Best of the Week
Most Popular
1.What Happened to the Stock Market Crash Experts Were Predicting - Sol_Palha
2.London Housing Market Property Bubble Vulnerable To Crash - GoldCore
3.The Plan to Control ALL Your Money is Now at Advanced Stage
4.Why Gold Is Set For An Epic Rally This Spring - James Burgess
5.MR ROBOT NHS Cyber Attack Hack - Why Israel, NSA, CIA and GCHQ are Culpable - Nadeem_Walayat
6.Emmanuel Macron and Banking Elite Win French Presidential Election 2017 - Nadeem_Walayat
7.Trend Lines Met, Technical's are Set - US Dollar is Ready to Rally (Elliott Wave Analysis) - Enda_Glynn
8.The Student Debt Servitude Sham - Gordon_T_Long
9.Czar Trump Fires Comey, Terminates Deep State FBI, CIA Director Next? - Nadeem_Walayat
10.UK Local Elections 2017 - Labour Blood Bath, UKIP Death, Tory June 8th Landslide - Nadeem_Walayat
Last 7 days
The No.1 Commodity Play In The World Today - 24th May 17
Marks and Spencer Profits Collapse, Latest Retailer Hit by Brexit Inflation Tsunami 2017 - 24th May 17
Why Online Trading Platforms Are Useful for Everyone - 24th May 17
The Stock Market Will Tank Hard - 24th May 17
It’s Better to Buy Gold & Silver When It DOESN’T Feel Good - 24th May 17
Global Warming - Saving Us From Us - 24th May 17
Stock Market Forecast for Next 3 Months - Video - 23rd May 17
Shale Oil & Gas Production Costs Spiral Higher As Monstrous Decline Rates Eat Into Cash Flows - 23rd May 17
The Only Metal Trump Wants More Than Gold - 23rd May 17
America's Southern Heritage is a Threat to the Deep State - 23rd May 17
Manchester Bombing - ISIS Islamic Terrorist Attack Attempt to Influence BrExit Election - 23rd May 17
What an America First Trade Policy Could Mean for the US Dollar - 22nd May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 22nd May - 22nd May 17
Stock Market Volatile C-Wave - 22nd May 17
Stock Market Trend Forecast and Fear Trading - 22nd May 17
US Dollar Cycle : Deep Dive - 21st May 17
Bitcoin Breaks the $2,000 Mark as Cryptocurrencies Continue to Explode Higher - 21st May 17
Stocks, Commodities and Gold Multi-Market Status - 21st May 17
Stock Market Day Trading Strategies and Brief 20th May 2017 - 21st May 17
DOW Needs to Rally Big or Correction is Next - 20th May 17
EURUSD reaches DO or DIE moment! - 20th May 17
How to Get FREE Walkers Crisps Multi-packs! £5 to £28k Pay Packet Promo - 20th May 17
UK BrExit General Election 2017 - Will Opinion Pollsters Finally Get it Right? - 19th May 17
Gold Mining Junior Stocks GDXJ 2017 Fundamentals - 19th May 17
If China Can Fund Infrastructure With Its Own Credit, So Can We - 19th May 17
Evidence That Stocks are More Overvalued than Ever - 19th May 17
Obamacare May Become Zombiecare In 2018 - 19th May 17
The End of Reflation? Implications for Gold - 19th May 17
Gold and Silver Trading Alert: New Important Technical Development - 19th May 17
Subversion And Constructive Synthesis Of Capitalism And Socialism - 18th May 17
Silver: Train Leaving Station Soon! - 18th May 17
Credit and Volatility Signal That Financial Conditions Are Very Overheated - 18th May 17
Another Stock Market "Minsky Moment" or Will the Markets Calm Down? - 18th May 17
WannaCry Ransomware Virus Is a Globalist False Flag Attack On Bitcoin - 18th May 17
Euro, Stocks, Gold Momentum Extremes All Round! - 18th May 17
US Stock Market Slumps on Establishment / CIA Trump Impeachment Coup Plan - 18th May 17
Tory Landslide, Labour Bloodbath - Will Opinion Pollsters Finally Get a UK Election Right? - 17th May 17
The stock market sectors which are breaking out in 2017 - 17th May 17
A ‘Must-See’ Chart for Gold and Silver Aficionados  - 17th May 17
Will the SPX Stock Market Final Surge Fail to Appear? - 16th May 17
Claim your FREE copy of Jim Rickards’ explosive book - 16th May 17
GOP Establishment Elite Plots Trump Removal - 16th May 17
Walkers Crisps Pay Packet Cheats, Shoplifters and Staff Conning Customers - 16th May 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

How to Determine the Best Place to Invest Using Technical Analysis

InvestorEducation / Learning to Invest Feb 17, 2015 - 06:04 PM GMT

By: Investment_U

InvestorEducation

Christopher Rowe writes: Over the next five minutes, I’ll teach you one of the most successful investment approaches in history... one that can tell you which part of the stock market you should be in right now.

Its success has been documented in more than 100 independent studies over the last few decades. And it’s been back-tested for over a century.


But before I show you how it works, let me show you where it’s pointing today.

Where to Invest Now

Right now, according to this investment approach, the strongest market index is the Nasdaq 100. You can invest in this index via the popular exchange-traded fund PowerShares QQQ Trust (Nasdaq: QQQ).

To show how it measures up against other indexes, I’ll compare the strength of QQQ to the following index-tracking ETFs:

  • SPDR Dow Jones Industrial Average ETF (NYSE: DIA)
  • SPDR S&P 500 ETF (NYSE: SPY)
  • SPDR S&P MidCap 400 ETF (NYSE: MDY)
  • iShares Russell 2000 (NYSE: IWM)

In 2014, QQQ was up 19.4% while the remaining four indexes gained only between 5.04% and 13.06%

It’s really no wonder the index performed so well. As you may have guessed, the Nasdaq 100 is loaded with tech stocks. They make up 58.18% of its holdings.

You may recall that last year was a pretty stellar year for this sector. The tech portion of the S&P rose 17.84%.

It also doesn’t hurt that the Nasdaq 100 holds a significant weighting in healthcare - 14.76% to be exact. This portion of the S&P shot up 25.13% last year.

So far this year, the Nasdaq 100 continues to outperform other popular stock market averages.

This is partially due to continued strength in the tech and healthcare sectors. But it’s also because of the newly revived strength in the consumer discretionary sector, which has the second-largest weighting in the index (18.95%).

The question is: How did my very old (but not very popular) investment approach determine I should look at the Nasdaq 100 in May of last year?

And, perhaps more importantly, how can regular investors use it?

How to Pinpoint the Strongest Security

This very simple approach is called relative strength investing. You’ve probably heard me mention it before. It’s a piece of every second or third article I publish.

You can implement it pretty easily on your own. Let me show you how it’s done...

Step 1: Go to a charting service that allows relative strength studies. (I use StockCharts.com in the example below.) This is NOT the RSI (relative strength index). Investors commonly get the two confused for obvious reasons.

Step 2: Compare the relative strength of one base security to a comparative security.

Don’t worry - you don’t have to do any math. You just have to know the symbols of the two securities you’re comparing.

Behind the scenes, the base security is the numerator and the comparative security is the denominator. Relative strength charts are created by dividing the value of the base security (in this case QQQ) by the comparative security and plotting the result on the chart.

It’s worth noting that some services multiply the result by a number. Don’t let this confuse you. The “value” on the relative strength chart doesn’t matter. It’s only there so the chart can be created.

The point is to watch for higher highs and lows, which means your base security is stronger than your comparative security.

Let’s first try comparing QQQ to SPY. Notice in the top left corner where the quote is posted. Every chart service is different but, in general, you should be able to create a relative strength chart by separating the base security and comparative security with a colon.

So the quote in this case is QQQ:SPY. If you do it backward then you’ll be looking at the exact opposite chart. The chart below advances when QQQ is either going up by more or down by less than SPY.

In the first part of 2014, you can see the line declined. That means the SPY was performing better than the QQQ. But in May, you can see the chart started making higher highs again (where the first arrow is pointing above) followed by higher lows.

After some sideways action since December 2014 (implying the two were performing about the same), we see what appears to be another breakout of the relative strength chart. (See my second arrow.)

Now let’s compare the QQQ to some other indexes...

The Nasdaq 100 vs. The Dow, Russell and S&P

Below is a similar picture seen when comparing QQQ to DIA (again, this is an ETF tracking the Dow Jones Industrial Average).

The next chart compares QQQ to IWM (an ETF that tracks the Russell 2000 small cap index). Notice on the far right that we are not seeing quite as much strength verses the small caps. It will be interesting to see how this pans out.

The next chart compares QQQ to MDY (which tracks the S&P 400 mid cap index). Notice on the far right that we have been seeing relative weakness on an intermediate-term basis. But the QQQ has been gaining strength over the past few weeks.

This is interesting and worth watching. We saw similar action in the first part of 2014 and the Nasdaq 100 prevailed as the strongest index of the year.

When I see these intermediate-term weak patches, I tend to view them within the context of a long-term picture. So for now, I’ll assume the Nasdaq 100 will continue to be among the strongest indexes.

It doesn’t take much to keep yourself invested in the strongest market index. If gauging the strength of five indexes every couple of months generates 44% more in profits (as the QQQ did verses the S&P 500 last year), isn’t it well worth your time?

Good investing,

Chris

Source: http://www.investmentu.com/article/detail/43608/relative-strength-qqq-technical-analysis-best-place-invest

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife