Tag: rsi

October 04, 2010 – 02:40 pm EDT

Sorry for the delay with this weeks newsletter, I was out at the beach all day Monday (NZ Time) and when I had almost finished writing the newsletter the internet went down.  Since then the new week has gotten off to a rocky start.  Here is the report as written about 10 hours ago:

The market didn’t achieve much over the last week but on a positive note it didn’t do any damage either.  There is however a significant volume divergence that has become obvious and in a fledgling bullish reversal volume flows should be healthy across the board.  The fact that they are not is a real cause for concern.

****Thanks to all those who referred people to this newsletter over the last week. The more readers we have the more services we can provide you.

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ETF % Change Comparison

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This is positive – IWM up 1.30% and SMH up 0.62% while QQQQ is down 1.31%.  Also SMH and IWM are now the furthest from their recent lows. This pattern must continue if the bull is to manage a second leg to this rally.

Learn more – ETF % Change Comparison

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A Look at the Charts

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The volume divergence is clear and must not be ignored. While SPY is making a higher high OBV is near to a lower low.

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QQQQ also has a bearish volume divergence and will need continued support from SMH to hold together.

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It would be exceedingly bad news if SMH closes below $27, and will most likely mark the return to the crab market.

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IWM is actually looking the best of the bunch and hopefully it can continue to lead the market higher. It must maintain that bullish volume trend.

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A rally from IYT would do wonders to support this market and the volume flows of its component stocks are very strong. A close below $80 would be bad news.

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OM3 Weekly Indicator

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‘Strong Buy’ signals with ‘Bull Alerts’ persist across the board.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The NasDow remains on No Signal while the TransDow indicates that the Dow is dominant over the Transports. 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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Liquid Q remains in cash while the LTMF 80 continues to hold a position in QQQQ that is showing a minor profit.

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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

On a positive note SMH and IWM continued to advance over the last week while the broad market consolidated. This is exactly what we want to see in a strong market. The problem is that there is a major volume divergence on SPY and QQQQ suggesting that the market is weak and soon to experience some profit taking.

If SMH closed below $27, volume flows turn bearish on IWM and the RSIs turn down then the profit taking is likely to become a return to the crab/bear market.  It is too early to go short just yet and I would love to see a short squeeze defibrillate some volume behind the bulls but that appears unlikely.

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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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P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

“The challenge of leadership is to be strong, but not rude; be kind, but not weak; be bold, but not a bully; be thoughtful, but not lazy; be humble, but not timid; be proud, but not arrogant; have humor, but without folly.” – Jim Rohn

September 27, 2010 – 05:07 am EDT

It was another great week for the market.  Previously we said that the bulls had the upper hand as long as SMH held onto $26 and IWM its 200 day SMA.  These levels were tested on Thursday and acted as the launching pad for a monster jump on Friday that was lead by SMH.  Yes the Semis have been playing catch up and on Thursday they showed great strength by advancing while the majority of the market was down.  Seeing SMH showing leadership to the upside like this gives real validity to the recent rally.

But it wasn’t all good, volume in many areas was lacking and several of the influential ETFs are yet to break above their July highs.  Lets lake a closer look:

****Thanks to all those who referred people to this newsletter over the last week. The more readers we have the more services we can provide you.

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ETF % Change Comparison

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The transports have been rather sluggish which hasn’t helped the position we held in IYT but QQQQ and SMH lead the way higher over the last week which is just fantastic news.  When you look at the “% From Bottom” you can see that the leaders are almost in order from left to right.  This is exactly what we want to see off market bottoms: the economically sensitive leading the economically stable.

Learn more – ETF % Change Comparison

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A Look at the Charts

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The lack of volume is a concern but the higher high is great news.  If QQQQ keeps going then SPY will follow.

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QQQQ didn’t have much volume behind the big move over the last week but SMH has the fuel to sustain this rally.

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It was make or break for SMH but $26 held strong and with it now above the 200 day SMA; $29 is a real possibility.  If that occurs then it will provide the fuel that the broad market needs to make some major technical victories.

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It will be important for IWM to break past the July high this week if the rally is to continue.

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It’s unfortunate that the Transports remain so sluggish but keep an eye on IYT.  If the market continues higher and the transports get left behind then a major sell off will not be far away.

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OM3 Weekly Indicator

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Finally all of the ETFs including SMH have moved to a ‘Strong Buy’ signal.  With most of the signals having been active for four weeks this rally is getting statistically mature.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The Dow has become dominant over the Transports and the position we held has been closed for a small 2.19% profit, the TransDow is now in cash.  The NasDow also remains in cash as there is no clearly dominant index between the Dow and 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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After 7 days the LTMF 80 position in QQQQ is showing a profit of 3.27% and remains open 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

We identified this rally a month ago as just short term strength; underestimating it due to the fact that it was not backed by participation from SMH.  Now for the second week we are seeing SMH lead the market higher and because the semis are so far behind the broad market they have a lot of catching up to do.   With many other areas of the market running out of steam hopefully SMH will provide the fuel that is needed to sustain this rally a little longer.  That will help IWM and IYT to make a higher high before the inevitable pull back that is on the way.

If we see a pull back this week then the previously identified support levels of $26 on SMH and the 200 day SMA on IWM must hold or this entire rally will have been nothing more that a giant fake.  As always stay alert!

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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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P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

“If you’re a chartist but don’t understand psychology, then those charts won’t do much for you” – John C. Lee AKA The Chart Addict

September 20, 2010 – 01:45 am EDT

Well I have no problem in admitting when we are wrong and at this point it certainly looks as though we may have been wrong about the market heading for new lows.  Last week we said that if SMH can close above $26 and IWM above $65 then things would need to be reassessed.  These two milestones were achieved early on in the week so it is time to start taking the bulls seriously.

****Thanks to all those who referred people to this newsletter over the last week. The more readers we have the more services we can provide you.

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ETF % Change Comparison

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It was very positive to see SMH advance a huge 6.14% over the last week, it is basically playing catch up.  If we see a pull back over the coming week and SMH is hit more lightly than the broad market then this should be used as a buying opportunity and vice versa.

Learn more – ETF % Change Comparison

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A Look at the Charts

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SPY is saying that the market is very unlikely to break through resistance.

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QQQQ says that we are in the grips of a healthy bull market and QQQQ holds more weight than SPY.

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As long as SMH holds above $26 or declines less than the broad market moving forward then the bulls must be taken seriously.

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While IWM holds above its 200 day SMA the bulls have the upper hand.  Below this level declines are likely to accelerate.

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If the Transports can break through to a higher high it will be a very positive sign for the broad market.

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OM3 Weekly Indicator

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All the ETFs are on their third week of ‘Strong Buy’ signals apart from SMH which remains on a ‘Strong Sell’ but has recieved a ‘Bull Alert’.  Historically the average ‘Strong Buy’ signal has lasted for 6 weeks.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The Transports remain dominant over the the Dow and the TransDow is showing a small profit after two weeks in the Transportation Index.  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 opened a new position in QQQQ at Fridays close.  This trade has a 50% probability of being profitable but the average profit is 12.5% and the average loss is 3%.  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 conflicting market internals that have characterized the crab market of the last 4 months continue.  It has been a very challenging time and our main portfolio is only up 25% YTD on margin.  But with the S&P 500 up only 0.94% over the same time; it could be worse.

Over the last week the bulls have proved that they need to be taken seriously despite continued uncertainly.  The fact that SMH has been so late to enter the recent rally is real cause for concern but the positives can’t be ignored.  The market is due for a pull back although it can’t really afford to suffer much of a retrace at this point.  It is important that IWM holds above its 200 day SMA and SMH above $26.  Below these levels there is a high risk of a major market failure.

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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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P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

“Bad ideas is good.  Good ideas is better.  No ideas is terrible.” – Lenny Baum

September 13, 2010 – 01:35 am EDT

It is not often that you see a market that looks like more of a bull trap than this one.  At first glance the major indices appear to be recovering nicely, on healthy volume and working their way through resistance.  But…..

Where’s The Beef

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This recent rally lacks substance and there are warning signs of almost imminent failure.  Why?  Lets take a closer look:

****Thanks to all those who referred people to this newsletter over the last week. The more readers we have the more services we can provide you.

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ETF % Change Comparison

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Over the last week, two of the most economically sensitive areas of the market; the Semiconductors (SMH) and the Small Caps (IWM) bucked the trend and declined 2.95% and 0.95% respectively.  Furthermore, SMH was the first to peak 148 days ago, was late to bottom 10 days ago, is the furthest from its high and closets to its low.

Semiconductors lead the business cycle and constantly undergo periods of under and over supply based on the growth of the economy.  All expansion in this age requires technological info-structure, semiconductors are the building block of that info-structure and have a very short shelf life.  This is why it is so concerning to see SMH getting left behind in the recent rally.

Learn more – ETF % Change Comparison

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A Look at the Charts

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The trend change in volume from SPY looks great BUT means little while SMH and IWM continue to underperform.

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Great volume on QQQQ – yes, working its way through resistance – tick… But, without SMH to confirm, this is a hollow victory.  If QQQQ closes back below its 200 day SMA then declines are likely to accelerate.

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The challenges with SMH are clear; terrible volume flows, falling prices, near lows etc.  Above $26 there is hope, below there is little.

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IWM actually has good volume flows which is very positive but the 200 Day SMA resistance is strong and a close above $65 is necessary before taking the bulls seriously.  Below $62.50 we enter the danger zone.

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The transports are not offering much insight at the moment

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OM3 Weekly Indicator

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The OM3 indicator is on its second week of buy signals now but it’s concerning that SMH remains on a ‘Strong Sell’.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The TransDow continues to indicate that the Transports are dominant over the Dow which is a positive sign and the position in IYT is basically flat at this point.  The NasDow is showing no clearly dominant index between the Dow and 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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Both LTMF 80 and Liquid Q remain 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

What were subtle warnings that the market was soon to fail are now quite blatant.  No lasting gains can occur while IWM and SMH continue to underperform the broad market and if QQQQ closes back below its 200 day SMA along with IWM below $62.50 then the declines to follow could be quite sharp.

However we must always be open to the possibility that we are wrong so if SMH can close above $26 and IWM above $65 then the situation will need to be reassessed.  Please exercise extreme caution at the moment as new lows are highly probable in the near future.

On a side note here is a fantastic – Visual Guide To Deflation – Enjoy.

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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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P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

“America will never be destroyed from the outside.  If we falter and lose our freedoms, it will be because we destroyed ourselves. – Abraham Lincoln

September 07, 2010 – 07:00 am EDT

What a week, and what a way to kick off September.  Now a quick rant for those if you who say that September is a bad month for stocks… You are completely missing the point!  It is very dangerous to base trading decisions on a calendar pattern becuase there is no law that states one month with be better than another.

Where there is no law there is nothing to measure, so any pattern is most likely due to coincidence or has simply become a self-fulfilling prophecy.  Such patterns can disappear without warning.  If there is a genuine reason behind a calender pattern such as fund flows due to tax time etc. then design your system to measure that reason… not the calendar!  End rant.

In our last newsletter we warned that there were several bullish signs and to expect short term strength.  Well over the last week we have certainly seen strength and far more than expected.  All the levels set as targets were reached and convincingly exceeded.  The speed of the advance was probably fueled by short covering but was so impressive that it brings into question my theory that we are headed for new lows.  So lets take a closer look…

****Thanks to all those who referred people to this newsletter over the last week. The more readers we have the more services we can provide you.

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ETF % Change Comparison

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This week I have added a measure of how far each of the influential ETFs are from their recent lows.  Leading the advance was IWM and IYT who were also the first to bounce off their lows 10 days ago.  This is impressive as the small caps and the transports are highly economically sensitive.  On a not so impressive note; SMH and QQQQ are only 3 days off their lows.  In a strong market it would be rare for them to getting left behind like this.  These conflicting internals help to explain why the market remains stuck in a range.

Learn more – ETF % Change Comparison

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A Look at the Charts

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SPY exceeded expectations to the upside but volume flows remain bearish and the 100 day SMA stands as resistance.

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QQQQ remains one of the strongest bullish arguments; volume is healthy and OBV never made a new low like it did on SPY, SMH and IWM.  The 100 day SMA stands as resistance and a close below $45 will put us back on track for new lows.

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SMH provides the strongest bearish argument; very negative volume flows and a close on Tuesday below its Feb low.  This action highlights internal cracks in this market that should not be ignored.

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A trend change from volume, strong support and market leadership; this is very bullish.  With a close above $65 and a bit more volume this move will be believable.

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IYT had a poor finish on Friday despite a very strong week.  Looks desperate for some consolidation.

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OM3 Weekly Indicator

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The only ETF still on a sell signal is SMH while everything else has switched to strong buy.  It would be much better to see SMH being the first to gain a buy signal rather than the last.  The bull alerts indicate that the weekly cycle has begun to turn up.

Learn more – The OM3 Indicator

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TransDow & NasDow

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The TransDow system indicates that the Transports have become dominant over the Dow which is a bullish sign and a new position was opened in IYT on Friday.  The NasDow remains on ‘No Signal’ indicating that there is no clearly dominant index between the Dow and 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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Both LTMF 80 and Liquid Q remain in cash.

.

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 advances over the last week were certainly impressive but the speed of advance is totally unsustainable.  Now many of the Indices are simultaneously against resistance so consolidation is likely to be the best outcome for now.  If SMH can close above $26, IWM above $65 and QQQQ above its 200 day SMA then a solid attempt at new highs will be on the cards.  On the other hand if QQQQ closes below $45 and IWM below $62.50 then I will expect a test and likely failure of the lows.

On a side note here is a fantastic – Visual Guide To Inflation – Enjoy.

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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.”

.

P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

“If you have trouble imaging a 20% loss in the stock market, you shouldn’t be in stocks.” – John (Jack) Bogle

August 30, 2010 – 05:35 am EDT

Despite the week getting off to a bad start the market finished strongly on Friday which is impressive as traders often like to take money off the table before the weekend.  We are yet to see the new lows that we have been expecting and there are now several bullish signs over the short term.

****Thanks to all those who referred people to this newsletter over the last week.  The more readers we have the more services we can provide you.

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ETF % Change Comparison

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If we were about to see a major market reversal off support then I would expect to see SMH and QQQQ being the first to see the buying pressure.  Instead they lead the declines over the last week and SMH has been one of the worst performers over all the measured time frames.

Learn more – ETF % Change Comparison

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A Look at the Charts

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Volume remains heavily bearish but support has been found and signs of short term strength are evident.

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The comparatively strong volume on QQQQ is the strongest bullish sign in the market at the moment but SMH suggests otherwise.

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At bullish turning points SMH should outperform the broad market.  Instead it has been suffering greater declines, more bearish volume and lower lows.  This indicates that a bounce from here will not have the strength to get far.

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IWM looks good bouncing off support and advancing for the week while SPY declined but the broad market has not yet tested the July low.  This is not the behavior of a strong market.

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IYT finished the week particularly strongly and a retrace to the 25 day SMA is a real possibility.

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OM3 Weekly Indicator

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The OM3 indicator suggests a meekly bearish market.

Learn more – The OM3 Indicator

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TransDow & NasDow

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There continues to be no clearly dominant Index between the NASDAQ and the Dow while the Dow remains dominant over the Transports.  Historically the market has been very unproductive in 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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Both LTMF 80 and Liquid Q remain 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

With the market oversold and support underfoot the possibility of a rally from here is good but there are several subtle reasons the think that any rally will not last long, including:

• Strongly negative volume on SMH and OBV near lows.
• Under performance of SMH compared to the broad market and breach of July low.
• Under performance of IWM compared to broad market.
• Volume flows (OBV) making new lows on IWM.
• QQQQ under performing SPY.
• Volume flows (OBV) making new lows on SPY.

If volume flows on SPY and IYT turn bullish however then things will need to be reassessed.  In such case I will probably have been wrong about a return to the bear market.

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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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P.S Like ETFHQ on Facebook – HERE

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Quote of the Day:

[The majority of traders in the experiment lost money because] They lacked what I call emotional discipline-the ability to keep their emotions removed from trading decisions.  Dieting provides an apt analogy for trading.  Most people have the necessary knowledge to lose weight-that is, they know that in order to lose weight you have to exercise and cut your intake of fats.  However, despite this widespread knowledge, the vast majority of people who attempt to lose weight are unsuccessful.  Why?  Because they lack the emotional discipline. – Victor Sperandeo