ETF HQ

January 24, 2011 – 04:32 am EST

It has been a while since we last saw declines as sudden and sharp as they were over the last week.  But this is to be expected from a heavily overbought market and why we warned it was a dangerous time to initiate bullish positions.  A rather interesting divergence between the small caps and the big caps occurred during the selling and could be an indication that the smart money is retreating to safety, lets take a closer look…

***Thanks for continuing to spread the word about this newsletter.

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ETF % Change Comparison

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Above you can see that IWM slashed over 4% off its price while DIA managed to advance 0.77% and finished the week at a new high.  As the market risk increases a shift in performance tends to occur as the smart money moves out of the more economically sensitive areas like the small caps and semiconductors.  You will notice however that SMH held together relatively well which is a good sign.  If SMH can continue to maintain its strength this week then any profit taking is likely to be short lived.

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Learn more – ETF % Change Comparison

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A Look at the Charts

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Both the RSI and volume flows have turned bearish on SPY, $130 is likely to stand as resistance.

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It would be healthy for QQQQ to test $54 or its 50 day SMA but below these levels things get more dangerous.

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SMH is very close to turning bearish.

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I will be keeping a close eye on IWM this week to see if the 50 day SMA will hold.

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IYT is looking weak and we have taken our profits.

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OM3 Weekly Indicator

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IWM and IYT recieved several weeks of bear alerts indicating internal weakens before being the big losers last week.  Still the buy signals remain active after over 20 weeks.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The TransDow locked in a profit of 9.01% after 105 days but has now moved into cash.  The Dow is now dominant over both the Transports and the NASDAQ, historically under these conditions the market has been extremely 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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LTMF 80 continues to hold a position in QQQQ with a current profit of 16.24%.  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

A number of excuses to sell have developed over the last week with bearish volume flows and RSI from SPY, IWM and IYT.  SMH is on the verge of turning bearish while the TransDow has moved to cash after locking in a 9% profit on the transports.  What we are yet to see however is the loss of any major support.  Keep an eye on the 50 day moving averages across the board and how SMH behaves.  The semis held together comparatively well over the last week and if they can continue to do so then any declines are likely to be short lived.

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:

“A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.” – Martin Luther King, Jr.

January 17, 2011 – 06:35 am EST

In our last newsletter we spoke of an imminent breakout stating that “A close by QQQQ above $55 and IYT above $93 would be very bullish and likely mark the start of another leg to this rally.”  Both of these resistance levels were broken that Monday and the market has strongly rallied ever since.  Lets take a closer look…

**Please excuse the absence of a newsletter last week, it is summer here in New Zealand and I had an unexpected extension to my holiday.  Also welcome to our new readers!  We grow by word of mouth so thanks for spreading the word.

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ETF % Change Comparison

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New highs almost across the board are a great sign.  Also you can see that SMH is back leading the market, this gives further validity to the recent leg of the rally.

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Learn more – ETF % Change Comparison

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A Look at the Charts

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Volume is still not as strong as it should be but the price action from SPY remains strong.

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The close by QQQQ above $55 saw the start of the breakout and has been backed by strong volume.

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SMH is hugely overbought but its fantastic to see the Semis charging ahead so strongly.

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IWM needs to see OBV moving higher to confirm the price action.

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With weak volume and sluggish price action, IYT is unlikely to be a market leader.

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OM3 Weekly Indicator

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Strong Buy signals remain active after 20 weeks.  I can’t recall a time in the last 5 years that they have lasted so long.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The Transports remain dominant over the Dow which is a positive sign and the TransDow position in DJT remains active.  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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The LTMF 80 is showing a profit of 19% and the position on QQQQ remains open.  Liquid Q is still 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

It is great fun when the market can do no wrong like this but don’t lose sight of the risks.  The danger comes to those who have been sitting on their hands and realize that they have missed out on an epic rally.  The rest of us are sitting on healthy profits but now is not the time to be jumping on the band wagon as the risks of a sudden pull back are very real.  For now however, let the good times roll.

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:

“The clock is running.  Make the most of today.  Time waits for no man.  Yesterday is history.  Tomorrow is a mystery.  Today is a gift.  That’s why it is called the present.” – Unknown

January 03, 2011 – 05:45 am EST

Welcome to twenty eleven and thanks for joining us for the ride.  I know I have really enjoyed connecting with many of you over the last year and hope that you all get value from the ideas that we share.  There is a heap of research to get through and I hope to put more time into ETF HQ this year.  Let us know if there are any particular areas that you would like us to focus on.

To the markets – it was yet another uneventful week that basically finished where it started.  However periods of consolidation are nearly always followed by sudden breakouts and such a breakout now appears imminent.

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*****Happy New Year!!  Thanks for keeping this service growing my spreading the word.

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ETF % Change Comparison

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It is positive to see the transports (IYT) closing the week at a new high but the market has been mostly flat as you can see.

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Learn more – ETF % Change Comparison

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A Look at the Charts

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SPY made no ground over the last week but volume flows continue to improve.

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Support from the Nov high and resistance at $55, expect a breakout very soon.

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A close below $32 would weigh heavily on the broad market.

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No indications of a rally over the short term from IWM.

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Volume on IYT is improving, the stop at $93 is likely to be hit this week if this trade fails.

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OM3 Weekly Indicator

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Buy signals remain active across the board while the ‘Bear Alerts’ continue to show that the weekly cycle is weakening.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The Transports remain dominant over the Dow and the TransDow trade is showing a profit of 10.34% after 84 days.  The NasDow remains in cash as the Dow remains dominant over 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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LTMF 80 & Liquid Q

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The LTMF 80 continues to hold a position in QQQQ that is currently showing a profit of 13.70%.  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

The consolidation over the last month has been within a tight range that has created support underfoot and resistance overhead.  There appears to be little indication that the breakout will be bullish but we are also lacking many sell signals at this point.  A close by QQQQ above $55 and IYT above $93 would be very bullish and likely mark the start of another leg to this rally.  Until then the risk remains to the downside.

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:

“Millions saw the apple fall, but Newton was the one who asked why.” – Bernard M. Baruch

December 27, 2010 – 07:35 am EST

‘Twas the week before Christmas, and somewhere in the market
A lonely bear was stirring, eying his pessimistic target.
While the bulls they were waiting by the ticker with care,
In hopes that St. Nicholas would keep prices rising up there.

As luck would have it neither the bulls nor the bears had much to be excited about and Christmas came and went rather quietly.  Lets take a closer look at the action (or lack of it)…

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*****Welcome to all our new readers this week.  A Merry Christmas to everyone and thanks for spreading the word!

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ETF % Change Comparison

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Once again over the last week we saw SMH, QQQQ and IYT lagging the market.  This is a distinct change from the behavior that has characterized the last few months and is an indication that profit taking is highly likely as traders appertite for the more economically sensitive areas is diminishing.  On a positive note however the small caps (IWM) continue to perform very strongly.

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Learn more – ETF % Change Comparison

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A Look at the Charts

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SPY had a good week and continues to look fine (if tired) but no sell signals.

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QQQQ is drifting but no sell signals at this stage.

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SMH has very weak volume flows, is off its highs and is under performing the broad market.  Not a good sign.

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The small caps offer confidence to the bulls with their continued strength.

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IYT is the only influential ETF on an active sell signal.  Will this prove premature?  Time will tell.

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OM3 Weekly Indicator

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While the buy signals remain active the widespread ‘Bear Alerts’ show that the market cycle is losing strength.

Learn more – The OM3 Indicator

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TransDow & NasDow

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Despite our discretionary trading system having the Transports on a sell signal the TransDow continues to maintain an active position in them that is showing a profit of 9.14% after 70 days.  The NasDow on the other hand remains in cash as the Dow is still dominant over 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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LTMF 80 & Liquid Q

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LTMF 80 continues to hold a position in QQQQ that is showing a profit of 13.82% after 91 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

It was a quiet week and little has changed.  What has stayed the same however is the under performance of SMH, QQQQ and IYT which indicates that there is still a good probability of profit taking and that the upside over the short term is likely to be limited.

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

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Merry Christmas and enjoy the holidays!!

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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Carol of the Day:

These are the carols that I grew up with.  I know that Christmas has been and gone but this is just too cheesy and awesome not to share:

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December 20, 2010 – 07:15 am EST

It turned out to be a good week to take off as there was little movement in either direction which was rather what we expected as mentioned in our last newsletter – the market lacked the fuel for a major advance.  I had a great time however rafting off a 23 foot waterfall in Rotorua, picnicking at a secret location in Taupo and relaxing in Kerosene Creek where the water is naturally about 110 degrees Fahrenheit.  At ETF HQ we all hope that you are also enjoying the holiday season.  Now lets take a closer look at this market…

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Hey, do you enjoy this newsletter?  Please remember to spread the word, thanks.

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ETF % Change Comparison

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SMH and IYT were the two under-performers over the last week while DIA stole the show.  This indicates that people are becoming reluctant to invest in the more economically sensitive semiconductors and transports while they are seeking out the relative security of the mega caps found in the Dow.  Now, it is a bit premature to read too deeply into this but we can definitely see a change in the behavior we have witnessed over the last few months and that makes profit taking all the more likely.

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Learn more – ETF % Change Comparison

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A Look at the Charts

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No sell signals for SPY yet but there is unlikely to be much upside potential over the short term.

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If the RSI turns bearish then a test of the 50 day SMA is likely to be the best case scenario for QQQQ.

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Keep a close eye on the semis – if the RSI drops below 50 and the OBV trend turns bearish then expect a test of the April high.

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IWM has recently found some volume to back its bullish move so some profit taking to test the April high would be really healthy.

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Suddenly the Transports offer the the strongest bearish argument with a fresh sell signal.  A close above $93 would reverse the signal.

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OM3 Weekly Indicator

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While the buy signals remain active the multiple bear alerts warn that this run is getting long in the tooth.

Learn more – The OM3 Indicator

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TransDow & NasDow

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Despite the sell signal from our discretionary trading the Transports remain dominant over the Dow and the TransDow continues to maintain its position which currently shows a profit of 9.14%.

The NasDow remains in Cash as the Dow is dominant over the NASDAQ and historically the market has been very unproductive under these conditions.

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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 showing a profit of 13.82% while 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

This rally is looking rather tired and there are few signs of fuel to cause any major advances before the end of the year.  There are also few sell signals at this point apart from the Transports that have recently produced a fresh sell.  Keep an eye on the relative performance of SMH, IWM and IYT compared to SPY and DIA; if they can outperform this will be a sign of strength and any profit taking should be seen as a buying opportunity.  If SMH, IWM and IYT under-perform then this will indicate a rising risk level and more substantial profit taking will be likely.

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

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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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Thought of the Day:

At this time of year we must remember to take time out and focus on what is important.  Here is a great post from a fellow systems trader Michael Stokes on Wasting a Good Life Trading.  Be sure to subscribe to his blog for some high quality ideas on quantitative analysis as well as other topics of interest to traders.