Adaptive Moving Average (AMA) aka Kaufman Adaptive Moving Average (KAMA)

The Adaptive Moving Average (AMA) aka Kaufman Adaptive Moving Average (KAMA) was created by Perry Kaufman and first presented in his book Smarter Trading (1995).  This moving average offered a significant advantage over previous attempts at ‘intelligent’ averages because it allowed the user greater control.

The Variable Moving Average – VMA (1992) for instance offered no upper or lower limit to its smoothing period.  The AMA on the other hand allowed the user to define the range across which they desired the smoothing to be spread.

It follows the same theory as the VMA in that depending on the market environment there will be different amounts of noise and therefore a different moving average speed will be required to achieve the most profitable results.  In a strongly trending market for instance, the noise levels are low and a faster moving average should produce the best results.  Conversely in a crab or sideways market the noise levels are very high and a slower average is likely to be better suited.

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How to Calculate an Adaptive Moving Average

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It starts with the Close price.

AMA(1) = Close

After that AMA is calculated according to the following formula:

AMA = AMA(1) + α * (Close – AMA(1))

You will notice that this is the same as the formula for an Exponential Moving Average (EMA):

EMA = EMA(1) + α * (Close – EMA(1))

But Alpha in an EMA is α = 2 / (N + 1) so it remains constant while for an AMA the Alpha is adaptive:

α = [(VI * (FC – SC)) + SC] ²

Where:

VI = Users choice of a measure of volatility or trend strength, Kaufman suggested his Efficiency Ratio (ER).

SC = 2 / (SN + 1)

SN = Your choice of a Slow moving average > FN

FC = 2 / (FN + 1)

FN = Your choice of a Slow moving average < SN

Here is an example of a 3 period AMA with a 3 period Efficiency Ratio (ER) as the VI:

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Adaptive Moving Average Formula.

How Squaring Alpha affects the AMA Smoothing Range

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Kaufman suggest that his AMA have a FC of 2 and a SC of 30 which would lead one to assume that the adaptive smoothing would be in the 2 – 30 range but you would be wrong because the alpha is squared.  For example, lets set the VI to zero so we can reveal the slowest possible average:

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AMA Alpha Calculations.

Now to reveal the EMA smoothing period ‘N’ from alpha:

N (EMA) = (2 – α) / α
N (EMA) = (2 – 0.0042) / 0.0042
N (EMA) = 480

So in reality an AMA with a SN of 30 where alpha is raised to the power of 2 can actually move as slowly as a 480 day EMA.  Now to me that is not very user friendly; entering a parameter of 30 that results in a smoothing period of 480.  So I use the following formula for SC and FC instead:

SC = α(1)^(1/P)

Where:

α(1) = 2 / (SN+1)

P = Power that alpha is raised to (usually 2)

SN = Your choice of a Slow moving average > FN

Now SN will be the actual resulting slowest moving average even if you change the power that alpha is raised to.  I also use the same process for FN and FC.  Lets look again at Alpha with the VI set to zero, the FN at 2 and the SN at 480:

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AMA New Alpha Calculations.

Now when we reveal the EMA smoothing period ‘N’ from alpha it should equal our user defined 480:

N (EMA) = (2 – α) / α
N (EMA) = (2 – 0.0042) / 0.0042
N (EMA) = 480

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A closer look at the affect of Squaring Alpha

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Understanding the affect of squaring alpha is very important as the chart below illustrates:

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AMA Exponent Affect on Smoothing

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As you can see above, an input smoothing period of 300 with alpha squared results in an actual smoothing period of over 45,300 which is totally useless.  However this is a setting that one could easily use without a proper understanding of how the AMA works.  In our testing we will be trying the AMA with alpha raised to powers other that 2 so some other examples have also been plotted on the chart above.

Below we look at the affect on alpha and the smoothing resulting from an AMA with the Efficiency Ratio taken directly into alpha (^1) or being squared (^2):

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AMA - Alpha and Smoothing with and without Squaring

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We used our modified AMA formula for the above charts so that the actual FN and SN were identically matched despite modifications to alpha.  As you can see, squaring alpha results in not just a slower AMA overall but one that is much faster to slow down when the alpha decreases.  Kaufman obviously wanted the AMA to very rapidly slow when the data lacked a trend.  This affect is similar to that of increasing the constant ‘N’ in the Variable Moving Average.

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Is the AMA a Good Indicator?

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As part of the ‘Technical Indicator Fight for Supremacy‘ we will be putting the AMA against several different types of moving averages and will test several different Volatility Indexes as components including:

We will also be testing the assumption that squaring alpha was a good idea and will try raising it to several different powers.

Can you think of any other worthwhile tests?  Please let us know in the comments section at the bottom.

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Adaptive Moving Average Excel File

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I have put together an Excel Spreadsheet containing the Adaptive Moving Average and made it available for FREE download.  It contains a ‘basic’ version that shows all the working and a ‘fancy’ one that will automatically adjust to the length as well as the Volatility Index you specify.  Find it at the following link near the bottom of the page under Downloads – Technical Indicators: Adaptive Moving Average (AMA)

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Adaptive Moving Average Example, VI = 50 Day Efficiency Ratio

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Kaufman Adaptive Moving Average vs EMA - Example

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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1

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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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ETF HQ Report – Pocket of Safety

June 27, 2011 – 08:05 am EDT

There was a churning around support levels over the last week.  Impressive action was seen from the small caps which is some good news in a world where everything looks bearish.  Lets take a closer look…

** Wow, big growth in our number of subscribers over the last week.  We don’t advertise so THANK YOU for spreading the word!

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ETF % Change Comparison

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ETF % Change Comparison

It was interesting to see such strong performance by the small caps (IWM) while SPY and DIA continued to decline.  This suggests that although the market is unlikely to turn into a raging bull any time soon, it is also not as sick as many think.  If it were, then money would not be seeking out an area as economically sensitive as the small caps.

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

Volume on SPY suggests support will soon fail.

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QQQ

QQQ finishing another week lingering below support; not a good sign.

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SMH

The last ditch support on SMH will be key to the markets next move.

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IWM

IWM is offering one of the few bullish arguments.

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IYT

Volume out of ITY is a concern.

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1

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OM3 Weekly Indicator

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OM3 Indicator

Sell signals across the board but there is one bull alert from IWM.

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 Trade in DJT is currently showing a profit of 1.08% after one week.

NasDow – The Dow remains dominant over the NASDAQ and the NasDow remains in cash.

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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 LTMF 80 and Liquid Q remain 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

 

Volume out of SPY and IYT is deteriorating which suggests that even if the bulls can stage a rally it will be short lived.  It is also bearish to see SMH and QQQ finish another week below their 200 Day SMAs.  A new low from SMH now would be fatal and likely pull the broad market down significantly.  But in the mean time we are sitting on a pocket of relative safety where the Small Caps are offering reason to look on the bright side of life.

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

“Absorb what is useful, discard what is useless, and add what is uniquely your own.” – Bruce Lee

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ETF HQ Report – Market Divergence

June 20, 2011 – 08:55 am EDT

The declines slowed over the last week in several areas of the market as support levels were encountered.  Some major damage has been done however due to failure at some significant levels and escalating bearish volume.  Lets take a closer look…

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ETF % Change Comparison

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ETF % Change Comparison

SMH and QQQ lead the market lower over the last week with both finishing the week at lower lows.  These are two particularly influential and economically sensitive ETFs so to see money moving from these areas into the relative safety of SPY and DIA is very bearish.  It is surprising to see the Transports (IYT) doing so well however which reminds us that the market is unlikely to fall off a cliff any time soon.

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

Don’t get excited about SPY holding onto support, it is a hollow victory.

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QQQ

Strongly bearish volume and a loss of support… Not good QQQ

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SMH

Keep an eye on SMH, support still remains despite significant technical damage.

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IWM

A close above $80 could trigger a short run by the bulls.

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IYT

It will be interesting to see if $95 becomes resistance for IYT.

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1

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OM3 Weekly Indicator

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OM3 Indicator

The OM3 indicator remains bearish across the board.

Learn moreThe OM3 Indicator

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TransDow & NasDow

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TransDow & NasDow

TransDow – The Transports have regained dominance over the Dow and a new position was opened in DJT on Friday.

NasDow – The NasDow continues to offer no signal for a second 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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1

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LTMF 80 & Liquid Q

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LTMF 80 & Liquid Q

Liquid Q finally closed out its position in QQQ for a nasty 7.7% loss.  LTMF 80 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

On a positive note the Small caps are holding onto support and IYT has been seeing some real buying interest.  This suggests that we are unlikely to encounter an all out market collapse any time soon due to a Greek default or anything else.  However the action from SMH and QQQ is disturbing to say the least and further declines are highly likely.

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

“Does history record any case in which the majority was right?” – Robert Heinlein

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ETF HQ Report – Best Case = Range Bound

June 13, 2011 – 09:10 am EDT

The market continued its slide over the last week and there was nothing pretty about it.  Lets take a closer look…

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ETF % Change Comparison

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ETF % Change Comparison

Those are some ugly stats!  IWM just made a lower low and saw the biggest declines for the week while DIA saw the least.  This shows that investors are retreating to safety and reconfirms that the declines need to be taken seriously.

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

The sudden surge of volume on SPY behind the recent declines is very bearish.

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QQQ

With QQQ right by support I would expect to see some buying interest soon.

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SMH

SMH has epic support around $32.50 so keep an eye on this important level.

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IWM

IWM is right on its March low so further declines from here will do major technical damage.

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IYT

The transports again lack direction.

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OM3 Weekly Indicator

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OM3 Indicator

The OM3 Indicator remains bearish across the board.

Learn moreThe OM3 Indicator

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1

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TransDow & NasDow

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TransDow & NasDow

TransDow – The Dow is dominant over the Transports and the TransDow remains in cash.

NasDow – The NasDow has moved to cash and is showing no signal or no dominant index.

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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 has moved to cash and locked in a loss of 3.87% after 77 days.  Liquid Q continues to endure a position in QQQ that is starting to show a rather unpleasant loss.

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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

The declines over the last two weeks have been sharp and substantial.  Now with some oversold readings developing, multiple encounters with the 200 Day SMA coming up along with several other support levels, it is time for some buying interest from the bulls.  If these multiple and substantial support levels can’t even slow the declines then I will be very surprised.  However with the technical damage already done the best case scenario is a range bound market.

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

“Don’t tell me it’s impossible, tell me you can’t do it.  Tell me it’s never been done.  The only things we really know are Maxwell’s equations, the three laws of Newton, the two postulates of relativity, and the periodic table.  That’s all we know that’s true.  All the rest are man’s laws…” – Dean Kamen

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ETF HQ Report – Intestinal Failure

June 06, 2011 – 08:28 am EDT

All was looking positive on Tuesday with the market posting some nice steady gains.  However by Wednesdays close it was clear that the market was behaving in a manor we have not witnessed for some time.  Come Friday, all of the major support levels we have been monitoring were lost and we moved mostly to cash.

Trading is all about having a plan and sticking to it.  Sometimes that requires intestinal fortitude and sometimes it requires admitting when you are wrong and taking a loss.  The important thing is that one has a plan and knows what they are going to do in every situation.  We are involved in a business of probabilities and as George Soros said “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

Lets take a closer look…

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ETF % Change Comparison

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ETF % Change Comparison

The Transports (IYT), Small Caps (IWM) and Semis were all hit hard over the last week with SMH now further from its peak that any of the other influential ETFs.  This is not a good look and the recent declines need to be taken seriously.

Learn moreETF % Change Comparison

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A Look at the Charts

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SPY

A loss of $130 and a new low from OBV would be exceedingly bearish.

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QQQ

QQQ is in the danger zone but volume indicates a lack of direction.

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SMH

The breakdown by SMH is a major blow to this market but volume does not yet confirm the move.

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IWM

Keep an eye out for buying interest around $80.

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IYT

The Transports have been offering great support to this market until recently.

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1

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OM3 Weekly Indicator

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OM3 Indicator

The OM3 Indicator is bearish across the board.

Learn moreThe OM3 Indicator

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1

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TransDow & NasDow

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TransDow & NasDow

TransDow – The Dow has become dominant over the Transports and caused a closure of the DJT position for a loss of 5.34% over 35 days.

NasDow – The NASDAQ remains dominant over the Dow and the position in the NASDAQ remains open with a current loss if 3.23%

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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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1

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LTMF 80 & Liquid Q

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LTMF 80 & Liquid Q

Both LTMF 80 and Liquid Q continue to hold open positions in QQQ each showing a small loss.

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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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1

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Summary

We have moved mostly to cash in response to a broad based loss of support and unhealthy market behavior.  Volume flows however are not convincingly bearish and this may lead to a frustrating sideways grind.  Make no mistake though, the technical damage that has been done makes it extremely unlikely that we will see a successful attempt at new highs before a further correction.

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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1

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Quote of the Day

“Money is multiplied in practical value depending on the number of W’s you control in your life: what you do, when you do it, where you do it, and with whom you do it.  I call this the freedom multiplier.” – Timothy Ferriss

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ETF HQ Report – Intestinal Fortitude

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…

** Keep spreading the word, we continue to grow that’s to your help!

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ETF % Change Comparison

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ETF % Change Comparison

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 moreETF % Change Comparison

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1

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A Look at the Charts

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SPY

Support has held, now lets see some volume!

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QQQ

Back above its 200 Day SMA, QQQ is still alive.

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SMH

SMH held onto support by the skin of its teeth and kept us in this market.

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IWM

(IWM) The Small Caps are looking well poised to advance further.

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IYT

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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1

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OM3 Weekly Indicator

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OM3 Indicator

The OM3 Indicator is now mostly bearish.

Learn moreThe OM3 Indicator

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1

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TransDow & NasDow

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TransDow & NasDow

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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1

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LTMF 80 & Liquid Q

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LTMF 80 & Liquid Q

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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

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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1

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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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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…

** Special thanks to everyone for helping this newsletter see such big growth over the last few weeks.

**** Have you had a chance to throw anything the way of the Heart Foundation?  I am running a marathon to raise funds that could save your life one day.  Please go to Heart Racer to make a donation and remember to invite your friends to join this mailing list.  Thanks!

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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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1

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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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1

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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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1

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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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1

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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.

.

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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1

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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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ETF HQ Report – Buy into the weakness

May 09, 2011 – 09:10 am EDT

It was a nerve testing week for many people as the market took back some of its recent gains.  I have seen dozens of headlines from different Gurus recently saying that the market has peaked and that the inevitable implosion is imminent.  While an implosion may be inevitable there are few signs that it is going to happen just yet, lets take a closer look…

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**** $1225 in donations for the Heart Foundation now.  Thanks so much for your generosity!  There is a 30% chance that you will die of heart disease and I am running a marathon to raise funds that could save your life.  Please go to Heart Racer to make a donation and remember to invite your friends to join this mailing list.  Thanks!

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ETF % Change Comparison

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ETF % Change Comparison

It was unfortunate to see such a big tumble from IWM (Small Caps) over the last week but becuase SMH and IYT put on such a comparatively good show there is no immediate cause for concern.  If the heavy declines had also been seen on SMH then it would be a sign of trouble but instead they are likely to be nothing more than healthy profit taking.

The Semis (SMH) and The Transports (IYT) remain very close to their recent highs and are the furthest from their lows 51 days ago.  This is the behavior of a healthy market.

Learn moreETF % Change Comparison

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1

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A Look at the Charts

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SPY

No damage done by SPY, volume leaves much to be desired however.

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QQQ

Volume on QQQ is flat out ugly but there has been no loss of support yet and SMH is looking good.

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SMH

OBV is at a new high and I expect the prices to follow.

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IWM

Small caps have been hit comparatively hard but still no loss of support.

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IYT

The Transports continue to look very strong; great price action backed with strong volume.

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1

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OM3 Weekly Indicator

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OM3 Indicator

Mostly Buy signals and Bull alerts; no warning signs here.

Learn moreThe OM3 Indicator

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1

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TransDow & NasDow

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TransDow & NasDow

TransDow – The Dow Transportation Index remains dominant over the Dow and the position in the Transports is showing a small loss after one week.

NasDow – The Dow is still dominant over the NASDAQ after 147 days and the NasDow remains in cash.

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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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1

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LTMF 80 & Liquid Q

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LTMF 80 & Liquid Q

LTMF 80 continues to hold a position in QQQ that is showing a profit of 2.87% after 42 days.  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

The overbought situation that existed last week has now been alleviated and no technical damage was caused in the process.  It is unfortunate that the small caps were hit comparatively hard but because SMH held together so well and the Transports are near new highs the bull market appears to remain on track.  Right or wrong I have been buying into the weakness and we will soon see if that was a wise move or not.

Any disputes, questions, queries, comments or theories are most welcome in the comments section below.

.

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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1

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Quote of the Day

“Life is a checkerboard,and the player opposite you is TIME.  If you hesitate before moving, or neglect to move promptly, your men will be wiped off the board by TIME.  You are playing against a partner who will not tolerate INDECISION!” – Napoleon Hill

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ETF HQ Report – To The Point

May 02, 2011 – 09:20 am EDT

It was new highs across the board this week and nothing particularly out of the ordinary to be honest.  Pressed for time, I will get right to the point…

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**** We have just passed $1000 in donations to the Heart Foundation thanks to your generosity!  If you get value from these newsletters then please do something in return; give generously to Heart Racer and invite your friends to join our mailing list.  Thanks!

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ETF % Change Comparison

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ETF % Change Comparison

The Transports had a spectacular week advancing 4.31% while SMH has risen 12.72% off the low it set 44 days ago.  Money flowing into these economically sensitive areas is a positive sign for the health of the market over the medium term.

 

Learn moreETF % Change Comparison

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1

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A Look at the Charts

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SPY

OBV is not confirming the new high from SPY but thankfully IWM and IYT are (see below).

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QQQ

The volume on QQQ is particularly weak.  Hopefully selling will be light during the next pull back.

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SMH

SMH has much healthier volume than QQQ.  It would be nice to see more convincing new highs.

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IWM

Love the Small Caps lots!  Great price action on great volume.

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IYT

Look at this chart and then try to convince someone we are in a bear market I dare you.

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1

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OM3 Weekly Indicator

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OM3 Indicator

Notice how the comparatively economically stable SPY and DIA are registering less bullish readings than the other more economically sensitive ETFs.  This is a positive sign.

Learn moreThe OM3 Indicator

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1

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TransDow & NasDow

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TransDow & NasDow
TransDow – The Transports have gained dominance over the Dow again and the TransDow opened a new position on Friday.

NasDow – The Dow remains dominant over the NASDAQ after 140 days during which time the Dow has advanced 12.27% compared to 8.95% for the NASDAQ.

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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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1

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LTMF 80 & Liquid Q

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LTMF 80 & Liquid Q

LTMF 80 continues to hold a position in QQQ that is showing a profit of 3.94% after 35 days.  Liquid Q remains in cash.

.

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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1

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Summary

After an explosive little rally the market has become overbought.  The short term outlook is unclear but over the medium to longer term is remains very positive.

Any disputes, questions, queries, comments or theories are most welcome in the comments section below.

.

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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1

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Quote of the Day

“Don’t become that which you seek to destroy.  If you want to cut down a tree, it is no use to climb into its branches.”

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