February 07, 2011 – 04:20 am EST
I hope everyone enjoyed the Super Bowl and congratulations to the Packers. I enjoyed everything but the Black Eyed Peas performance which was worse than a violin being played badly.
To the markets, the sterodic rally continued over the last week with most areas up over 2%. Few support levels even had the chance to be tested apart from IWM’s 50 day simple moving average and it held strong. SPY quickly made its way above $130, a resistance level that I had expected to stand for a few weeks. One of the bests parts however was that volume was strongly behind the bulls, lets take a closer look…
***We grow by word of mouth so thanks for continuing to spread the word.
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ETF % Change Comparison
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New highs from all but IWM and IYT are great to see but most importantly SMH continues to lead. Being so economically sensitive SMH acts like the canary in a coal mine and for the time being it says that everything is just fine. The Transports (IYT) are also important however and it is important that they do not lag too behind far if the rally is to be sustained.
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Learn more – ETF % Change Comparison
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A Look at the Charts
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Resistance on SPY at $130 has been broken and volume is strongly with the bulls.
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With OBV at a new high it is a great sign for QQQQ.
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SMH has been fueling this rally and has had a recent surge of volume; all positive signs.
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We really want to see IWM at a new high sooner rather than later. Below the 50 day SMA would be dangerous.
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IYT offers the strongest bearish argument at the moment; a close below $90 would be bad news.
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OM3 Weekly Indicator
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All buy signals remain active and bull alerts have returned for most of the ETFs.
Learn more – The OM3 Indicator
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TransDow & NasDow
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The Dow remains dominant over the NASDAQ and the Transports. Historically the market has made very little ground under these conditions.
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What the TransDow Readings tell us:
The TransDow measures dominance between the DJ Transportation Index (DJTI) and the Dow Jones Industrial Average (DJIA). In a strong market the more economically sensitive Transportation Index should be dominant over the DJIA.
Historically the DJTI has been dominant over the Dow 45% of the time. The annualized rate of return from the DJTI during this period was 18.47% with the biggest loss for one trade sitting at -13.27%. The annualized return from the DJIA during the periods it was dominant over the DJTI was just 4.06% and the biggest loss for one trade was -16.13%. A 4% stop-loss is applied to all trades adjusting positions only at the end of the week.
What the NasDow Readings tell us:
The NasDow measures dominance between the NASDAQ and the DJIA. Using the same theory behind the Trans Dow; in a strong market the more economically sensitive NASDAQ should be dominant over the DJIA.
Historically the NASDAQ has been dominant over the DJIA 44% of the time. Taking only the trades when the NASDAQ is above its 40 week moving average the annualized rate of return was 25.47% with the biggest loss for one trade sitting at –8.59%. The annualized rate on the DJIA during the periods it was dominant over the NASDAQ is just 8.88% and the biggest loss for one trade was –12.28%. A 8% stop-loss is applied to all trades adjusting positions only at the end of the week.
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LTMF 80 & Liquid Q
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The LTMF 80 continues to hold a position in QQQQ that is now showing a profit of almost 20%. 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
With strong volume backing the latest leg of this rally and SMH leading the way higher there are many reasons to be confident. However it would have been nice to see a little more profit taking as such profit taking is necessary in a healthy market.
What we really need now is continued momentum. That involves IWM moving to a new high and IYT at least holding onto support. Be on high alert if IWM closes below its 50 day SMA and IYT closes below $90; with a loss of these levels sharp and broad based profit taking is likely.
Any disputes, questions, queries, comments or theories are most welcome in the comments section below.
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Cheers
Derry
And the Team @ ETF HQ
“Equipping you to win on Wall St so that you can reach your financial goals.”
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Quote of the Day:
Challenge is the core and the mainspring of all human activity. If there’s an ocean, we cross it; if there’s a disease, we cure it; if there’s a wrong, we right it; if there’s a record, we break it; and finally, if there’s a mountain, we climb it. – James Ramesy Ullman