November 22, 2010 – 02:42 am EST
A special thought goes out to the 29 trapped miners in Greymouth NZ. Come home safe boys!!
There were some really healthy signs from the market over the last week. First of all there was a bit of profit taking which has eased the overbought situation. Secondly we saw strength from the Semiconductors (SMH) and the Transports (IYT) which both made their way higher while the broad market finished relatively flat. This is a great sign and indicates that there is nothing sinister behind the recent profit taking.
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****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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As you can see SMH and IYT are very close to the highs that they set two weeks ago. Were the market about to reach a major top, in most cases we would see these more economically sensitive areas suffering.
Learn more – ETF % Change Comparison
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A Look at the Charts
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Volume remains a concern but the price action is healthy.
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Plenty of room for more profit taking from QQQQ but the action from SMH suggests that another breakout is a good possibility.
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The action from SMH is great to see. If the price breaks out then we really need to see some strong volume.
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IWM has good support around $70, if it can make a new high without seeing lower prices first then this market really is strong.
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The volume behind the transports offers real confidence and suggests that higher prices are on the way, if not immediately then soon.
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OM3 Weekly Indicator
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Buy signals remain active across the board but the bear alerts warn that the weekly cycle continues to weaken.
Learn more – The OM3 Indicator
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TransDow & NasDow
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The position in the Transportation index remains active and is now showing a profit of 5.29%. The NasDow on the other hand has just closed its position in the NASDAQ for a tiny profit as the Dow is now dominant. This is a sign of weakness as historically most of the markets major declines have occurred while the Dow has been 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 maintains its position in QQQQ with a current profit of 9.34%. Liquid Q has shifted to cash after 21 days and a small 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
It was a rather uneventful week in the market. We saw a touch of healthy profit taking and some buying around support. The good news thought is that we are seeing strength from the more economically sensitive areas of the market. They fact that they are holding together so well makes it highly unlikely that we are about to see a major market reversal.
Keep an eye on OBV, if we see a breakout it really needs the backing of solid volume this time. Also if IWM can breakout to a new high then this will be a further indication of market strength.
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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P.S Like ETFHQ on Facebook – HERE
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A Prayer for the Tapped Kiwi Miners:
Almighty and eternal God,
Protect them with the shield of your strength
and keep them safe from all evil and harm.
May the power of your love enable them to return home
in safety, that with all who love them,
they may ever praise you for your loving care.
We ask this through Christ our Lord.
Amen