Can ETFs Predict Bull or Bear Runs? | ETF Trends

Investing in exchange traded funds (ETFs) is a good way to try and capitalize on movements in the various areas of the market, but can ETFs help predict potential bull runs?

In comparing the S&P 500 Index and the Nasdaq 100 Index through their related ETFs, Andrew Hart for Investor Place points out that while different indexes move with the general market, the NASDAQ usually has stronger moves in both directions.

  • SPDR S&P 500 Fund (NYSEArca: SPY)
  • PowerShares QQQ Trust (NASDAQ: QQQQ)

You can infer two general themes when analyzing the two ETFs, Hart adds.

1. You can identify new trends by comparing the relative strength of QQQQ over SPY, or QQQQ under SPY in the bearish case;

2. Or you can determine a real emerging trend by tracking the NASDAQ’s relative lead in the market, says Hart.

Since Aug. 31, the percent change of QQQQ vs. that of SPY has been the widest in months, which incidentally also coincided with long recent gains. Between Feb. 5 through April 23, the 15% market gain also showed a bullish divergence between the two funds.