Back To The Bull With Cracks

February 22, 2010 – 5:40 am ET

The market displayed some impressive strength over the last week.  We were looking for several key technical achievements to occur in order to indicate a return to the bullish trend.  They were:

  • New high from OBV on QQQQ
  • Close by QQQQ above $44
  • Close by SMH above its 90 day SMA
  • OBV Bullish trend change on SMH
  • OBV Bullish trend change on IWM

On Tuesday, the first day of the shortened trading week all of these milestones were achieved.  Needless to say this is a very bullish sign.

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ETF % Change Comparison

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ETF % Change Comparison

IYT, the Dow Transportation Index ETF was the top performer over the last week followed by IWM and SMH.  Although none of the ETFs lagged behind significantly.

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What the % Comparison Table Tells Us:

By comparing the performance of the economically sensitive (SMH, QQQQ, IWM, IYT) and the comparatively stable ETFs (SPY and DIA) we can get an indication of the true market direction. The more sensitive areas of the market tend to be the first to initiate a trend change. For example if DIA and SPY sell off heavily while SMH and IWM (Russell 2000 small cap ETF) sell of mildly or continue moving to new highs then this would be very positive and vice versa.

The ‘Average Rank %’ is calculated by subtracting the % change for each ETF from the maximum % change and dividing it by the range for each period. 1-((MAX(% change all ETFs)-ETFs % Change)/(MAX(% change all ETFs)-MIN(% change all ETFs))) The readings for each period are then averaged. This reading is provided because if one ETF was significantly under/out performing the others then a plain high or low rank would not accurately reflect this.

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A Look at the Charts

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SPY

There is not much negative that can be said about SPY, with healthy volume flows, bullish RSI and an impressive recent advice.  Although the 50 day SMA is yet to be convincingly surpassed and a test of support would not be surprising to see this coming week.

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QQQQ

We were looking for a close above $44 and a new high from OBV and this occurred on Tuesday.  With OBV pushing through to new highs it is likely that QQQQ is set to test the January high or hopefully break through it.  The 50 day SMA remains an Achilles Heel and another reason why the market may be due for a breather and a test of support.

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SMH

Volume flows on SMH powered ahead and are now in a bullish trend.  There are cracks in the bullish argument however due to the under performance of volume flows until recently.  A test of support will have to occur at some point and it will be interesting to see if that occurs before or after the 50 day SMA is broken.

Two weeks ago I said that in a rally I would expect AMAT to be the best performer out of SMH’s top three holdings.  I certanly got this wrong; so far AMAT has been the worst performer of the three advancing just 2.21% while INTC is up 6.93% and TXN 8.88%.

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IWM

This is fantastic to see, IWM is the only one of the influential ETFs to really leave its 50 day SMA in the rear view mirror.  Now IWM is only 2.76% away from the closing high it achieved 31 days ago.  This strength from the Small Caps is a solid indication that the broad market will also be able to break through the 50 day SMA.

IWM, rather like SMH, has had under performing volume flows until recently.  These are cracks in the bullish argument that should not be ignored.

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IYT

IYT powered ahead on Friday, no doubt to the cheers of the Dow theorists but again we see the 50 day SMA standing in the way.  Volume indicates a continued trading range.

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OM3 Weekly Indicator

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OM3 Weekly Indicator

The OM3 indicator has conflicting internal readings resulting in most of the ETFs receiving ‘No Signal’ while SMH and IWM are both on a ‘Strong Buy’.  It is positive to see SMH and IWM exhibiting the most bullish readings however.

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How to read the OM3 indicator

The OM3 indicator as with most of our models primarily reads price action and volume. The strong/weak buy/sell signals are self-explanatory. ‘No Signal’ means that the component readings are in conflict and cancel each other out.

The alerts let you know if the cycle is speeding up or slowing down, so when you get at ‘Strong Buy, Bear Alert’ for instance it simply means that the criteria for a strong buy is still in place but this weeks reading is weaker (or more bearish) than last weeks reading (the same is true in reverse).

The number of weeks that a signal has been repeated is displayed. Historically a ‘Strong Buy’ signal has lasted for an average of 6 weeks and a maximum of 42 weeks, while a ‘Strong Sell’ has lasted for an average of 4 weeks and a maximum of 16.

This is an indicator not a mechanical trading model. It is useful to assist in analyzing the market but for the best results should be combined with commonsense and support/resistance levels etc.

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TransDow & NasDow

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TransDow & NasDow

The Dow remains dominant over the Transportation Index and the NASDAQ.  Historically little ground has been made by the broad market under these conditions and most of the disasters have occurred.

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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 rate on 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 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 & Liquid Q

LTMF 80 and Liquid Q remain on buy signals and are both showing small profits for now.  Their internal readings have strengthened significantly over the last week.

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Historical Stats:

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LTMF 80 & Liquid Q Stats

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Summary

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Indications are that we have returned to the bullish trend but a test of support will be due soon.  IWM and SMH do however remind us of some cracks in the bullish argument, from a technical standpoint.

Semiconductor companies are extremely economically sensitive; they lead the business cycle and as a result tend to lead the market and reveal its true direction.  In the Information Age semiconductors are like the railways of the Dow Theory during the Industrial Age.  Likewise Small Caps are inherently more economically sensitive than Large Caps.

SMH was the first of the influential ETFs to peak 42 days ago while most of the others peaked 11 days later.  Also from the beginning of September until just recently OBV has been significantly under performing the price action on both SMH and IWM.  By OBV breaking below the November low earlier this month it indicated significant weakness and I was expecting a return to the bearish tend.  However support held and now things are looking very good.  This conflicting information points to the possibility that we are stuck in a trading range.  For now however, the market is likely to have a bullish bias.

Any disputes, questions, queries… comments or theories are most welcome below.

Ivan Skobrev

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Derry

And the Team @ ETF HQ

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P.S If you get value from these newsletters please share the word with others.  Thanks.  If you are a new reader please subscribe using the form to the top right of this page.

P.P.S I hope this week leaves you feeling like Ivan Skobrev (left) did after seeing he had just posted the fastest time in the men’s 1,500m speed skating and not like Canada felt after losing to the US in the Hockey on home ice.

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The Devils Dictionary – A

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AAA – A credit rating which indicates a company has very little likelihood of default and therefore carries too little debt.  By a process of financial alchemy, this rating now covers most of the riskiest corporate and consumer borrowers, which have too much debt.  See Rating Agencies and CDO.

Accounting – An elaborate system of gibberish intended to describe the abstract theory of financial reality: how much money you have borrowed and can’t pay back (the balance sheet), how much money you are losing (the income statement) and how much worse this year is than last year (changes in financial condition); accounting has been integral to the history of civilization.  Pacioli, a mathematician, published Summa de Arithmetica, Geometrica, Proportioni et Proportionalite in 1494, a year that closely coincided with Columbus’ discovery of America wherein the need to keep track of massive fraud, schemes, scams and other thievery was widely anticipated.  An elegantly elaborate system of debits and credits known as ‘Double Entry Accounting’ quickly came to mean “two for me and none for you”.  Without accounting there could be no fair system of taxation; this fact further highlights its failure because tax and fair remain like oil and water.

AICPA – The American Institute of Certified Public Accountants is the national, professional organization for all Certified Public Accountants.  Its mission is to provide members with the resources, information, and leadership that enable them to provide valuable services in the highest professional manner to benefit the public as well as employers and clients.  AICPA has a trademark lawsuit pending with the Absolutely Incurable Crooks and Perpetrators Association that it is expected to lose for imperceptibly different activities and mission.

AIG – The distressed vocalization of regulators upon examining the books and records of American International Group which was code for All Investments Gone; financial equivalent of “S.O.S – Mayday! Mayday!”  While all the investments had gone to zero, incalculable liabilities remained as a result of an enormous unregulated gambling scheme known as Credit Default Swaps that left the U.S. Taxpayer holding a $200 billion bail-out bag that turned out to be heavier than a black hole.

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Good but not yet Gold

February 15, 2010 – 4:15 am ET

What a fun week! The bulls saved themselves (for now), the Winter Olympics got underway, the Canadians got their first Gold at home and unless you forgot Sunday was Valentines day.

Action from the market this last week while good was not good enough to call it a return to the bullish trend. We said it was do or die for the bulls and they held their ground. However key resistance levels remain intact.

ETF % Change Comparison

ETF % Change Comparison

It was an undeniably impressive week from all of the economically sensitive ETFs while the more stable SPY and DIA lagged behind which is a very positive sign. Notice how SMH is now the top performer over the 1 week, 2 week and 4 week time periods but has still declined the most from its peak 35 days ago? This points to the possibility that SMH has bounced the hardest because it was the most oversold. Fortunately the charts hold the answer.

What the % Comparison Table Tells Us:

By comparing the performance of the economically sensitive (SMH, QQQQ, IWM, IYT) and the comparatively stable ETFs (SPY and DIA) we can get an indication of the true market direction. The more sensitive areas of the market tend to be the first to initiate a trend change. For example if DIA and SPY sell off heavily while SMH and IWM (Russell 2000 small cap ETF) sell of mildly or continue moving to new highs then this would be very positive and vice versa.

The ‘Average Rank %’ is calculated by subtracting the % change for each ETF from the maximum % change and dividing it by the range for each period. 1-((MAX(% change all ETFs)-ETFs % Change)/(MAX(% change all ETFs)-MIN(% change all ETFs))) The readings for each period are then averaged. This reading is provided because if one ETF was significantly under/out performing the others then a plain high or low rank would not accurately reflect this.

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A Look at the Charts

SPY

When assessing SPY on its own things looks good; the volume trend from the bottom of the market remains intact and the RSI has just turned bullish.  If SPY is to break through resistance however it will require the likes of QQQQ and SMH to to lead the way.

QQQQ

QQQQ is also looking good but SMH and IWM offer a clearer picture.

SMH

I love the semis, not just because they tend to lead the market revealing its true direction but because they so often provide a clearer technical picture.  After a solid week SMH has found resistance as expected from the 100 day SMA, if this level is broken and confirmed by a trend change in volume this would be very bullish.

IWM

IWM has already broken through resistance but needs volume to confirm the trend change.  If both SMH and IWM can do this then a return to the bull market is likely.

IYT

IYT still has strong resistance to break through but is not currently offering much information of value.

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OM3 Weekly Indicator

OM3 Indicator

IWM turned to a ‘Strong Buy’ on Friday but rather strangely is still showing a bear alert which is most likely due to internal weakness.  Other than that all the ETFs remain on ‘Sell’ signals.

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How to read the OM3 indicator

The OM3 indicator as with most of our models primarily reads price action and volume. The strong/weak buy/sell signals are self-explanatory. ‘No Signal’ means that the component readings are in conflict and cancel each other out.

The alerts let you know if the cycle is speeding up or slowing down, so when you get at ‘Strong Buy, Bear Alert’ for instance it simply means that the criteria for a strong buy is still in place but this weeks reading is weaker (or more bearish) than last weeks reading (the same is true in reverse).

The number of weeks that a signal has been repeated is displayed. Historically a ‘Strong Buy’ signal has lasted for an average of 6 weeks and a maximum of 42 weeks, while a ‘Strong Sell’ has lasted for an average of 4 weeks and a maximum of 16.

This is an indicator not a mechanical trading model. It is useful to assist in analyzing the market but for the best results should be combined with commonsense and support/resistance levels etc.

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TransDow & NasDow

Transdow and Nasdow

The Dow remains dominant over both the Transports and the NASDAQ.  Statistically this indicates a hightened level of risk in the market.

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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 rate on 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 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

LTMF 80 & Liquid Q

Both the LTMF 80 and Liquid Q remain on a buy signal.  Both systems look to take advantage of long term trends.

Historical Stats:

ltmf-80-liquid-q-stats

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Summary

Really not a lot has changed over the last week; support held and resistance is yet to be broken.  Key things to look for this coming week to indicate a return to the bull market are:

  • New high from OBV on QQQQ
  • Close by QQQQ above $44
  • Close by SMH above its 90 day SMA
  • OBV Bullish trend change on SMH
  • OBV Bullish trend change on IWM

Until all of these key things have happened, the risk remains to the downside.

Any disputes, questions, queries… comments or theories are most welcome below.

Best Regards

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Derry

And the Team @ ETF HQ

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P.S I love the Olympics and think this video captures the spirit of the games brilliantly:

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Quote Of The Day

“To succeed as a trader, it is absolutely necessary to have an edge.  You can’t win without an edge, even with the world’s greatest discipline and money management skills.  If you don’t have an edge, all that money management and discipline will do for you is to guarantee that you will gradually bleed to death.  Incidentally, if you don’t know what your edge is, you don’t have one.”

– Jack Schwager

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Key Support, Do or Die For The Bulls

February 08, 2010 – 6:47 am ET

 

This past week we saw some impressive declines and along with some impressive bounces off major support levels.  The most bullish thing we have seen in a while was how violently SMH bounced off its 200 day moving average.  This level will become pivotal in ensuring the continued health of the broad market.

ETF % Change Comparison

ETF % Change Comparison

SMH ended up as the top performer for the week followed by QQQQ while IYT and IWM were the biggest laggards.  To see the economically sensitive stocks in SMH and QQQQ rebound on Friday was a positive development however this could just be a bounce caused my a combination of support and becoming oversold.

 

What the % Comparison Table Tells Us:

By comparing the performance of the economically sensitive (SMH, QQQQ, IWM, IYT) and the comparatively stable ETFs (SPY and DIA) we can get an indication of the true market direction.  The more sensitive areas of the market tend to be the first to initiate a trend change.  For example if DIA and SPY sell off heavily while SMH and IWM (Russell 2000 small cap ETF) sell of mildly or continue moving to new highs then this would be very positive and vice versa.

The ‘Average Rank %’ is calculated by subtracting the % change for each ETF from the maximum % change and dividing it by the range for each period.  1-((MAX(% change all ETFs)-ETFs % Change)/(MAX(% change all ETFs)-MIN(% change all ETFs))) The readings for each period are then averaged.  This reading is provided because if one ETF was significantly under/out performing the others then a plain high or low rank would not accurately reflect this.

 

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A Look at the Charts

 

10-02-05-spy

Volume flows are maintaining their bullish trend which is a positive sign.  Although it is concerning to see so little support between the current levels and the 200 day MA.  If SPY can move higher then there are still solid resistance levels above.  Look to SMH for a clearer picture.

 

 

10-02-05-qqqq

Suddenly volume flows for QQQQ don’t look so bad.  A few more good days and OBV will be moving to new highs and that would be a very good sign.  If that were to occur in conjunction with a move above $44 then the bulls would have the upper hand again.

 

 

10-02-05-smh

Here we have reached a critical point.  Can SMH hold onto support from the 200 day MA?  If it can then this will be the fuel that the market needs to take on overhead resistance.  If not and $24 is also broken then things could really get nasty.  Volume flows indicate that support is unlikely to hold so if you were to watch only one ETF this coming week then SMH would be it.

 

 

10-02-05-iwm

Volume flows on the small caps are in a firm down trend.  There is strong support around $57 and from the 200 day MA.  With OBV sitting below the November low there is a good chance that support will fail.  The only thing that is likely to stop a test of support is strength from SMH.

 

 

10-02-05-iyt

Volume flows from the Dow Transportation ETF continue to move in a sideways trend.  With the RSI approaching oversold territory this could indicate that a bounce is due however a move in either direction will be meaningless until there is a breach of resistance around $72 or support around $66.

 

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OM3 Weekly Indicator

 

10-02-05-om3

 

The OM3 indicator is showing a ‘Strong Sell’ for all of the ETFs we track and several of them for the 3rd week.  In addition to this they have all had several weeks of ‘Bear Alert’ warnings.

 

How to read the OM3 indicator

The OM3 indicator as with most of our models primarily reads price action and volume.  The strong/weak buy/sell signals are self-explanatory.  ‘No Signal’ means that the component readings are in conflict and cancel each other out.

The alerts let you know if the cycle is speeding up or slowing down, so when you get at ‘Strong Buy, Bear Alert’ for instance it simply means that the criteria for a strong buy is still in place but this weeks reading is weaker (or more bearish) than last weeks reading (the same is true in reverse).

The number of weeks that a signal has been repeated is displayed.  Historically a ‘Strong Buy’ signal has lasted for an average of 6 weeks and a maximum of 42 weeks, while a ‘Strong Sell’ has lasted for an average of 4 weeks and a maximum of 16.

This is an indicator not a mechanical trading model.  It is useful to assist in analyzing the market but for the best results should be combined with commonsense and support/resistance levels etc.

 

 

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TransDow & NasDow

 

10-02-05-transdow-nasdow

 

The Dow remains dominant over the DJ Transportation Index and the NASDAQ.  This indicates that there is a high level of risk in the market.

 

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 rate on 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 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

 

10-02-05-ltmf-80-liquid-q 

 

Both LTMF 80 and Liquid Q are on buy signals and showing small profits from the current trades.  It is bullish to see these signals are active especially as Liquid Q is only in the market 27% of the time.  Both systems aim to capture big moves over a timeframe that usually stretches into months.

 

Historical Stats:

 

ltmf-80-liquid-q-stats

 

 

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Summary

 

For the bullish argument there was some impressive upside leadership from SMH and QQQQ on Friday as they found buyers at major support levels.  Volume flows on SPY remain bullish and QQQQ’s OBV is not far from a new high.  If resistance overhead were to be broken such as QQQQ closing above $44 then this would be very bullish.

The key thing to watch for this week is whether SMH can maintain support from its 200 day MA, if this fails then support at $24 is also likely to fail.  Should this happen then expect support levels to start crumbling across market.  The next most important support is the 200 day moving average from the Russell 2000 ETF – IWM.

For the bearish argument, nearly every major stock and ETF is below its 50 day MA and has strong resistance overhead most commonly in the form of the 100 day MA.  Volume flows for SMH and IWM are clearly bearish and below their November lows indicating that support levels are unlikely to hold.

By looking at the major holdings of an index or ETF you can often reveal a lot about its internal strength.  Some funds have 25% or more of their holdings in just a few stocks.  SMH for instance has 57.88% of is holdings in only three stocks; INTC @ 23.47%, TXN @ 21.18% and AMAT @ 13.23%.

If you have a look you will see volume flows for INTC are moving sideways along with the stock price and there is staunch support around $19.  Volume flows on TXN are clearly bearish while the volume flows on AMAT are actually looking quite healthy and are significantly outperforming the price action.  I would expect AMAT to be the top performer of the three if there were a rebound this week.  INTC is still above its 200 day MA while TXN and AMAT have already broken through this support level.  For the market to recover this week it will be important for INTC to maintain support @ $19 so keep an eye on this as well.

The bulls are going to need to fight hard this week to maintain these key support levels or there is little chance that the bull market can continue.

 

Any disputes, questions, queries… comments or theories are most welcome below.

 

Best Regards

Derry

And the Team @ ETF HQ

 

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Quote Of The Day

 

"Everything’s tested in historical markets. The past is a pretty good predictor of the future. It’s not perfect.  But human beings drive markets, and human beings don’t change their stripes overnight.  So to the extent that one can understand the past, there’s a good likelihood you’ll have some insight into the future."

– James Simons

Change In The Air

Change In The Air

February 01, 2010 – 9:30 am ET

There was a very definite change in the air last week.  Not only were there declines but the declines were being lead by the most economically sensitive areas of the market on heavy volume.


 

ETF % Change Comparison

 

ETF % Change Comparison

 

As you can see from the table above the hardest hit areas this week were the Semis (SMH) and the NASDAQ 100 (QQQQ), followed by Transportation (IYT) and the Small Caps (IWM).  While the least affected were the Dow (DIA) and S&P 500 (SPY).

In a healthy market we want to see just the opposite.  Instead is appears as though the smart money is shying away from the more risky areas of the market.  This elevates the likely hood of sharp declines and the return to a bearish trend.

 


OM3 Weekly Indicator

 

OM3 Weekly Indicator 

The OM3 indicator is showing a ‘Strong Sell’ for all of the ETFs we track and several of them for the 2nd week.  In addition to this they have all had several weeks of ‘Bear Alert’ warnings.

 

How to read the OM3 indicator

The OM3 indicator as with most of our models primarily reads price action and volume.  The strong/weak buy/sell signals are self-explanatory.  ‘No Signal’ means that the component readings are in conflict and cancel each other out.

The alerts let you know if the cycle is speeding up or slowing down, so when you get at ‘Strong Buy, Bear Alert’ for instance it simply means that the criteria for a strong buy is still in place but this weeks reading is weaker (or more bearish) than last weeks reading (the same is true in reverse).

The number of weeks that a signal has been repeated is displayed.  Historically a ‘Strong Buy’ signal has lasted for an average of 6 weeks and a maximum of 42 weeks, while a ‘Strong Sell’ has lasted for an average of 4 weeks and a maximum of 16.

This is an indicator not a mechanical trading model.  It is useful to assist in analyzing the market but for the best results should be combined with commonsense and support/resistance levels etc.

 


TransDow & NasDow

 

TransDow Dominant Index

NasDow Dominant Index

DOW

DOW

NEW Signal

12 Weeks

 

As of Friday the Dow claimed dominance over the DJ Transportation Index while for the 12th week the Dow remains dominant over the NASDAQ.  This further indicates weakness in the market.

The TransDow measures dominance between the DJ Transportation index and the Dow while the NasDow measures dominance between the NASDAQ and the Dow.  In a strong market the more economically sensitive Transportation Index and NASDAQ will be dominant over the Dow.

 


 

A Look at the Charts

 

SPY

SPY is on the verge of breaking a bullish trend in volume that has existed since the start of the market recovery.

 

 

QQQQ 

QQQQ is not looking healthy and OBV has moved into a bearish trend.

 

 

SMH

SMH is looking very bearish.  Volume flows have been bearish for the last four months and have just broken below the November low.  This would indicate that support around $24 is unlikely to hold.  From there it is an easy fall to around $21 which would be a disaster for the broad market and cause widespread selling pressure.

 

 

IWM

IWM does not look much better than SMH and also has had weak volume behind the new high in January while OBV made a lower high.

 

 

IYT

While looking better than SMH and IWM the Transportation sector is far from bullish.  The sideways trend in volume flows is in the verge of breaking.

 


 

Summary

 

There is little to say that is bullish about the current market.  Advances over the last few months have been on week volume, recent declines have been on heavy volume and the most economically sensitive areas of the market have been leading the declines.  The only thing positive is that the recent drop has brought the market near to oversold territory.  This may entice bargain hunters looking to ride the next leg of the bull market.

Unfortunately it is unlikely that any bounce will go far and more likely that a new bearish trend has begun.

 

Any disputes, questions, queries… comments or theories are most welcome below.

 

Best Regards

Derry

And the Team @ ETF HQ

 


 

Quote Of The Day

 

"Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it.  Losers try to build a stool with only one leg, or two at the most.  They usually focus exclusively on trading systems.  Your trades must be based on clearly defined rules.  You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound.  You have to structure your money management so that no string of losses can kick you out of the game."

– Dr. Alexander Elder