad Ali

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Leave A Reply (4 comments so far)


  1. Mike
    6 years ago

    Derry,
    Big Down in the U.S. Futures this morning right at the May 2nd resistance for IWM, QQQ and SPX. SOXX (the leader) still has’t broken it’s downtrend line from May 2nd. If the market closes down today that will give us short term up trend line breaks in SOXX, IWM, QQQ and SPX….. I’m feeling a turn from TNA to TZA if the market closes down today.
    Mike


    • Derry Brown
      6 years ago

      Great observations as always Mike, thanks.  These highly leveraged ETFs are are far too rich for my blood though and personally I wouldn’t bet against the small caps.

      Trade well
      Derry


  2. guest
    6 years ago

    Hi Derry,
    Why did you stop posting this report?


  3. Derry Brown
    6 years ago

    Just been very busy.  May start it up again shortly.

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