rsi – ETF HQ

Bull / Bear Dichotomy Indicator v 1.0 (BBD)

The purpose of a trading or investing model is to move probability in your favour. One can be considered worthwhile if it can consistently produce risk adjusted returns in excess of the broad market over any period greater than 2 years. A mechanical trading model can be considered worthwhile if in addition to this it can:

Remove emotion from decisions.
Do the hard work so you have the time freedom to enjoy your profits.

Regardless of the time domain of your preferred trading style, being able to clearly slice the market into high probability bullish and bearish periods is of great advantage. So far during the Technical Indicator Fight for Supremacy we have identified three very effective and different ways of doing this:

The True Golden Cross
Relative Strength Index
Stochastic Oscillator

Below I will cover a quick summary of the previous research or you can jump straight to the latest findings.

The True Golden Cross

EMA Crossover 13/48 EOD Long

Using a simple 13 / 48 Day EMA crossover; 62% of the time the 13 Day EMA was above the 48 Day EMA. During this time the average trade duration was 93 days and there was an annual return of 10.17% vs 6.32% for the global average during our test period. During the balance of time there was an annual return of -3.48% (see full tests and research).

Conclusion:

EMA(13) > EMA(48) = Bullish
EMA(13) < EMA(48) = Bearish

Relative Strength Index

126 Day RSI EOW, Long

Using a 126 Day RSI (with an EMA instead of Wilder’s Smoothing, it would be 63.5 instead of 126 on a standard RSI) and End OF Week (EOW) signals; 63% of the time the RSI was above 50. During this period the average trade duration was 97 days and there was an annual return of 8.73% vs 6.32% for the global average during our test period. During the balance of time there was an annual return of -2.77% (see full tests and research).

Conclusion:

RSI(126) > 50 = Bullish
RSI(126) < 50 =Bearish

Stochastic Oscillator

252 Day Stochastic Oscillator EOD, Long

Using a 252 Day Stochastic Oscillator (SO); 66% of the time the SO was above 50. During this period the average trade duration was 104 days and there was an annual return of 8.43% vs 6.32% for the global average during our test period. During the balance of time there was an annual return of -2.05% (see full tests and research).

Conclusion:

SO(252) > 50 = Bullish
SO(252) < 50 = Bearish

The Bull and Bear Dichotomy v 1.0 (BBD)

The EMA crossover shows us that there is value in measuring shorter term momentum vs longer term momentum. The RSI shows us that there is value in a measure of declines vs advances. While the Stochastic Oscillator shows us that there is value in being long a market when it is in the top half of its range. The trade profile for each indicator is desirable but their signals are often in conflict.

Don Beasley of Trademark Capital has been an inspiration of mine for many years and has been kind enough on several occasions to share his insight and experience. He likes to combine the RSI and Stochastic Oscillator by taking an average of the two. This is straight forward because both move between the same 0-100 range.

Including the EMA crossover is not as straight forward however; it is not limited to a scale at all. But because the percentage distance between the EMA(13) and EMA(48) should be normally distributed we decided to force it into a 0-100 range by using the cumulative distribution of a bell curve. It has a SD of 2.17% when EMA(13) > EMA(48) and SD of 2.35% when EMA(13) < EMA(48):

Bull / Bear Dichotomy v1 Example

Above you can see the readings from each indicator during a randomly selected 2.5 year period on the Australian All Ordinaries Index. The thick red line is an equally weighted average of the RSI, SO and MA Cross, smoothed with a EMA(10). This we are calling the Bull / Bear Dichotomy or BBD Indicator v1. By combining all three indicators, a greater level of stability and robustness is achieved. See below the full trade profile:

In looking at the trade profile the signal stability is clear with an average trade duration of 170 days, an average profit of 21.81% and a probability of profit sitting at 48%! The other statistics are not dissimilar to the component indicators. The only thing missing from the BBD is a measure of volume. We plan to include this in v2 and this will hopefully improve the stability further.

It is highly likely that that we are reaching the upper limits of what is possible, as far as returns, from a long term indicator applied to a blind selection of broad market indices. To improve on these results it will be necessary to do one or a combination of the following:

Have a selection process for the assets to be traded.
Apply a secondary trading system specifically designed to perform during the bullish or bearish environments identified by the BBD.

How do think these results could be improved? What other long term measures would be worth researching for inclusion in v2 of The Bull / Bear Dichotomy Indicator?

Please note: These returns are the result of evenly allocating funds between 16 different global test markets. If only one market was on a buy signal then only 1/16th of the capital was exposed to the market. Some markets performed better than others and lifted the returns. All were profitable and the strategy outperformed on an absolute basis on 15/16 of the test markets. A further explanation of the methodology can be found here.

Relative Strength Index (RSI) – Test Results

The RSI is a staple indicator of the technical analysis community but how good is it, really? What are the best settings? What does its trade profile look like? Ask around and no one can tell you… Does it not seem strange that so many traders can be using an indicator without solid data on its performance? Well we are on a mission to change that. We tested 3800 different RSI settings through 300 years of data across 16 different global markets~ to reveal the facts.

Download A FREE Spreadsheet With Data, Charts

And Results For all 3,800 RSIs Tested

RSI Conclusion

Our Testing Strategy Explained

noʊtɑ bɛnɛ (Note Well) we use an EMA when calculating the RSI instead of a WS-MA. This is not just to be difficult, please read more about the RSI for an explanation. The formula to convert the EMA Look Back period to the identical equivalent WS-MA used by your charting programs when calculating the RSI is (Period + 1)/2. Below is a table with all the Look Back Periods we tested and how they convert to the original RSI:

RSI Period Conversions

Now there are many different ways that signals can be taken from the RSI but to start with we wanted to see how the market behaved when the RSI was in different ‘zones’. We also wanted to find out which RSI Look Back period is the most desirable. But this presents a problem because changing the Look Back period alters the range of an RSI.

For instance during our tests across 16 different markets and 300 years of data the range for the RSI(5) was 89.96 – 10.04 while for the RSI(100) it was 70.77 – 29.23. Clearly a direct level comparison between two RSIs of different look back periods is not suitable.

To overcome this challenge we identified the range for each RSI across all different look back periods tested. Then divided each range by 10 and advanced from the mid line (50) in 1/10th increments specific for each different RSI. The normalisations were numbered based on how many 1/10th of their range they were from 50 (with the exception of the final increment at each end which was extended to 100 or 0 respectively).

Here is a table of the normalisations used which will hopefully clarify:

RSI Normalisations

For instance, lets say we wanted to see how the market performed within a 0 – 3 Normalised RSI range on a RSI(15) vs. an RSI(55). Using the table above as a guide we would test the RSI(15) from 50 – 78.30 and the RSI(55) from 50 – 70.91; in doing so we should be comparing apples with apples.

Next it was necessary to exclude some data because it was taken from a sample too small to be conclusive. Lets say you were to buy every time that an RSI(35) was in the -4 to -5 RSI range, in our tests your annualized return during exposure was 248377165801.21%… sounds great right? Yes and no; the average trade did return 1.16% per day… but the average trade duration was only 1 day and you would have only been exposed to the market 3 days a year. Statistics like this are invalid so we excluded anything that didn’t result in market exposure of at least 6%.

We tested all combinations of increment ranges:

Range of 1 = -5 to -4, -4 to -3 … 3 to 4, 4 to 5

Range of 2 = -5 to -3, -4 to -2 … 2 to 4, 3 to 5

Range of 3 = -5 to -2, -4 to -1 … 1 to 4, 2 to 5

Range of 4 = -5 to -1, -4 to -0 … 1 to 4, 2 to 5

Range of 5 = -5 to 0, -4 to 1 … -1 to 4, 0 to 5

The key findings are published below, to see all the results download the full results spreadsheet.

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RSI: ANY, Range = 1

First, to see how the market behaved in each increment; a long position was taken ANY time the test market was in the corresponding RSI range:

RSI, ANY, Increment Range 1, Annualized Return During Exposure, Long

Above 0 (50 on the RSI) and the returns are positive, below zero and the returns were negative, you don’t often see such a clear edge over the market as that (see the results when going Short). The blank cells, (if you were wondering) are where data was excluded because the market exposure < 6%.

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RSI: ANY > 0, Range = 1, 2, 3, 4, 5

So we now know that RSI > 50 = Good and RSI < 50 = Bad. Lets now look at how far above 50 (the 0 increment) we can go and capture the best profits. A Long position was open ANY time the test market was in the corresponding RSI range:

RSI ANY - Long, Increment Range 1, 2, 3, 4, 5 > 0

From the above table we can see that the most gains on the Long side occur when the RSI is between the 0 and 4 increment (see results going short). The Look Back period makes surprisingly little difference although around 55 days we see the most gains captured over all:

55 Day RSI EOW, 50 - 77.88 Range, Long Any

Above are the results from an RSI(55) with a open Long position any time that the RSI was in in the 50 – 77.88 range (0 – 4 increment). The positions were only opened and closed at the End Of the Week (EOW) because switching from EOD to EOW almost doubled the average trade duration and the probability of profit (see the results EOD). While the trade profile is quite good, the MA Crossover or FRAMA are still both more desirable.

Note – our RSI(55) using an EMA is equivalent to an RSI(28) in your charting programs which use Wilder’s Smoothing.

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RSI, ENTRY > 0, Range = 1, 2, 3, 4, 5

What if we only opened a Long position when the RSI was rising? In these tests a position was only initiated when the RSI went from being below 50 (the 0 increment) to above 50. It was then held as long as the RSI remained in the corresponding range:

RSI ENTRY - Long, Increment Range 1, 2, 3, 4, 5 > 0

By introducing entry criteria to the RSI trades the market exposure decreased and with it the returns in most areas (see results going short). One area that does stands out however; the Annualized Return During Exposure when the RSI(5) moves through the 0 – 1 increment. Lets take a look at the trade profile:

5-day-rsi-eod-0-1-l-entry

Above are the results from an RSI(5) with a position opened Long only when the RSI raised above 50. The position was then held until the RSI moved above 55.99 or back below 50 (the 0 – 1 increment). The resulting trade profile doesn’t suit my style but I will entertain the idea because it may suit yours…

You don’t have to look far in the quant blogosphere to find examples of systems based on holding a position for only one day following an fed announcement when the VIX is above a certain level etc. Anyway, be this a practical system or not, it does have a rather smooth looking equity curve and a high probability of profit. Just for fun, lets look at what happens if we add 4X leverage and only go Long when the 13 / 48 MA Crossover is confirming the RSI signal:

13 EMA > 48 EMA + 5 Day RSI, EOD, 50 - 60 Range, Long + Entry, 4X

You must admit, once you crank up the leverage and remove the bear markets by confirming the signals with the 13 / 48 MA Crossover; this is an impressive looking equity curve. The best part is that you are only exposed to the market 7% of the time! Realistic in the real market? Questionable…

Perhaps with the use of futures this could be a workable strategy. It was profitable on 15/16 global indices we tested and showed a 54% probability of profit through 3837 trades (a nice large sample). What do you think?

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RSI Conclusion

Never before have I seen such a dichotomy of profitable and unprofitable trades when an indicator is above or below a level as is the case with the RSI being above or below 50. This proves that momentum is a strong and valuable predictor of market direction and the theory behind the RSI is sound. For this reason it would be worth testing your system with entry signals confirmed by the RSI(55) being on the appropriate side of 50. (Remember to use the conversion table; our RSI(55) will be an RSI(28) in your charting program.)

While the RSI clearly provides valuable information, unfortunately we are yet to identify a method of use that presents a more desirable trade profile than the simple effectiveness of the MA Crossover or the FRAMA.

We also tried using an EMA signal line on the RSI but the results where not worth writing about (download all the results in a spreadsheet to see for yourself.) However I feel that there will be other worthwhile ways to test the RSI. Perhaps it could be used as a breadth indicator where the number of higher highs from the RSI is compared to the number of higher highs from the stocks within an ETF?

How would you like to see the RSI tested? Ideas?

More in this series:

We have conducted and continue to conduct extensive tests on a variety of technical indicators. See how they perform and which reveal themselves as the best in the Technical Indicator Fight for Supremacy.

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~The data used for these tests is included in the results spreadsheet and more details about our methodology can be found here.
No interest was earned while in cash and no allowance has been made for transaction costs or slippage. Trades were tested using End Of Day (EOD) signals on Daily data except where otherwise noted.

Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a very popular Momentum Oscillator and was created by J. Welles Wilder, Jr. who first presented it in his landmark book New Concepts in Technical Trading Systems (June 1978).

The RSI moves within a range from 0 to 100 and typically has an upper extreme zone above 70 and a lower extreme zone below 30. When in the upper extreme zone a stock is considered overbought and when in the lower extreme zone a stock is considered oversold. At such extremes the RSI suggests that a recent stock movement is likely to slow or reverse. Welles recommended a 14 period RSI but increasing the RSI period will decrease its volatility (and vice versa) as seen in the example below where three different RSI periods are overlaid:

RSI Example

The Relative Strength Index measures declines relative to advances over a specified period. This is done by averaging out the amount that a stock advanced on the days that it moved higher and the amount that stock declined on the days it moved lower. A modified ratio of these two averages is then charted creating a visual Relative Strength Index of bulls and bears.

Wells used his own smoothing method in the RSI known as Wilder’s Smoothing (WS-MA). Despite having a unique calculation method, WS-MA is actually identical to an EMA with a period of (2 * RSI Period) – 1. So an RSI(14) actually has an EMA period of 27 = (14 * 2) -1. Why care? Because it helps to maintain constancy between methods and measures when comparing indicators as we are in the Technical Indicator Fight for Supremacy.

For instance if we were to compare the Relative Momentum Index (RMI) to the RSI it would be helpful to compare them over equivalent look back periods so any patterns become evident. For this reason we use the EMA instead of the WS-MA in the Relative Strength Index.

How to Calculate the RSI

RSI = 100 – (100 / 1 + RS)

RS = EMA of Gains / EMA of Declines

EMA = EMA(1) + α * (Current change – EMA(1))

Where:

α = 2 / (N + 1)

N = (2 * RSI Period) – 1

RSI Period = User selected value but typically 14

Note:

Declines are expressed as their absolute value (all as positive).

Each EMA can be seeded with a SMA of the relevant Gains or Losses.

Free RSI Excel Download

To make life easy we have built a free Excel Spreadsheet for you to download containing an RSI that will automatically adjust to the look back period you set. You will find it at the following link under Technical Indicators.

How to use the RSI

Overbought/Oversold: Wilder suggested the upper and lower extremes of 70 and 30 as an indication of turning points. He said that when the RSI rises above 30 this is a bullish sign, with the opposite indication when the RSI falls below 70. Some traders, after identifying the long term trend of a stock will use extreme readings from the RSI as an entry point.

Divergences: Confirmation of the strength of a medium term bullish trend can be gained by looking for higher highs from the stock confirmed by higher highs from the RSI. In a similar fashion; a stock that is declining and making lower lows while the RSI is making higher lows may become a buying opportunity.

Centreline Crossover: The centreline on an RSI is 50, above this level we know that the average gain has been larger than the average decline over the look back period. Many traders look to see the RSI above or below 50 as confirmation before opening a long or short position.

Is the RSI a good indicator?

That is a great question, at a guess I would say yes but rather than guess we tested it through 300 years of data across 16 different global markets – See the Results.

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…

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 more – ETF % Change Comparison

A Look at the Charts

SPY

SPY looks good but where is the volume?

QQQ looks good but SMH is not offering confirmation.

SMH

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

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

IYT

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

OM3 Weekly Indicator

OM3 Indicator

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

Learn more – The OM3 Indicator

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.

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.

LTMF 80 & Liquid Q

LTMF 80 & Liquid Q

The LTMF 80 has had an open position in QQQ for a week now while Liquid Q remains in cash.

Historical Stats:

LTMF 80 & Liquid Q Stats

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.

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.

Cheers

Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

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

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!

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 more – ETF % Change Comparison

A Look at the Charts

SPY

Volume on SPY suggests support will soon fail.

QQQ

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

SMH

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

IWM

IWM is offering one of the few bullish arguments.

IYT

Volume out of ITY is a concern.

OM3 Weekly Indicator

OM3 Indicator

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

Learn more – The OM3 Indicator

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.

What the TransDow Readings tell us:

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.

LTMF 80 & Liquid Q

LTMF 80 & Liquid Q

Both LTMF 80 and Liquid Q remain in cash.

Historical Stats:

LTMF 80 & Liquid Q Stats

How The LTMF 80 Works

How Liquid Q Works

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.

Cheers

Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

Quote of the Day

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

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…

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 more – ETF % Change Comparison

A Look at the Charts

SPY

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

QQQ

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

SMH

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

IWM

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

IYT

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

OM3 Weekly Indicator

OM3 Indicator

The OM3 indicator remains bearish across the board.

Learn more – The OM3 Indicator

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.

What the TransDow Readings tell us:

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.

LTMF 80 & Liquid Q

LTMF 80 & Liquid Q

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

Historical Stats:

LTMF 80 & Liquid Q Stats

How The LTMF 80 Works

How Liquid Q Works

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.

Cheers

Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

Quote of the Day

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

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…

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 more – ETF % Change Comparison

A Look at the Charts

SPY

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

QQQ

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

SMH

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

IWM

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

IYT

The transports again lack direction.

OM3 Weekly Indicator

OM3 Indicator

The OM3 Indicator remains bearish across the board.

Learn more – The OM3 Indicator

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.

What the TransDow Readings tell us:

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.

LTMF 80 & Liquid Q

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.

Historical Stats:

LTMF 80 & Liquid Q Stats

How The LTMF 80 Works

How Liquid Q Works

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.

Cheers

Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

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

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…

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 more – ETF % Change Comparison

A Look at the Charts

SPY

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

QQQ

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

SMH

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

IWM

Keep an eye out for buying interest around $80.

IYT

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

OM3 Weekly Indicator

OM3 Indicator

The OM3 Indicator is bearish across the board.

Learn more – The OM3 Indicator

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%

What the TransDow Readings tell us:

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.

LTMF 80 & Liquid Q

LTMF 80 & Liquid Q

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

Historical Stats:

LTMF 80 & Liquid Q Stats

How The LTMF 80 Works

How Liquid Q Works

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.

Cheers

Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

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

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…

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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 more – ETF % Change Comparison

A Look at the Charts

SPY

Support has held, now lets see some volume!

QQQ

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

SMH

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

IWM

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

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.

OM3 Weekly Indicator

OM3 Indicator

The OM3 Indicator is now mostly bearish.

Learn more – The OM3 Indicator

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%.

What the TransDow Readings tell us:

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.

LTMF 80 & Liquid Q

LTMF 80 & Liquid Q

Historical Stats:

LTMF 80 & Liquid Q Stats

How The LTMF 80 Works

How Liquid Q Works

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.

Cheers

Derry

And the Team @ ETF HQ

“Equipping you to win on Wall St so that you can reach your financial goals.”

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

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!

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 more – ETF % Change Comparison

A Look at the Charts

SPY

SPY still has very weak volume but the price action remains in a bullish trend and above support.

QQQ

Watch for a critical test of the 200 Day SMA by QQQ this week!

SMH

Keep an eye on SMH this week to confirm any moves by QQQ.

IWM

Can IWM hold onto its 200 Day SMA? We will soon find out.

IYT

The Transports are again the most positive aspect of the current market.

OM3 Weekly Indicator

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 more – The OM3 Indicator

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.

What the TransDow Readings tell us:

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.

LTMF 80 & Liquid Q

LTMF 80 & Liquid Q

Both the LTMF 80 and Liquid Q have open positions in QQQ.

Historical Stats:

LTMF 80 & Liquid Q Stats

How The LTMF 80 Works

How Liquid Q Works

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.”

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