February 14, 2011 – 08:26 am EST
Happy Valentines day to you! We very much appreciate all those who read this newsletter. Also valentines day has a significant impact on many areas so here is an in-depth report – Valentines Day by the Numbers.
On a more serious note; much respect to the courageous people of Egypt! We have just witnessed true power of the people in action! Lets hope that it brings lasting change, peace and prosperity to their nation.
Inside the bat cave at headquarters, we are currently chest deep drowning in numbers from tests as part of the Technical Indicator Fight for Supremacy. The next round of results will be posted soon but in the mean time here is one of the indicators that we are currently putting through its paces – Fractal Dimension.
To the markets…
Last week we spoke of the importance of continued momentum, that we needed to see a new high from IWM and that ITY must hold onto support at $90. Well this market certainly knows how to deliver and even produced some big gains from IYT. Lets take a closer look…
****There is currently a 22% profit on the open trade from the LTMF 80 system that comes free with this newsletter. We grow by word of mouth so thanks for continuing to spread the word.
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ETF % Change Comparison
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It is not often that you see new highs across the board like this and it is a very positive sign. IYT and IWM have been lagging behind recently but over the last week lead the market higher. SMH on the other hand was at the back of the pack, but after several weeks of big gains this is not surprising.
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Learn more – ETF % Change Comparison
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A Look at the Charts
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Volume on SPY is the best part of this picture.
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QQQQ will not behave like this forever and we are privileged to be part of this epic rally.
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Volume flows on SMH are not super strong and will need close monitoring for warnings of weakness.
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IWM has produced the new high we were looking for and it has been confirmed by OBV.
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It would be great to see IYT close at a more convincing new high backed by volume.
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OM3 Weekly Indicator
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The buy signals remain active across the board and have been active for almost 6 months now. Bull alerts have returned to IWM and IYT.
Learn more – The OM3 Indicator
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TransDow & NasDow
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The NasDow has indicated that the Dow has been dominant over the NASDAQ and likely to outperform for the last 63 days. During this time the Dow and NASDAQ have advanced 7.56% and 6.52% respectively.
The TransDow has indicated that the Dow has been dominant over the Transports and likely to outperform for the last 20 days. During this time the Dow and the Transports have advanced 3.38% and 3.76% respectively.
Historically when the Dow has been dominant the market has been highly unproductive.
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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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The LTMF 80 continues to hold a position in QQQQ and is now showing a profit of 22% after 147 days. Liquid Q remains in cash.
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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 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
No markets don’t only go up and yes we are likely to get caught out by sudden and sharp profit taking at some point. At the moment however there are very few signs of weakness and there are always warning signs before things turn really bad. SMH has far weaker volume than is ideal so its behavior should be watched closely. Hopefully we will soon see a more convincing close at a new high from IYT as this would be a further sign of bullishness.
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 will not leave the square. Over my dead body. I trust the army, but I don’t trust those controlling the army behind the scenes. Down with corruption and repression. This is a new day of freedom. I have tasted freedom and I will not turn back.” – Mohamed Salah 27, Agriculture Graduate