Thursday, February 1, 2007

Pick o' the Month - QID

Ok, I finally sold my last few shares of SanDisk (SNDK). Having posted a list of bottom-fishing candidates for this month's pick a few days ago, I expected to choose one of them as the Pick o' the Month and immediately put the money to work.

As I mentioned in my post yesterday, however, I have fixed a bug in the Signal Strength calculation for SELL signals in the TradeRadar software. The new version gives the same SELL signal (click here to view full size) on the QQQQ but now it looks strong enough to give me the confidence to act upon it. QQQQ sell signal. As a result, I turned around and purchased the ProShares UltraShort QQQ (QID). The "Ultra" classification means they are trying to achieve twice the daily performance of the associated index; in this case, the NASDAQ 100. So if the QQQQ is going to go down, QID should start moving up and moving up smartly.

I have been considering doing this for a while, at least since mid-December when TradeRadar first started giving indications the up-trend in the QQQQ might be coming to an end. The signal seemed to confirmed when one tech company after another, despite reporting good earnings, provided dismal guidance for the coming year. But with the Dow and the S&P 500 making new highs (and even the Q struggling to a new high during that time), I have been reluctant to move into the bearish camp. Finally, I decided to trust TradeRadar and go for it. QID closed at $52.68 today. Now we'll see how it plays out.

Recent weakness in ISM is also portending a move down with the number falling below 50. This indicates a sign of contraction in manufacturing (read more at RGEMonitor). This week the GDP number for 4Q2006 was revised upward to 3.5% but looking at the components of the number does not actually provide much support for the bullish outlook as the gain was mostly attained on the back of consumer and government spending (read more at The Big Picture).

More food for thought on the ProShares Ultra Long and Short ETFs: click here for some interesting charts on QLD and QID by Mike Branco.



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