We all know the ride’s going to end sometime, but in the meantime (and until further notice) it’s still a trade-worthy ride. What is it? It’s this bullishness. Yes, it’s overextended, hard to believe, against the odds, and….. not a bit surprising to us?
One of the greatest parts about being disciplined enough to stick to a proven trading methodology is that you really don’t have the option – in a good way – of convincing yourself it’s “alright to ignore the evidence just this once”. Either something is bullish, or it isn’t. One of Price’s oldest and most successful of bull/bear methodologies like these can be applied by making of just two ETFs. Which ones? The S&P 500 SPDRs Fund (SPY) and the NASDAQ 100 Trust (QQQQ). Here’s the gist.
You’re probably aware that the market’s different indices – and different ETFs – tend to move in tandem with the market’s bigger trend. What’s not quite as recognized, however, is that the NASDAQ tends to lead the way with stronger moves, both up and down.
The practical application of such a theme is two-fold. First, spotting this relative strength of the QQQQ’s over the SPDRs (or QQQQ’s under the SPDRs, in bearish cases) can identify new trends as they emerge. Second, and perhaps better, by waiting for the NASDAQ’s relative leadership, you can distinguish the real emerging trends from the fakeouts.
A couple of examples will really nail down the premise. [..read more]