Trading the Greek Gods

2011-11-29T08:55:00.000-05:00

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Summary

The price slope model improved. Not across the board, but it obviously made some advance due to the movement in the markets on Monday. Despite this progress there is no compelling signal to jump in with both feet. Tip your toe in, perhaps, but don't jump in.
In a nutshell, volume continues to significantly lag. This is poor performance for a "breakout" day and makes the rally suspect from the git-go.
On a positive front, the price acceleration model railed at the highest possible delta -- 14 -- and indicates that within reason we moved about as much as we realistically could for the day. We need several days of +14 values to dig us out of the holes created since November 1st.
The LCR slope model is not nearly as optimistic. The LCR moved from 0.213 to 0.289, hardly a resounding sea-change of stocks from the cash side to the long side.
The aforementioned LCR change was the 58th strongest change to the positive since September 2008, and reversals/breakouts in the past had MUCH stronger levels. To put this in perspective, we normally see changes on new trend days in the 2+ and 3+ standard deviation categories -- this was within 1 standard deviation of average and is a *yawner*. I don't like it ....
Further, the LCR Acceleration, which is a weighted composite of all the moving averages of the LCR day-over-day change, only budged 2 points on a possible movement scale of +14. TWO POINTS. Not a resounding "xmas rally started Nov 28" signature. I hope I'm wrong and a rally does begin but we need some SERIOUS follow through for it to be real. We're not there yet.
Make sure you read Pascal's commentary on the 20d MF signal.
My Elder intermediate-termed and 5d/65d timers are all in CASH. We are quite early on this one folks, caution is advised.

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Here are the obligatory charts. Post questions if you do not know how to interpret.

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My trading plan is opportunistic. I am 6% in AGG today and the rest of my accounts are all in cash. My stock candidates have been posted here. My position size is ATR(20) adjusted AND I'm only going to put in 10% positions of that adjusted full size, as I'm not a believer yet but I must participate. Downside risk is quite limited as we have a good floor reference within 3-5% on most of these stocks.

Regards,

pgd

Update for Monday, November 28th

2011-11-27T17:29:00.001-05:00

Summary

The price slope model (PSM) is bearish and has been in a sustained contraction since 11/16.
The Database Strength model has hit another local minimum. This new low has occurred because of falling prices and higher volume on a day where market volume was 65% below the 50d MA. This is quite remarkable, and indicates that there was broad selling into the Thanksgiving weekend. Historically, when we have hit the lowest levels, we have an opportunity to enter on the long side with good R/R.
Prices continue to accelerate to the down side.
The Long-Cash Ratio (LCR) slope model continues to indicate bearishness with more stocks accelerating to cash/short status. Avoid long positions in general.
The Elder Force Index timer that I employ is solidly bearish. Avoid long positions with an intent on holding for the intermediate term.
The 5d / 65d timer that I employ on the GGT system is indicating cash is king. This being said, bonds are attracting some attention here.

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"[Be] fearful when others are being greedy and [be] greedy when others are fearful” -- Warren Buffet

For the GGT system to signal buy, we need stocks to start to reverse their drop. Over the last 7 trading days we've had a fairly steady drop in prices, often on higher volume within those stocks that are dropping, and this does not necessarily bode well for moving long for the long term.

But what about the shorter term? We are at incredibly low levels here in the strength index. I conducted a study where I ranked the top 100 oversold levels in terms of performance if we were to have bought the GGT index the morning after we had hit the oversold condition. Here's the results for every dollar invested:

Across the top are the days since hitting the low, and obviously, you can see the average, standard deviation, minimum value, and maximum value.

In the case where I take the top 100 days, on all measured time frames we have had a positive average, but clearly, the standard deviation (68% probability) shows that we could end up slightly below the water line at any time during the first 9 days. Also, you can see that the minimums are extremes -- 2 * the standard deviation amounts is a 95th-percentile probability and most of the extremes on the down side are outside of this range. We're in wild times, but in general, buying when we hit these extreme lows has worked in the past for the majority of cases, sample size = 100.

Let's do the same thing with a sample size of the top 50:

More of the same here. Average return drops slightly, volatility increases slightly, but the extreme min/max levels are about the same. This is encouraging.

Let's do the same test for the top 20. Note that Friday's action places us within this group.

The data here suggests a further increase in volatility as well as a reduction in average gains. At the same time, note that the minimums are actually higher, and the maximums are nearly equivalent to the previous tests. This data does not convincingly tell us that we should move long at the open on Monday, but it does suggest that we are within a zone where historically, downside is limited and the upside has been quite favorable.

Whether or not you choose to go long Monday for a short-term pop, we are oversold in the markets and I am expecting a short-term bounce some time this week.

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The GGT Price Slope Model continues to exude bearishness, and has done so convincingly since 11/16. This being said, there are some indications that show some slowing in the drop:

As with all my images, right-click on the figure to open in a new tab or window.

I've changed the presentation slightly. Specifically, you can see where I've taken away the bullish/bearish tags and inserted numerical values. This change will give us the ability to see an overall trend of the slopes, which is useful in determining whether a change is underway.

Specifically, take a look at Friday's action with respect to the slopes, shown on the left portion of the figure. While negative (red), we see a local minimum on the 5d MA, but the 3d and 2d are respectively higher. Hence, there is some abatement of the rate of plunging in the GGT price index, although the negative values of the slopes still show a net loss day-over-day (slope units are $/day). You can see many times in the past where this more-negative value in the 8d/13d/21d region has shown that a reversal is imminent (note too there are times where no "ripple" occurred yet we had a reversal -- it's all related to the strengths of the slopes of the slopes, on the right side of the figure).

On the right, you have the Slopes of the Slopes (SoS'). These are failing at convincingly moving us out of this territory -- we see that last week gave us 2 attempts to reverse a declining SoS but we were only partially successful. Of interest here though is that the 34d/55d/65d SoS are at a value of nearly 0 -- horizontal -- and this means that they could move either direction with any positive move in the markets.

In looking back at reversal dates such as October 4th, it's pretty clear that the SoS values were not horizontal -- they had some positive or negative magnitude -- and more importantly, they changed decisively with positive (or negative) action on the overall markets. This will be an important tell going forward -- a gradual slip into "green" on either side of the chart will not be a compelling signal to move long, statistics above notwithstanding.

Below is the LCR slope model:

Same changes here -- I've placed the magnitudes within the cells as opposed to the "bearish/bullish" monikers that I've used historically. You will also see the addition of a new column entitled "Daily LCR Change Rank". This is exactly what it sounds, I've ranked the day-over-day changes in the LCR for all of GGT history (799 trading days to date). Color coding is as follows:

Red text/white background: LCR change was NEGATIVE, and it was within 1 standard deviation of the historical average. *yawn*
Green text/white background: LCR change was POSITIVE, and it was within 1 standard deviation of the historical average. Again, *yawn*
Lightest of red (almost pink): LCR change was NEGATIVE, and the change is between 1 std dev and 2 std dev. This places the move between a 5% and 32% probability of occurring, and is notable.
Lightest of green: LCR change was POSITIVE, and the change is between 1 and 2 standard deviations. Same comment as above.
Medium red (e.g., 11/9/11): LCR change was NEGATIVE, and the change is between 2 and 3 standard deviations. This places the move between a 0.3 and 4.6% chance of occurring, and is quite interesting.
Medium green (e.g. 10/6/22): LCR change was POSITIVE, and the change is between 2 and 3 std dev. Same comment as above.
Bright Red (e.g., 11/1/11): LCR change was NEGATIVE, and the change is greater than 3 standard deviations. These are rare events, with a probability of happening less than 0.3% of the time, so we need to PAY ATTENTION.
Bright Green (e.g., 10/4/11): LCR change was POSITIVE, and the change is greater than 3 standard deviations. Pay attention folks ...

There have been some pretty clear indications that we should move long/short in the markets based on the overall magnitude and direction of these LCR values. In this latest downwave the 11/1 signal (4th strongest change down in the LCR since September 2008) we should have exited our long positions at this time. On 11/9/11 we had another bow-shot, with the 14th strongest change down, and this could have easily been a signal to move to contra ETFs. 11/21 and 11/23 have both signaled further selling, compelling us to ensure that we are not holding long positions. This being said, remember my comments above concerning being oversold -- we are clearly there and the succession of these down 'markers' in the LCR tell us just how powerful this wave down has been.

With respect to the remainder of the figure, note the same inability of the LCR SoS' to move decisively above 0... we're abating in the drop, and we need to see strong magnitude changes from here.

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My trading plan for Monday is to mostly sit pat. None of my indicators are telling me to enter the market on Monday, and available stocks to choose from are few.

Regards,

pgd

-3x Contra ETF Index Status

2011-11-22T09:26:00.001-05:00

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My daily blog can be found at http://www.effectivevolume.com, specifically in the GGT forum.

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It's been a while since I've posted in this thread -- we simply have not had what I would consider a good setup with the contra -3x Bears. Hence, allow me to refresh you on the methodology.

I prefer to use 3x leveraged ETFs because the leverage tends to increase the impact of slope analysis. Put another way, compared to 1x ETFs, 3x ETFs will show trends faster to the eye (and to analysis packages), simply because of the multiplier of the leverage.

This increased visibility can work against you. The increased volatility of using these instruments to form an index one way or another can be gut-wrenching, but when you observe the index regularly, you'll learn the subtle indications and you can play accordingly.

I'm using a template that I adapted from Dr. Jeff Scott with the High Growth Stock visualization system. The template provides a standardized way to review a multitude of equities quickly, and I have found the software to be quite useful.

Across the top is a ribbon indicator called the "Bongo" Weekly. Derived from 3 different Wilder RSI calculations and a moving average, you can see that it is telling us that it is safe to consider contra ETFs at this time. I find this to be a confirming indicator, not a leading indicator, so by the time this transitions we may have missed the initial entry buy point. In this particular case I think we're only late by a few days -- more on this below.

Below the Bongo Weekly ribbon are two Bull/Bear Power indicators. These are Dr. Alexander Elder constructs, and the Bull Power indicator uses the 13d EMA and the highs of the bars to determine where in the cycle we are presently. As you can see in the popup window, Bull Power = 2.5024, and this is quite bullish for contra ETFs.

Bear Power uses the lows of the bar as well as the 13d EMA. When bear power goes positive, the lows are above the 13d EMA, and this too is a show of momentum to the upside. As you can see, we now have a Bear Power = 1.7312, so the combination of Bull/Bear Power suggests considerable strength for contra ETFs.

Under Bull/Bear Power I have two different ribbons, but both are focused on the Force Index 13d EMA and MA calculation methods. Force Index is simply a multiplication of Price*Volume, and this too is a Dr. Elder construct. When these ribbons are red, the 13d EMA/MAs of the Force Index are negative. When they are green -- wait for it -- they are positive, and this indicates that there is price and volume demand for the equity or index. In this case we've been positive for several days, indicating a general move to -3x contra ETFs.

Below this I have a 2d Force Index ribbon, and THE COLORS ARE REVERSED. Meaning, when the indicator is RED, we have a POSITIVE 2d FI. Why I do this is that I do not want to enter until the 2d moves GREEN, preventing me from buying too high within the cycle. This teaches me patience, and as we are seeing today with the futures being higher, we might actually get the 2d FI to move green with the day's action. Consequently, since we have a RED 2d FI, there will be no entry into a contra ETF today.

Below the 2d FI I have the standard MACD, but here I'm using 8-11-25 instead of 9-12-26, which are the standard settings with most default implementations of the MACD. On the positive side we are in the lower half of the window, so we're not too late. While the MACD histogram is positive (I like catching this when it crosses from negative to positive), it is quite difficult to get all the indicators to align when this occurs hence this becomes a secondary signal. The fact that the signal line and MACD are rising together, giving a strong, positive histogram is quite encouraging and tells us to seriously consider contra ETFs.

Below this is the Bollinger %B ribbon. Red here indicates that we are nearing the top of the range, and I typically like to see some pullback to a yellow or light green before I enter. Again, with futures being higher today, I suspect we will pull back nicely and this will give us assurance of entering contra ETFs soon.

Below the %B ribbon are the slopes of the 13d EMA and 34d EMAs on price. This is probably one of the more important graphs to review.

First, note how both are pointing upward. In my parlance, these have a positive "slope of the slope" and as you can see, these have been pointing upwards for several days. This is a great sign.

Next, note how both EMAs are now above the 0 line. Again, in my parlance, these are positive slopes, and this is quite bullish. The 34d just moved positive and now with both confirming, we have an opportunity to move long in contra ETFs. This graph suggests we may be late, as the present signal has been quite strong (note that 2d FI has been and continues to be positive, blocking us from chasing). I'd like to see a pullback here in the slopes, but have them remain positive, and then enter on continued strength.

The final large area is the pricing window and what is bullish about Monday's action is that the price bar for Monday was completely above the 8d, 13d, 21d, 34d, and 50d MAs. Only the 160d remains, and this will be a key test going forward. Nevertheless, you can see that the slopes are all pointing upward (with the exception of the 160, which is still pointing down, albeit slower), and upward trending slopes on an index is a good thing.

There are a number of ways to consider opportunities here, but the easiest is to use the ranking function within the HGSI package. Doing so reveals the following ranking of the ETFs which I have included in the index:

Some of these may be thinner than you prefer so ensure you check $-volume for your tolerance levels.

INDZ is a thin ETF and to some degree, it can be disregarded unless you are comfortable trading thin ETFs (I am, but others are not). In the case of a leveraged ETF thin = dangerous, so tread carefully.

EDZ is a liquid ETF that is worthy of consideration. I would wait for it to pull back on any market strength (ensuring that the 2d FI is negative on the day of consideration), then my entry point would be as it takes out the high of the previous day, plus a few cents. Here's the chart:

BRIS is a thin ETF and can be considered like INDZ above.

DPK is a somewhat liquid ETF trading ~100K shares per day average (or so). It too has a constructive chart:

Finally, to show that we're not too early to be considering these instruments, here is the composite index on all inversed ETFs (-1x, -2x, and -3x) with 21d MA volume > 100K shares:

The equivalent ranking view of these equities looks as you would expect. Good candidates are to be found near(er) the top:

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As with all my discussions on equities, you are responsible for your own decisions and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Update for Friday, November 18th -- All Timers Bearish

2011-11-18T19:27:00.000-05:00

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If you don't find a daily entry here please check http://www.effectivevolume.com, specifically in the GGT forum.

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In addition to the Effective Volume site's MF indicator moving to the short side, the following timers that I employ are also on the cash (non-long) side:

LCR 8d Slope Timer (bearish since 11/1)
Short-Term LCR Change Timer (cash since 11/7)
LCR Slopes (all bearish since 11/10)
Elder Force Index Timer (cash for 2 days now)
Long(er)-Term 5d/65d Crossing (transitioned to short on 11/17)

Aside from futures being up as I write, there is no evidence of any reversal to the downward movement in the markets.

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Here are the charts, without comment. They provide a good snapshot of the environment. As with all my charts, right-click on the image to open in a new window or tab:

I'll be in North Carolina this weekend for an early Thanksgiving with family, returning late Sunday night. Taking a break from this for a few days.

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Regards,

pgd

Update for Wednesday, November 16th

2011-11-16T08:33:00.001-05:00

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If you don't find a daily entry here please check http://www.effectivevolume.com, specifically in the GGT forum.

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Summary:

The GGT price index rose +0.79% on volume that was -24% below the 50d MA of volume. One standard deviation is 22%, so we're outside of the range and it simply tells me that there is a considerable amount of waiting on the sidelines right now. Initiating new positions is more risky when volume is not confirming price movement.
Price slopes all turned positive on Tuesday, which is a good first step. We need this to be sustained, and I remind you that 1 day is not a trend.
Like the slopes, the slopes of the slopes are all pointing up, Day #1. Again, 1 day is not a trend.
The day-over-day acceleration of the price slope model has a relative level of 41, which is the same level as yesterday. There is no acceleration or deceleration, which shows that this is a weak market. Extreme caution at entering new positions is advised.
The strength index rose back to 0.54, right in the middle of the range where it could go higher or lower.
The LCR slope model continues to show bearishness across the board, but we did get some improvement in the LCR slopes of the slopes. With the 2d, 3d, 5d, and 8d slopes all bearish/negative, initiating new positions is ill advised.
The EV 20d MF indicator fell back into negative territory again by a thin margin and is again telling us money is not doing much right now. Note that the 20d MF average is well above the indicator AND it has a negative slope -- not a great situation for new long positions.
The 5d/65d MA intermediate-termed timer is still long by a thin margin.
The Elder Intermediate-Termed Force Index timer is maintaining a MIXED mode. MIXED indicates internal conflict in the indicators (some long, some cash), so simply stay away for now.
The cumulative $TICK indicator is just beginning to show some bullishness, but we're quite early. We need sustained upward movement in the markets in order for this to confirm bullishness.

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Stocks that I'm watching are the following; I may take a very small position in some of these today if they appear that they are breaking out:

As with all my images, right-click on the figure to open in a new tab or window.

Note that overall money flow, as measured by Pascal's 20d MF indicator at http://www.effectivevolume.com, is not confirming this, so we're obviously quite early.

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The Price Slope Model is on day 1 of showing improvement across the table:

Note on the far right about the Sigma-column showing no change -- this is a weighted relative metric of the slopes of the slopes for all indicated time frames and while the SoS' all moved positive (slopes pointing upward), the change in the SoS' was negligible. Not much going on here, and moving long at this time is far more riskier than a large jump in this Sigma value.

The LCR Slope Model is quite bearish:

While the right side does show some improvement in the slopes of the slopes (all are positive by 1 day and the "Sigma" column advanced, which is positive), the left side still shows that we are in a funk and it will take sustained action to get a rise in the number of stocks in the database who are outperforming historical levels. Until the left side of this table (2d, 3d, 5d, 8d, ....) starts to turn Bullish/positive your money is best protected sitting on the sidelines.

Giving great confirmation to the statement that "1-day does not make a trend" is the following cumulative tick chart:

As with all my charts, right click on the image to open in a new tab or window.

This chart shows the ETF TNA on the top, and a small, limited position that I took yesterday. The middle trace shows a filtered response -- in this case 500 stocks per minute -- which are required to move one way or another before the line moves up or down. It's easy to see what the markets did in terms of reversal as this middle chart filters out the noise of the $TICK indicator. The bottom is the cumulative $TICK indicator, and it shows clearly that we had a reversal (white line) right around noon and for the most part, the markets never looked back. The crossing of the moving averages of each other from below has only occurred with the shortest MA, so we are quite early and it is not prudent to jump into the markets with both feet here.

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My trading plan is to participate in the markets on a very small-scale percentage per position level. My goal is to have 4-8 positions, and @ 8 positions this would be 12.5% of my capital /position. I'm looking to break that full position into quarters and 8th's, so my position number and size will be quite limited. Unless something appears on my radar that is opportunistic I will stick to the stocks provided above.

Regards,

pgd

Update for Monday, November 14th

2011-11-14T07:27:00.001-05:00

Daily blog entries can be found at http://www.effectivevolume.com in the GGT Forum.

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Summary:
The price slope model turned long on Friday with the day's action, and did so on really poor volume. We have the slopes of the slopes pointing up for the past 2 days, which is a start in the right direction. We're right at thresholds with the slopes (just above/below 0 line) so caution is advised at new long positions.
The day-over-day acceleration of the price slope model prices has stalled. Out of the last 4 trading days we've been stuck at a relative level of 55 on 3 of those days, showing us that we're not going up or down. BIG warning sign here.
The strength index moved up and is in a good range for picking up positions on the long side. This being said, we're back to ~0.5 range, which is in the center of the scale. If you must pick long positions make sure they have a high RS.
The LCR slope model continues to show bearishness across the board. Based on this, and my commentary below, new positions in longs are not advised.
The EV 20d MF indicator is barely positive and it too is sitting right at thresholds. Note that the 20d MF average is well above the indicator AND it has a negative slope -- not a great situation for new long positions.
The 5d/65d MA intermediate-termed timer is still long.
The Elder Intermediate-Termed Force Index timer has moved back to LONG mode. This was a clear whipsaw and is indicative of the stalling nature of prices.

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Before I jump into the standard presentation, I want to convey some work that I've done regarding using the LCR (Long-Cash Ratio) as a timer for when to buy stocks. I am not representing that this is a complete strategy, but in looking for an edge on when to buy stocks which are correlated with the GGT price index (closest ETF is the VTI, the Vanguard Total Index, R^2 = 0.972 since 9/08), this will be something that I'm implementing going forward.

Refer to the figure below. Right-click on the image to open in a new window or tab, as per usual.

I struggled with the presentation and finally settled on this - the symmetry will become obvious once you understand what you're looking at.

Across the top is the label "Master Signal: Buy LONG ONLY if these LCR Slopes are Bullish". I've also placed columns ranging from 2d through 65d in length, and followers of my work here know I use the Fib numbers plus the 65d length in most of my moving average analysis.

On the left are the same names for the rows, 2d through 65d, just like the column names.

The values within the table are the values of $1.00 multiplied by the gains of the GGT price signal when the respective signal was bullish. For example, under the 5d column, on those days that the LCR slope was bullish (positive), if we were to buy the NEXT day's GGT price at the open if the 2d (row) were also bullish, we would have turned $1 into $1.65 since January 2009 assuming the same money management since that time. By the same method, if the 5d LCR slope was bullish and the 3d was also bullish we would have turned the $1 into 1.75. Timing our buys with one moving average only (e.g., the 5d) would have resulted in our turning $1 into $1.86 in this time.

The first not-so-obvious question is "If just buying when the 5d LCR is positive provides the best opportunity to catch new bullish waves, then why would we consider using 2 MAs together if they result in a lower value?"

The answer to this lies in a concept called slope. Think of a mountain peak, then think of the slope of the land as you climb that mountain. What we want to see is a gradual rise to the peak from all directions, or the same beneficial behavior of gradual slope increase to the peak. Put in context of the diagram above, we want all the cells around the 5d-by-5d cell ($1.86) to be "close" in magnitude to each other, to have some confidence that the days not shown on the graph (4d, 6d, 7d, 9d ...) are not "valleys" that are hidden from us.

If you look closely the adjacent cells around the 5d-by-5d cell range from $1.59 to $1.75. Close enough for Govern't work.

From the table I conclude that we can introduce an edge into our buying provided that we stay on the shorter end of the moving averages as far as the LCR is concerned. 5d-by-5d produces the "best" response in the table, but any of the combinations immediately surrounding the 5d-by-5d cell ($1.86), such as 5d-by-3d ($1.75) also produces good results. This tells me that I should be seriously considering buying stocks on the LONG side any time the LCR table 2d, 3d, 5d, and 8d MAs are long.

I've said many times here that the best time to buy stocks is when the LCR shows the database expanding. By this I mean that the slopes of the various EMAs measuring the LCR are positive. Positive slopes on the LCRs correspond to the gray cells -- you'd buy if the 2d, 3d, 5d, ... out to the 65d were all positive. If you look closely, the gray cells all correspond to values that are above $1.45. If all the MA's were bullish (positive), we'd have an expectation of moving long, and the table here shows that in aggregate we'd most likely be making money, albeit a bit late than if we were to participate in the shorter MAs.

So now you're wondering "What is the status of the LCR?" Here's the chart:

As you can see on the left side of the table, ALL of the slopes are Bearish (negative), and have been across the board for the last 2 days and for many others, much longer. Buying stocks on the long side right now simply is not advised.

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While we're on the matter of the LCR, the LCR Acceleration, which measured the weighted day-over-day change in the LCR, is behaving in a manner that it did last year. It will be interesting to see if we duplicate last year's behavior, which resulted in a good run up in December and then in February:

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Lastly is the Price Slope Model:

As mentioned above in the summary, the GGT price index rose +2.11% on volume that was -30% below the 50d MA. This is a poor performance of rising price action and I'm concerned that we're in for more volatility. This being stated, the model has moved bullish across the board so perhaps the LCR will reverse course and show the same behavior.

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My plan for Monday is to sit on the sidelines but I will keep an opportunistic eye on the stocks that I listed here. In general, while I'm creating my lists daily and while there are a few candidates, position sizes will be reduced until I see whether they are going to work out.

Make it a great week.

Regards,

pgd

Update for October 8th Weekend

2011-10-08T11:38:00.000-04:00

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The previous week was a good week for me, with all of my portfolios, except 1, finishing higher. The one that did not was due to my own stupidity -- I mistakenly left a limit buy order on an account and the price fell through the buy limit threshhold, grabbed the security on the long side and kept going down, effectively taking out the week's gains that I had built in the account.

The week started in a downtrend which lasted through the early morning of 10/5. This short-term trend was most evident if reviewing the $TICK indicator, which is a measurement of rising/falling stocks on a per-bar basis on the NYSE. This was revealed to me by Billy @ http://www.effectivevolume.com, and for short-term trades, as well as knowing when to enter longer-termed trades, this tool can be very powerful.

Here's the chart through the close of the day Friday:

As with all my images, right click on the figure to open it in a new tab or window.

The top trace is of the VTI -- the Vanguard Total Index, which is a good, broad ETF that shows the broader market behavior. The middle trace is a filter on cumulative $TICK -- it requires 500 stocks/min to change by some amount before the trace moves. This indicator resets to 0 at the beginning of the trading session, and I use it to look at the trend for the day. The bottom trace is the cumulative $TICK indicator, but this one does not reset each day. I've also plotted various moving averages, which form a ribbon, so that trend are clearly evident.

Bottom line, the trend that started earlier in the week (down), started to conclude on 10/5 with the crossing of the cumulative $TICK and it's moving averages. I've marked different crossings that I felt were important to the change in signal and you can see those on the graph.

Friday signaled a change in short-term sentiment, and it caused me to close my long positions mid-day (not at the greatest time of the day either -- I hate selling at any time other than the first hour or last hour). You can see this behavior by the tightening of the MA lines -- this is a loss of direction or trend -- and the nearly horizontal nature tells us that we're in dangerous waters. Hence, I'm flat going into the weekend except for some very small positions on EFA, SPY, AGG and VXF.

Looking forward into the next week, which also includes the start of earnings season, should be interesting. Earnings season is typically a bullish time, so I would expect that the cumulative tick values would start to trend up from here. Until some direction is shown, I'm on the sidelines (for the most part).

As an aside, stocks that have favorable characteristics and that are offering guidance to the upside, over what the consensus has dictated, are shown below:

From a logical view point, these stocks have gone on record, either by the CEO or the CFO, as guiding higher in earnings ("guiding up earnings only"), revenues ("guiding up revs only"), or both ("guiding up"). Keep track of these going forward and let's see the percentage of stocks that actually do beat estimates.

Many of these stocks are paying dividends, which are shown in the "Div Yield" column. The bright green label indicates that they are higher than the average of all the stocks in the database that are paying dividends (the average is presently 3.26%).

Review the effective volume (EV) for each of these, paying specific attention to the Active Boundaries values, before jumping in. A three-month kick of the EV tires at http://www.effectivevolume.com only costs US$49. As a disclaimer I get nothing if you join -- I simply am a believer of the tools available and the impact that they can have on your trading/investing. Either way, I intend to wait to enter any new long positions until the cume $TICK indicator starts moving upwards.

==================

A review of the GGT indicators shows a DIVERGENCE forming between the pricing model and the Long-Cash Ratio model. Here's the Price Slope Model (PSM):

Again, right-click on the image to open in a new tab or window.

The GGT price model FELL -2.36% on volume that was -11% below the 50d MA of volume. This is a big difference from the narrower DJ30 (+0.26%), SPX (-0.26%), or NDX (-0.05%), but is in line with the R2K which fell (-2.09%). The slight decrease in volume is irrelevant -- this is within the standard deviation and is considered normal.

Falling prices of this magnitude on average volume is noteworthy and is indicative of the volatile environment that we presently occupy.

Also ominous for the bulls is that the price slopes for all the EMAs have reset back negative. This means that on all measured time frames, in $/day, the trend is DOWN. Put in dollars/cents, if you held to the end of the day Friday you are most likely even if not down for the latest bullish bump, and this model bears that out (pun intended).

On the right side of the table are the "slopes of the slopes". These are pointing downward again, which is the wrong direction for a bullish leg. This is unfortunate, because we were gaining momentum.

I use the 34d slope as a demarcation between short-term trends and long-term trends. Here's a graphic view of the 34d PRICE slope:

As you can see in the figure above, both the 34d EMA on PRICE and the 34d EMA slope are heading down. Further, the 34d EMA slope is still in the pink zone, meaning that it's negative. Interpretation: stocks on a broad scale on the 34d time frame and longer are losing money. In my opinion if you are holding long positions now you're simply giving up money that you fought hard to earn ...

Contrasting, and here is where the divergence is evident, is that the Long-Cash Ratio (LCR) model continues to indicate further expansion of price, volume, and positive rate of change:

As you can see from the above figure, the LCR moved up +13% on Friday, telling me that stocks are continuing to see price, volume and rate of change expansion. Put another way, 13% more stocks are above their historical (outperforming) thresholds than the previous day.

A slight crack in the ice is that the 2d LCR and 3d LCR slopes of the slopes have turned down. These indicators move quickly because of their short time frame, so we'll have to see whether the trend continues or not. What is most important is that the overall slopes of the slopes are bullish, and have been for the past 4 days, which is quite encouraging.

Adding some fuel to the "bull fire" is that the LCR acceleration continues to move in a positive direction, and also in a controlled fashion (not huge jumps):

This steady improvement in LCR Acceleration tells me that we're adding more stocks to the Long side than those that are falling back into Cash, despite the weakness in the Price Slope Model. Correspondingly, I'm more optimistic for the short-term than I am bearish.

Of course, your crystal ball is as good as mine.

On the longer-termed view, we are still in a bearish downtrend:

This chart is quite ominous in that the longer LCR EMAs are showing that stocks are NOT outperforming compared to the past, and consequently, short-term swing trading is most likely going to dominate. Further, this chart suggests that we've another dip in our future, so until proven otherwise (e.g., a crossing from below of the shorter EMAs above the longer EMAs), we should be longer-term bearish.

The charts do not lie ...

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You can follow my daily blog at http://www.effectivevolume.com, in the GGT Forum on that site. You have to register to do so, but registration is free. This keeps the SPAM bots off the boards and keeps the content there private.

Make it a great weekend! I'm taking my family camping in a few hours and will be back Monday, only to jump on a plane and spend the rest of the week in the Dallas / Ft. Worth area. Dinner with folks who want to attend on Wednesday, October 12th, at Riscky's at the Stockyards. We'll be discussing EV, GGT, and our view of the universe.

Remember, you are responsible for your own investment/trading decisions, and I am not. Please do your own diligence, and please take ownership for your actions.

Regards,

pgd

Weekend Update - October 1st, 2011

2011-10-03T09:34:00.000-04:00

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(You can find my daily blogs at http://www.effectivevolume.com, in the GGT forum. You must register (which is free) to review content on the site.)

Overview

For the most part, I'm out of the markets for intermediate/long-term trades and am currently a surgical day trader or high-probability swing trader. I do have positions in place concerning the Effective Volume robots (a subscription service), but these are not hugely committed positions in terms of available working capital. My wife's Thrift Savings Plan (http://ggt-tsp.blogspot.com) is mostly in cash and bonds, with simple trial balloons in the equity funds. I intend to stay the present course and mostly away from equities, as I think nimbleness will prevail for the immediate future over buy and hold.

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Price Slope Model

The GGT Price Slope Model continues it's path on the bearish side:

As with all my images, right-click on the figure to open in a new window or tab.

Of significance is the unanimous row of "bearish" values on the left side of the table -- these are the slope values and they tell me that on a 2d to 65d basis that the database is losing money in [$/day].

The right side of the table is also wishy-washy, with no short-term trend being established. Specifically, the last 4 trading days have seen a complete reversal / whipsaw from "slopes pointing up on all time frames" to pointing down to up to down again. We need GREEN on the right side of the table before we can have any expectation of the left side turning green, and we're not seeing it.

Until the former conditions are met the trend continues to be down.

On a longer-termed basis, the next graph shows the trouble we are in on the long side:

Here, I've plotted the slope of the 65d EMA on price of the database, along with the GGTprice index. The slope values are tied to the right side of the graph, and the large pink zone shows the area where the slope is negative.

A couple of observations:

1) the slope has had a difficult time moving into positive territory since mid-summer, when it was positive but on a down trend. June 2011 was the last "hope" we had for any attempt at a sustained bull run.
2) the GGT price index has made new lows compared to previous lows this summer. This does not instill confidence on the long side. Remember: GGT is a universe of stocks that are more liquid and of higher value than many of the stocks on exchanges, so the fact that these "quality" stocks are getting hammered does not bode well.

The only positive sign that I see at the present time is the fact that we are oversold in terms of a broad market:

I've circled our present location, and you can see that when we get into the "green zone" we typically reverse. Not immediately, but we typically reverse and move out of the green zone. I expect that our time down in this area is relatively short, but as you can see, we *can* go much lower, and there is pain associated with moving lower.

I know this may be counter-intuitive, but now is when you should be considering long positions in terms of mean-reversion trades. Connor's strategies can be helpful here, but note, there are few of his base ETFs to pick down here, as most are below their 200d MA or are still only in day 2 of a 4-day down-draft requirement. This being said, I'm watching QQQ, EWZ, XLB, USD, YINN, and TYH at these levels for entry into the long side.

==================

The GGT Long-Cash Ratio (LCR) Slope Model is not faring much better or appearing any more optimistic:

The LCR major trend has been down all last week, and as you can see, the database has been contracting (the red on the left side of the table, spanning all moving average time frames) and not expanding. The right side of the table has been showing the same whipsawing that we see with the Price Slope Model and this tells me there is great choppiness / indecision in the markets and we should not be considering any form of intermediate or long-termed trades.

The markets simply are not in our long-favor, but the short-term markets are still quite attractive.

=========================

For the upcoming week I'm looking to sit on the sidelines except for surgical trades. "Surgical" means

1) playing the Effective Volume robots as they develop
2) playing IWM, SPY, and QQQ using their cumulative tick variants

If I hold any positions overnight, they most likely will be unleveraged, although I do intend to use leveraged instruments (UWM, TWM, TNA, TZA) in my margin accounts for day-trading.

Regards,

pgd

Weekend Update for September 23rd

2011-09-26T08:00:00.000-04:00

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I frequently get asked why I'm no longer blogging daily - the answer is simply you're not reading the right blog. You can find me daily at http://www.effectivevolume.com in the GGT Forum, which I manage. I'm only blogging here on the weekends so that my thoughts and process are available to non-members of the EV forum.

Please take the time to join me there. There is content far beyond what I produce and the quality of the individuals there is some of the best you will find on the 'net. Indeed, I know I lower the average IQ of contributors on the site ...

=================

Last week was a fairly good week for me in terms of trading with my trading accounts. Note there is no long-term bullish trend, and the bears are still in control.

What seems to be working for me right now is staying away from stocks and focusing on the SPX, the NDX, and the Russell 2K. The broader ETFs which focus on these exchanges are far more forgiving than stocks right now, the latter of which are not giving me great signs on the long side.

I've been tying my movements to the performance of the $TICK indicator, which shows the number of stocks on the NYSE moving up in price over some period of time compared to those moving down. Thank you Billy @ the EV site for introducing this to me (as I said above, the caliber of people there is unsurpassed). When we accumulate, or add these values to the previous interval's value on an on-going basis, we get a good view of a trend. For more on this start here.

Here's a presentation that paints the picture of the cumulative $TICK on the NYSE:

As with all my images, right click on the picture to open in a new window or tab.

The top presentation is of the Vanguard Total Index, VTI, which gives a good, broad view of the entire market.

The middle pane is a daily-resetting cumulative tick -- this one starts off at 0 each day and if the daily trend is up, we'll see it move upwards, and if the daily trend is down, we'll see it move down. There's a catch to the middle pane -- it has a 500 stock/min filter on it, so only when the number of stocks is greater than 500 in either direction will the accumulator change. This allows the noise to be rejected and for me to only view the trends that are broader.

The bottom pane is the cumulative $TICK through the end of Friday, and the white trace is the instantaneous cumulative value and the varying colors of lighter to darker purple are moving averages on the white value.

A couple of things should be evident:

the broader markets did not experience significant buying or selling on Friday. I conclude this from the nearly horizontal/range-bound white value in the lower pane.
the broader markets are in a general down trend. I conclude this from the downward-sloping values of the respective moving averages
there was an attempt to move the markets upward around 11:30 a.m. Friday morning, but this move was rejected, and the move down was confirmed around 12:30. I conclude this by the upward-moving attempt at 11:30, the reversal near that time, the second but lower-high around 12:30, and then the third attempt / failure around 14:00.

I feel that while the trend lines are all pointing down initiating new long positions is ill-advised, no matter what GGT "New Long" or "Affirmed Long" stocks say about the individual equities. It simply is swimming up stream.

The anti-thesis to this is that we should be considering going short in the market. Going short can be done by literally going short in a margin account, or for those who have retirement (IRA) accounts, simply looking at inversed ETFs can be a good alternative.

First, I'd start with the broad markets -- S&P500, NASDAQ, Russell 2000, etc. There are ETFs that specifically target these broad markets, hence it pays to understand their present trend.

TradeStation tracks the stocks comprising the S&P500 with the symbol $TIKSP, and here is the 3-day view:

Here, the presentation is a bit different than in the broader $TICK display -- after about 11:30 on Friday, stocks comprising the S&P500 started to sell off in a fairly steady fashion at greater than 175 stocks/min. Sure, there were periods where the breakouts to the upside were attempted, but in general these failed just as in the broader market view. You can see that selling in the latter part of the day was even more pronounced and that it accelerated as the close was approached -- I take this to be that traders were unloading their positions ahead of the weekend and out of uncertainty.

The S&P500 has been relatively reluctant to drop as much as the Russell 2K or the NASDAQ -- I attribute this to the general flock to the dividend-"safety" of the constituent stocks. This being said, the fact that we clearly have a downtrend established (albeit 2 days in length) on the S&P500 should tell you that long positions are somewhat tenuous at this point, and that you should be looking at contra ETFs:

SH: -1x contra ETF on the S&P500, trades ~11MM shares/day
SDS: -2x leveraged contra ETF on the S&P500, trades ~50MM shares/day
SPXU: -3x leveraged contra ETF on the S&P500, trades ~18MM shares/day

=================

Market Timing

It's obvious this past week though that we've already experienced a fairly significant down-draft. Are we too late to enter contra ETFs? Perhaps, but there are a number of methods to determine whether we should be on the short side or long side, and whether we are overbought (ideal area to enter shorts) or oversold (ideal area to enter longs).

The first method comes from Pascal Willain's work at the EV site. You need to be a member in order to view this on an on-going basis, but I've permission to post a snapshot here of this market timer:

Pascal has developed a methodology to track money flow of the big players in the market, based on volume, and the top pane of the figure above shows us that money started to flow out of the market as of 9/21, as evidenced by the purple trace dropping below the 0 line. Note, had you moved to a short position at the open on the 22nd (recall the $TICK and $TIKSP patterns on 9/22, the day you could have moved into the market), you'd be up in your position as of the close on Friday. Also note that Friday saw a net outflow also (since the MF value is < 0), but there was some slowing of this outflow on Friday while the markets digested the drops of the past week.

The bottom pane is important -- it shows that we are nearing oversold areas and that a bounce could be in the making. Note that we sometimes reverse sharply and move higher once we hit these levels, and also note that the past two times we've stayed down here in this area, not moving too much.

Simply put, while I think we can still dip our toes into the contra ETF world, I think the probabilities of the positions working out from here are less than ideal, with "ideal" meaning when the markets are still overbought.

Here is one method that I use to look at when to enter a candidate:

Shown is the display for SH, the -1x contra ETF on the S&P500. The ribbons at the top of the figure -- the red and green ones, are the most helpful to me.

Ignoring the topmost indicator (Boingo Weekly), and starting with Bull/Bear Power gives us a good start here. Bull power is the amount which the highs are above the 13d MA. Here we see that it's positive, and this is bullish for the stock. Bear power is related but different -- it is the amount which the lows are above the 13d MA. When both Bull and Bear Power are positive we should take note -- the stock is in an uptrend.

Underneath this is the 13d Force Index, calculated 2 different ways. The first way -- using exponential moving averages, is faster and gets us into a trade faster. I like to confirm this with the 13d MA -- the simple moving average -- and when they both are "green" (positive), like now, we have a good setup.

Underneath this is the 2d Force Index, but the colors are reversed from the 13d FI. This means that when the 2d FI is "red" it is positive, and when it's "green" it's negative. As you can see, it's been "red" for several days. A red 2d FI is blocking entry -- we need it to turn negative (green), THEN we need it to move positive again, taking out the high or the close of the previous day to show resumption of the trend.

Many contra ETFs are in this situation -- showing that they are early -- and we need them to get batted down a day with the markets rallying and THEN we can consider entry when they take out previous closes or highs.

If you drop down you see that I've also plotted the slopes of the 13d and 34d moving averages. I typically require that these be in an up trend and that the 13d slope > 34d slope -- this helps to ensure that the equity is in in an uptrend. Here, you can see that the 13d is above the 34d slope, and that they are both pointing upward -- momentum has been with these two.

Somewhat of a concern too is that the "smart money" appears to be leaving SH at the present time, independent of the $TIKSP pattern:

The top pane is the price series, and the middle pane is Effective Volume -- All (yellow), large (green) and small (red). What this shows is that we had a good anticipation of this jump in SH on Wednesday -- Large Effective Volume (LEV) was diverging from the Small Effective Volume (SmEV). Thursday saw a gap up and more importantly, the gap didn't close, which was good for the entry. Despite this, near the end on Thursday, some selling did occur as far as LEV was concerned, and by Friday's action most of the large players had moved out of the equity.

All of this should paint a picture on how I use the tick patterns with EV to determine what is going on with a particular broad-based equity. For SH, it appears that the time has come and gone to participate, but I'll keep an eye on the 1) decreasing $TIKSP patterns, 2) the broad-based MF indicator at the EV site, and 3) the LEV patterns for the equity.

====================

The $TIKRL is centric on the Russell 2000 stocks:

Based on my analysis above for the S&P500, you can clearly see here that the selling in small caps has been more pronounced, and it should be somewhat clear to you that we should have entered a short /contra position in IWM / RWM respectively as early as Tuesday of last week. Here's the view of RWM, the -1x contra ETF on the Russell 2K, using HGSI:

Same analysis as previous -- but note here too that the 2d FI has been steadily positive, essentially precluding entry. Entry right now into RWM is not advised based on the indicators above.

Here's what Effective Volume has to say about RWM, through the end of Friday:

I was a bit late getting into RWM -- I didn't enter until the end of the day on Wednesday and it's obvious I lost some gains because of my travels and late decisions. Nevertheless, we're seeing some LEV money flow out of RWM, and correspondingly, it would be good to wait on RWM until this situation reversed before playing it again.

So, the above presentations show that we're in a downtrend, that we're entering an oversold area, and that money is flowing out of SH (-1x ETF on the S&P500) and RWM (-1x ETF on the Russell 2K). Elder's 2d Force Index method is holding us off on entry to either of these, as is the decreasing LEV patterns on Friday to both SH and RWM.

==================

GGT's Price Slope Model is showing the bearishness in the market, but it is also showing the first stages of a crack in the bear ice:

It's clear by the left side of the table that we've been in a pricing downtrend since Tuesday of last week on all time frames, and if we consider the 55d and 65d slope columns only, at least since the middle of July.

On the right you can see that Friday's action resulted in ALL of the slopes of the slopes pointing upward -- this is significant because the right side of the table leads the left side, and we need "green" (positive SoS) in order to see "green" on the left side (positive slope).

On the left I've boxed the Strength Index -- it's fallen for 5 consecutive days and is now in oversold territory -- I am expecting a bounce. We've been here before, but when we have, we ALWAYS bounce within a few days.

Here's the graphical view of the Strength Index to put it all in perspective:

You can see from the above that we're at fairly extreme levels in the oversold category so entry to contra positions is probably not the best method for Monday ....

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The GGT Long-Cash Ratio (LCR) Slope Model is also showing some interesting indicators:

We've had 5 solid days of the database contracting and a falling Long-Cash Ratio (LCR), telling us more stocks are dropping below historical thresholds where they outperformed than are presently above those levels and outperforming. I do note with some interest that the left side of the table warned us of the pending contraction, as the longer slopes started to move aggressively to the negative (red), and on the right hand side of the table, the unanimous agreement on all time frames through the 65d slope of the slope, starting on 9/19, certainly gave us a great head's up that bad things were possible. 9/20 confirmed with the 2nd day of all of the SoS being negative, and by the 3rd day there was no doubt that you should have been reviewing the contra side of the world.

Note closely though that Thursday and Friday SoS are starting to point up on the shorter time frames. While not a strong signal -- it does not span all time frames -- this is indicative of some buying in the market AND more importantly, if we get all of the SoS periods turning up with Monday's action, we could see a bounce this week.

Time will tell. We're shifting gears here, so I think it prudent to consider a short-term, surgical play in long ETFs if this newly established roll-over to long positions continues (as possibly confirmed by tick, Elder, and EV indicators today (Monday)).

======================

Take a look at the following chart:

This plots the 34d EMA of the Long-Cash Ratio with the slope of the 34d EMA. It basically is telling us that the last 5 days have been downward in database growth, and historically, when we've entered this area from above (like now), we bounce for a few days, wiggle around, then continue downward. I have no reason to think that we'll do otherwise. The EMA is in a clear downtrend in terms of the database expansion on the longer term so we'll continue to wallow around here for a while, bouncing back and forth.

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As I opened with, there is no long-term up trend. Short, surgical strikes improve the chances that you will win in this market. I'll continue to post my view of the tick patterns, as well as my slope models, but be advised, there isn't a compelling reason to leave positions on for any term longer than a few days.

Good luck this week in the markets.

Remember, you are responsible for your own trading decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Weekend Update for September 2nd

2011-09-05T18:06:00.001-04:00

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Program selling on the NYSE started late Wednesday, August 31st, and continued with some acceleration into the close on Friday. The easiest way to view this is with the cumulative $TICK pattern, which shows the 8000+ stocks on the NYSE:

As with all my images, right-click on the image to open in a new window or tab.

The top pane shows minute-bars on the SPX, simply as a point of reference. The middle pane shows the daily cumulative tick pattern with a 250-stock filter applied. This means that if the bar has 150 stocks either moving up or moving down it will not be added to the cumulative tick pattern in the middle pane, but if the number is 251 or greater it will. This helps to catch the big algo moves. The bottom pane shows various length moving averages on a non-filtered and continuous (non-resetting) $TICK pattern, and you can see that slightly more than 4 days are shown.

It should be clear to you that once the instantaneous (white) cumulative $TICK pattern failed to clear longer moving averages, and as soon as those moving averages started to slope down, we had a good short-term signal to move into the markets on the short/contra-ETF side.

Tradestation creates tick presentations for stocks that comprise the NDX-100, the SPX, and the Russell 2000. The NDX pattern has been relatively poor all week:

The selling started on Wednesday, almost from the start, and with a 25/-25 filter applied (there is only 100 stocks), we can see that it remained on Thursday even thought the instantaneous tick pattern was relatively unchanged. The top trace is the NDX-100 and it's clear that we lost price value on both Wednesday and Thursday, supporting the middle pane presentation. The roll-over of the moving averages on Wednesday certainly gave plenty of warning to close any QQQ/QLD/TQQQ positions and to look closely at PSQ/QID/SQQQ.

Friday was absent of algo selling in the NDX stocks, at least large groups of stocks moving down at 250/min or faster. The middle pane is relatively flat (until the end of the day), and a sailboat drifting in windless oceans immediately becomes the vision in my head -- we won't know what direction we're going until the wind picks up.

The Russell 2K stocks have been getting hammered too:

Interesting pattern Thursday and Friday -- the algo selling didn't start until after lunch on both days. The filter level here is 500/-500, which means that 500 stocks / min had to be moving up/down in order to move the middle presentation. This is a graphic example of broad-based institutional selling and I think that positions in RWM/TWM/TZA are worthy of consideration. Given the fact that we're 2.5 days into the selling, I most likely will back off of the -3x ETFs and steer towards shorting a position in IWM rather than using a leveraged instrument (more liquid).

As has been the case for the last month or so, the stocks of the SPX are the last to sell / seem the most resilient. I've heard all sorts of reasons why but the primary reason most likely has something to do with dividend yield of the SPX compared to the dividend yield of treasuries. Whatever the reason, we're not seeing the broad-based, multi-day selling that we see in the other baskets of stocks:

All that being said, the SPX appears a great deal like the stocks on the NYSE in general, e.g., gentle rolling-over of the moving averages, etc. It was only late Friday afternoon that we saw the selling algos kick in, which seems to be tantamount to throwing in the towel before the long Labor Day weekend.

While I can read a chart, I'm terrible at predicting the future. Despite this weakness, I can say that even if we get a dramatic move upward on Tuesday it will take some work to move the tick MAs so that they are pointing upward, which all but rules out me moving long on Tuesday. The converse isn't overly attractive either because this signal is 2.5 days old (or so) -- futures are down sharply as I write this due to a myriad of problems in Europe (ECB, Germany, Euro) and the Med (Greece) -- so I'm more inclined to launch positions in PSQ, RWM, SH or shorting QQQ, IWM, SPY (liquidity is better) than I am to move long.

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GGT Price Slope Model

The PSM has moved to a decisively bearish stance:

The GGT price index fell -1.61% on Thursday and -2.75% on Friday on volume that was indicative of a long-weekend being in the crosshairs of most people. Notable was that on Wednesday the GGT strength index stalled at 0.832, which is in bullish territory, only to fall to 0.207 on Friday, which is nearly from one end of the range to the other. It's hard to believe but this rapid movement from end-to-end actually supports the assertion that we may bounce this week -- the change between 0.83 to 0.21 is large and to do this in 3 days is rare. In each case that I can find in GGT's history we've ALWAYS bounced within 5 trading days. Of course, "n" is small, so we could continue south with no regard to the past or market psychology.

The right side of the table tells the story. We saw gradual breakdown of the slopes of the slopes of the moving averages starting on Tuesday, continuing on Wednesday (albeit weak), then the hammer on Thursday and Friday. You don't need me to tell you that your short-term pricing on your long positions probably told you to close them at the open on Friday morning. If you held across the weekend you'll most likely pay a price for this optimism come the open on Tuesday morning if the ES continues to look as poor as it does as I write this.

With the red bar across the bottom of the table, on both sides, the PSM is basically telling us to get out of our long positions. We have no idea if the downtrend will continue, and it's only the magic of support levels and the market's interpretation of such that can give us any hope at reversing the bleeding. I personally do not see much support where we are at and where we can go, but I'll leave that commentary to those more skilled in such things (Billy @ http://forums.effectivevolume.com and Bob English at the same location are probably the best and most patient folks to read concerning this topic).

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LCR Slope Model

The LCR Slope Model doesn't look as nearly as bad as the PSM, but the metrics are completely different too. The database has shed nearly 41% of it's long positions in just 2 days, effectively halting any advance in the model:

On the right side, while we've seen a gradual "buy-in" on a day-over-day basis of stocks moving to the long side (as evidenced by the staircase pattern of "bullish" readings), Friday was characterized by only a few of the slopes of the slopes of the moving averages moving bearish. This shows weakness -- near threshold levels -- and overall, indecisiveness. I prefer right-side presentations where the slope of the slopes ALL turn one way or another on a given day, and we've not seen this since back in July.

The presentation above tells me we've effectively halted any advance to the long side in the LCR and that a contraction of the database is very possible. It only takes a price drop to move a stock from some form of LONG recommendation to CASH, so continued erosion in prices will cause a widespread contraction in the database LCR. I've shown in previous posts that investing when the LCR is contracting is bad for our bank accounts, so again, if there were any doubt, you probably should move to the sidelines.

As evidence of this contraction, I track an indicator that I've developed that shows the day-over-day change in the number of stocks moving to the long side, or conversely, to the cash side:

We peaked earlier this week, as I noted in my blog at http://forums.effectivevolume.com, and now we're in the process of pulling back. We've pulled back only a slight amount, and given that the database strength has fallen to 0.2 (see above), it's very possible we could bounce this week, taking this indicator upward and potentially to new highs. For now we're on a downward move, and this contraction location is the wrong place to be entering long positions.

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My final graph refers back to a graphical view of the strength index, simply to illustrate the broad movement we are experiencing in strength. I wrote about this up above in the PSM section:

I showed that we had a great probability of reversal this past week, and now we've plunged quite low. Certainly, we can remain here, but when we move fast and furious in either direction you can see that we tend to bounce ping-pong style between bullish/bearish. Whipsaw indeed.

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If you feel the need to play the markets, I suggest you concentrate on ETFs tied to the tick patterns. Of course, you must have access to at least $TICK in order to do this, and if you have TradeStation you can download my ELD and TSW files from the "Links" thread in my forum at http://forums.effectivevolume.com. I personally think that this is a terrible time to play stocks either long or short, so tread there only if you have the confidence and trading rules in place to cut your losses and take your profits at predefined levels.

Remember, you are responsible for your own trading decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Weekend Update - August 27th

2011-08-28T16:59:00.000-04:00

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I believe that one of the more important criteria for longer-termed stock selection is expanding earnings per share (EPS). Expanding EPS states that earnings will be higher than either the previous quarter, or the previous quarter a year ago, or both.

I think though that we need more than simple accelerating EPS. Specifically, I think we need management to be on the record stating that earnings, revenues, or both are going to be higher this quarter than whatever the reference period. When a company launches a pre-announcement concerning earnings, revenues, or both it typically comes from either the CEO or CFO and they are bound by these words. Hence, when they pre-announce that earnings are going to be higher this quarter than some period ago, I pay attention. When they say earnings and revenues are going to be higher, I really pay attention. When they say revenues are higher, I tend to yawn, because these generally are net and there can be a whole number of ways to increase net revenues that aren't healthy for a company.

I've done my homework and here is a list of stocks that are guiding up in either earnings or earnings and revenues combined ("guiding up"):

As with all my images, right-click on the image to open in a new window or tab.

If you are a member of my dropbox folder you have access to this file each day -- it's in the general stock file under the "DashboardEV" tab/worksheet.

The Guidance Date is the date that my sources list for the data being accurate. I use a combination of Briefing.com and web sources. I've validated each of the stocks listed and the indicated status as of 8/28. Note that there could be news on 8/29 which undoes the positive outlook, so always do your diligence.

The point here is that if we're going to start looking at stocks to buy for the long term, it makes sense to start with a list of stocks where the CEO or CFO have gone on record stating that they are sure their earnings, revenues, or both are going to be higher in the next reporting cycle. This doesn't guarantee that this will be the case, or that the Street will treat the future announcement as positive, but it's a better position to be in than trying to select those stocks with decelerating EPS or declining revenues, or both.

If you doubt this assertion, compare the two following presentations:

Top Figure - GGT Universe of Stocks

Bottom Figure - E+ER Stocks

The top figure is my traditional 5d / 65d macro signal on the GGT universe of stocks (about 2810 stocks or so). The bottom figure is the same presentation using the list of stocks that are guiding higher in earnings or earnings and revenues (E+ER). The panes of each figure, from top to bottom are:

slope of the 65d EMA
position of the 5d and 65d EMA
pricing series, plotted with the 65d EMA and 200d SMA
volume plotted with the 50d SMA

See the differences?

The primary difference is that the list of stocks that are guiding higher in E+ER stay in an uptrend longer, as evidenced by:

the top pane of each figure shows the slope of the 65d EMA, which I take as an intermediate-termed indicator. When this is above the horizontal line the slope is positive, e.g., we are in an uptrend on the 65d-length scale.
in the pricing panes of the lower figure, the slopes of the 65d and 200d MAs are pointing upward, even after all this damage that we are sustaining with recent market action. This is remarkable and notable.

If you look closely, we just had the 5d EMA cross the 65d EMA from below from within the E+ER list, so there are stocks that breaking out in terms of this basic, primary signal, and we should be looking for those stocks.

Here's one way that I do this.

Right mouse click on this image to open in a new window or tab.

This is the same list as before, but sorted differently and shown with more information. On the left is the GGT status for the respective stocks, and on the right is the Effective Volume status for each stock. This is the same "DashboardEV" page in the stock file that I referenced above.

GGT New Long stocks, which are at the top of the list, get this designation whenever they:

were in some form of cash status (New Cash, Aff. Cash, Cash) and
had significant price AND volume AND rate of change of price on the day the analysis is performed

Unfortunately, blindly taking the top of the list won't work -- but we're getting closer to choosing some candidates.

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HS. Healthspring is part of the Health Care group, and we're seeing money flow back into the group as evidenced by the following graphic:

The graphic is available to you if you are a member of the Effective Volume group at http://forums.effectivevolume.com. I've republished here with permission.

While below the 0% line, meaning that the net flow into the group is still negative, it's becoming less negative at a great rate so this should be a candidate group.

As per the previous table HS is guiding up in terms of earnings, and is offering no guidance in terms of revenues.

HS' active boundary score is a 20, so it's made a good portion of it's move. I tend to like stocks with AB values > 50, so this one has to be considered carefully. This being said, here's the AB chart:

Indeed, we can see that at the worse point in the sell-off that we were very low in the AB levels, and we've moved quite a bit since 8/8 or 8/9. This being said, we potentially have a favorable risk reward from here, as we are presently at $38 and the upper boundary is calculated around $44.

Another thing going for HS is that the total EV (TEV) values are continuing to increase:

Of importance here is the slope of the 20d average line -- it's upward, and more importantly, it looks as though it will continue on this path. The distance of the blue line above the average line is called the Extension Total EV and this value is at 19%, indicating that we're at 19% of the total variation over the past 60 days. I take this as a healthy value. Further, as can be seen in the previous stock listing table the 2d Extension value continues to grow and is now 8.3% above where it was 2 days ago, so there is momentum in the stock.

I wouldn't rush right out on Monday and buy HS though. It needs to give us an opportunity to buy it at a good price, and right now, it's on a tear. For this component I use Elder's methods, and for those of you who know my HGSI work, you know I use the following screen:

There is considerable content on here so let me draw your attention to two things I'm watching for entry:

Status of the 13d Force Index ribbons
Status of the 2d Force Index ribbon

You'll have to expand the figure above in a new window or tab so you can clearly view it. The 5th and 6th ribbon from the top are the 13d Force Index indicators, one calculated as an EMA, the other as a SMA. Both have recently turned green, which means that their 13d FI values are positive. This is a required condition for entry.

Next, below the 13d FI (SMA) ribbon, is the 2d FI ribbon. You can see that it is red -- I have INVERTED the colors so that when red, the 2d FI is positive, effectively blocking entry. What is important here is that we want the 2d FI value to turn green -- negative -- and THIS becomes the necessary condition for watching for entry.

Finally, with both 13d FI's positive (green), and the 2d FI negative (green), we want to purchase HS when it's price takes out the previous day's close (aggressive) or high (more conservative) by a few pennies. In doing so we are assured of entering on strength. If we don't take out the previous day's highs/close then we wait for the subsequent day, as long as the 13d FI levels remain in positive territory and that the 2d FI level remains negative except on the day of entry. Of course, you won't know that the 2d FI level has moved positive until after the market close, but you will have a good idea that it has occurred if the price continues upward from your entry.

I reinterate that the Health Care group, while showing that money flow is less negative than it's average line, is still showing a net outflow. It issued a "buy" signal 4 days ago because the money flow line crossed the moving average from below, but these values are still net negative. Based on this we are early in this group, but this is the time when money is to be made.

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ERTS -- Software Enterprise Group

ERTS is a GGT New Long as of Friday's close. Per the stock table management is offering upward guidance in terms of both earnings and revenues.

The group money flow picture is as follows:

Here again we see that the daily value has crossed the average value from below, issuing a buy signal for the group 3 days ago. The rate of change is explosive, but again, with both values clearly negative, we are indicating "less net outflow" as opposed to "positive net inflow". The group is a candidate though and ERTS should be reviewed on this basis.

The active boundary situation for ERTS is favorable:

Here, I've included the price action for comparison and clarity.

ERTS is in my personal AB sweet spot -- crossing the 0% (neutral level), and is clearly in an uptrend. The raw AB value of 26 shows that it has moved quite a bit, and to reiterate, I like AB values greater than 50. This being said, the upper boundary level of $25 shows that we could have room to move here from our present level of $21.

The TEV picture for ERTS looks early but favorable:

We are clearly above the 20d average line, the average line is just forming a new up trend, and while we are extended above the line, we're not overly so. While not an ideal candidate, it bears watching.

Again, using my Elder entry methodology, ERTS needs to give us a point to enter. Here's my HGSI screen for ERTS:

There are a number of things I like about ERTS when viewed through this lens, but suffice to say, the red 2d Force Index ribbon indicates that we are POSITIVE on the 2d FI and we need this to pull back for entry. Note that the Bull and Bear Power values are both positive -- this is a strong uptrend confirmation, as it shows the distance the high price is above the 13d EMA (for Bull Power) and the distance that the low is above the 13d EMA (for Bear Power). Any time the Bear Power value is positive we need to have the stock on our radar.

I also like the status of the MACD lines -- they're in the lower half of the window and the histogram is positive.

I also like the fact that the 13d/34d slopes are upward pointing AND the 34d slope is about to move positive -- this is a good confirmation signal too.

ERTS is worthy of consideration, but wait for it to pull back a bit under the Elder entry rules.

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R - Ryder Systems -- Commercial Services/Leasing group.

R was a GGT New Long on Friday, and management is offering upside guidance on earnings for the next quarter.

There is no group money flow graphic available for this group at the EV site, so this one stands alone. All is not lost though. In the GGT dropbox file for the stocks, the "By Industry" tab lists all the stocks in this group:

Of importance here is that most of the stocks in this group have been in a "Cash" mode for the past three or four days, which is encouraging.

Additionally, on the "Industries" tab of the same GGT workbook, "BusSvc-Leasing" is ranked 37th of 154 groups, which is favorable, and on Friday it ranked 67th in 1-day strength change as an aggregate group. The group is moving upward and has a high relatively strength, so it's worth looking at.

From an AB perspective, the raw AB value of 73 is encouraging to me:

We're well below the neutral boundary level though, which means that this is an early player. This being said, the potential upside from an AB perspective is attractive and the AB trending is in the correct direction.

The TEV picture is encouraging too:

Of importance here is the crossing of the average TEV line from below, and additionally, the newly-established upward trend of the TEV average line. While obviously early, we can say that R has very good characteristics.

Unfortunately, HGSI is not so forgiving and is not painting an "enter me" now picture:

According to this panel, we are early in R:

Bull Power is barely positive and Bear Power is strongly negative.
Both 13d FI's are very negative
MACD histogram *just* moved positive, with the MACD signal and lines just crossing in a bullish fashion.
While the slopes of the slopes of the 13d/34d lines are clearly pointing upwards, they are both still negative, which is early.

So, we have lots of ways to indicate whether we should/should not enter R. From the perspective of this presentation, we should wait, but that is an individual determination.

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Next down on the GGT list is MDRX. I typically will not move into an Affirmed Long stock, but this one has been signalling "New Long/Affirmed Long" continuously for the past 4 days, so let's look at it.

MDRX is in the Medical SW group:

Large player strength is certainly active in the group, so check that block as positive.

Next, I like to look at the AB level. The raw AB level is 0, which means the chance of decline from here is pretty high. This isn't to say that it can't go on to newer and higher levels of price, but the R/R ratio is not necessarily in our favor. Here's the chart:

Of particular concern is that we're just over $17 and the Upper Boundary level is around $18. While this bears watching, it's moved far and fast, just as the GGT Aff. Long assignment for the past 3 days indicates.

MDRX gets a pass from me.

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CROX and PRGO are both listed as GGT "Long" stocks, which means they are not jumping up and down waving their arms at you.

CROX has an Extension Total EV of -6% which means that TEV is below the average. In general, I tend to ignore any stocks with a negative Ext TEV value. CROX gets a pass.

PRGO has an Extension TEV value of 0% -- no man's land. Further, on a short-term basis, PRGO has a negative 2d Thrust in terms of new money moving in (which is bad), and the 2d Extension value is -11% below what it was 2d ago, which means money is outflowing. PRGO gets a pass from me too.

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TJX has a very weak GGT Cash strength value -- (-2) -- and this typically is not a buy candidate. Nevertheless, we should go through the paces.

Here's the big money flow picture into the Clothing group:

Clothing signaled long 4 days ago with the crossing of the MF indicator and it's average. Both are below 0%, which is cautionary, but the slopes are pointing upward, which is positive.

The AB values for TJX suggest some upside. The raw value of 67 is ok, but the chart does make me pause:

With a price at $54 and an upper boundary at $58 the upside could be single digits ... Remember though, that AB levels are not ceilings, and stocks that break out move through their upper boundaries and continue on. AB levels are simply guides and provide a good R/R evaluation criteria.

The TEV picture for TJX is improving:

Again, TEV is above the 20d average line, and the slope of the average line is somewhat upward.

Finally, HGSI is telling us that TJX needs to work out a few issues:

Extra credit to those of you who have read this far and leave a note in the comments area about why TJX gets a pass from me based on this presentation.

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You can go through this drill, and I urge you to do so, until you understand the data in each of the columns of the table provided and you can relate each of the columns to a GGT presentation or EV presentation.

If you make the jump and say "I want all Extension TEV values to be greater than 9%", which is showing some form of buying, and also say "I want all 2d Extension values to be positive", which is showing short-term accumulation in terms of TEV, then you have the following table:

We've already covered the first 3; the last 3 are left for you to eval. PCLN is part of the Leisure Services group which signaled a buy 4 days ago. MCK is part of the Medical Whlsle Drg group and there is no chart for money flow in the EV universe for this group. This being said, the GGT group assigned to MCK is Health Med/Dent Supplies and this group is listed on the "By Industry" tab in the GGT dropbox file. You'll need to review this on your own; post your conclusions in the comments field if you like and I'll validate. KBR is part of the Heavy Construction group and it fired a buy signal 4 days ago...

Let me know your thoughts on PCLN, MCK, and KBR in the comments field below.

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The Bigger Picture

While some of my CANSLIM colleagues are citing the IBD "Confirmed Uptrend" call, I'm not so sure. Time horizon is important on any call, and this is no different. While the next few days may be upward-trending I think we're early at this point, and as you will see below, not all markets are in sync. This needs to get worked out.

As evidence of my uncertainty, take a look at the following presentations:

The top trace is the S&P500. The middle plot is the cumulative tick pattern on stocks within this index -- and this resets to 0 daily. Hence, values above the blue line show the bulls are winning for the day, and the values below the blue line show that the bears are winning. The bottom plot is the non-resetting cumulative tick pattern for the S&P500 (heavy white) and several moving averages. The bar duration is 1 minute, so you're looking at about 4.5 days worth of data.

The eye is immediately drawn to the bottom plot where we show that the cumulative tick pattern is in an uptrend, and this is confirmed by the visual rotation of the various moving averages from being inverted (fastest MAs on the bottom) to the fastest MAs on the top. Further, for the most part, the slopes of the various MAs are up-trending, which means that for the SPX that the buying algorithms are certainly buying stocks that comprise the S&P500, or have been doing so since 8/10 or 8/11.

A bit of a crack in the ice, but not a shattering crack, is that the behavior on Friday was not solidly upward. You can see that the top MA, which corresponds to a 1/2-day MA, as well as the 1d MA just below it, have negative slopes. If we are to have confidence in this bull leg we need these two to have positive slopes, and this can only occur if the cumulative tick pattern starts to pull these two upward.

It's also clear that on Friday that despite the significant price action in the S&P500 with gains approaching 1.7%, there was considerable selling into the rally. I do not take this action as strength, and I need to see it reversed on short order if I am to have confidence in this rally.

This next presentation is of the Russell 2000 Small Cap stocks:

It is said (by those who say such things) that small caps need to lead our way on the next sustained rally. The Russell 2K was up 2.56% on Friday, so by all rights, we can say that the rally is underway. Is it?

You saw the pattern of the SPX above -- the rotation of the MAs over the past few days, the upward, almost parallel pattern of the MAs as the buying algorithms kick in. Unfortunately, we see nothing of the sort here, and what we actually have is a tremendous amount of volatility across the board for the past few days. The tight grouping of the MAs shows indecision, and the ONLY saving grace is that the 1-day cumulative tick pattern from Friday shows clearly that the bulls were in control. The fact that Wednesday and Thursday are not in sync with the SPX is troubling to me, and the clear selling on Thursday tells me that we're not out of the woods yet.

I'm looking for the cumulative tick pattern to move upward quickly and decisively, pulling the MAs upward into a proper bullish formation, and this rally to find it's legs and sustain it's gains. As far as the R2K is concerned, we're not nearly as strong in the R2K as we are in the SPX, at least from an institutional point of view.

Here's a presentation of the NDX-100, the top 100 stocks on the NASDAQ:

While the NASDAQ finished up 2.49% on Friday, it did it on a neutral basis without the help of buying algorithms. This is fine, but note that without this help there is not a tremendous amount of institutional support under the broad markets. Only in the last 30 minutes of the day did we see significant program buying -- for the most part there was considerable selling into the rally on Friday, as is evidenced by the lower lows of the cumulative tick pattern and the subsequent rolling over of the MA presentation, e.g., the faster MAs are now at the bottom of the presentation, as opposed to the top.

The NDX-100 is completely out of sync with the SPX, and we need this fact to right itself in order to move the markets higher across the board.

With these shadows cast, let's look at the GGT indicators.

The following table is the GGT Price Slope Model:

The GGT price index rose +2.22% on Friday on volume that was -8% below the 50d MA. -8% is within 1 standard deviation so all I can say is that price action rose on (yawning) volume.

The GGT Strength Oscillator, which measures price action, volume action, and rate of change of prices, rose from 0.3 to 0.53, a considerable 1d move. This is now mid-scale and by itself, it is a terrible forecaster of the future. What is important is that it's not at either end, so we've room to move both ways.

The slopes of the MAs on the GGT price series are become more bullish, with the 13d now joining the party. Until I see all green on the left side of the table I'm not going to say we're in a bull trend, I'll simply say we're making progress towards that goal. I've also highlighted a recent period in the presentation where we did more-or-less the same thing -- look above to the 6/20 time frame.

It isn't necessary to wait for all green to appear on the left side -- if we were to do this then the bull-ship would have sailed. What is important is that we see the gradual staircase pattern of the next higher Fib MA moving long, e.g., a positive slope, so that we have confidence on the action.

What is important is that we see lots of green on the right side of the table. This is the "slope of the slope", and if these are pointing down (red), there is no chance for the left side of the table to move green (why?). We're seeing more green across the board and this is good for the bulls, so while I can certainly state that we're moving in the right direction, I can also state that the progression isn't all that powerful for the bulls.

On the PSM presentation alone I'd say caution is advised.

My next plot is of the Long-Cash Ratio Slope Model, or LCR-SM. This shows the relative change of stocks in the database that are moving to the long side compared to those that are recommended in cash.

Unlike the PSM, we're not getting a corresponding movement into stocks from a database (2810 stocks) perspective. Only the 5d EMA on the LCR has moved positive, and as you can see from the right side of the table, although we're indicating more bullish in the "slopes of the slopes", we're not making huge progress.

This latter fact is very troubling too me, and gives me great pause about moving long into these markets. You can see how the action around 6/20 on the right side of the table preceeded the action on the left side, and while we may have that occurring here, we are still quite early.

Again, caution is advised in terms of the IBD call that we're in a confirmed uptrend. Yes, but it's not nearly as powerful as past calls. Be careful with this one.

These next three graphs are plots of the slopes of the various moving averages. They compare the present slope values to that attained a few weeks ago, and as many of you know, I've been looking for us to take out the previous levels in slope to have confidence to move long in this market.

The top graph is the 21d MA, the middle is the 34d MA, and the bottom is the 65d MA. While we've surpassed the previous slope peak on the 21d, and we're par on the 34d, we're still under in terms of the 65d. Again, we're early, and I feel that we need to see these take out their previous highs to have confidence in this market.

Also note that the slopes are in the pink areas on each of the plots. If you go back to the PSM figure above you'll see that the 21d, 34d, and 65d values are all RED and Bearish on the left side of the figure, but the slopes of the slopes are positive for the last 1 day on the right side of the figure. Please make sure you can relate these graphs to that figure, as the data presentation is different but the underlying data is the same. This should help you understand slope analysis better.

This next graph shows you where we are at in terms of Percent Longs within the database:

You can see that we're digging our way out of tremendously oversold areas, and that it will take time to clear the green zone, which historically has been a turning point WHEN WE APPROACH FROM ABOVE. I have no idea how we are to behave now -- the only comp in the history of GGT is the period that we saw prior to the March 2009 lows -- the % Longs went up to over 60% but as you can see, we did not make tremendous progress in terms of GGT price. Let's hope that this is not what our future will be ....

Further evidence of how far we have to go is in this plot below:

This is a plot of the GGT Price Index along with three distinct moving averages -- the 21d, the 34d, and the 55d. Right now the 21d MA seems to be acting like resistance to the GGT Price Index, and if we are to have a sustained up leg, we need to penetrate each of these MAs from below. We're not doing it yet.

This next view gives us a cross section of the GGT database in terms of the status of each stocks. We already know that the LCR value is incredibly low, with CASH-rated stocks dominating the count in terms of the ratio. Here's a graphical view of the same:

If you click on the image, save it, and zoom in, you'll see that we are seeing the % Longs increase, as well as a definite increase in % Affirmed Longs and % New Longs. We're also seeing a great drop in the % Affirmed Cash, which is necessary if we are to move long. This is a trailing indicator, but it shows just how much wood is available to us to fuel a Bullish Fire if one is to occur. There are a tremendous amount of stocks in CASH status, but it will take time to move them into the long side of the graphic.

This next graphic is important. It shows, in terms of LCR acceleration (number of stocks moving long on a daily basis), of where we are at in this present market cycle:

Across the top is a yellow zone that historically has indicated a reversal point downward whenever this indicator (blue trace) has approached it or hit it. This has occurred when we get over a value of 100, and presently, we have a value of 87. This difference suggests that we have a ways to go, but as we get closer to the yellow zone, the present market cycle will be "longer in the tooth" and there will be players taking profits off the table.

While I think this chart shows the best indicator of the IBD folks stating that the market is in a confirmed uptrend, I think it also shows that there isn't a whole heck of a lot of gas in the tank from this point.

Take a close look at the blue trace and you'll see some days that have rocketed upward in terms of the LCR Acceleration value. You can conclude that a few of these days and we'll be in the yellow (overbought) zone. Conversely, you can see that there have been periods where this indicator has inched up little-by-little. In this latter case it could be days or weeks before we hit the yellow zone, and the rally could certainly last this long.

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Summary

I think that this rally is early. I think that the algos on the SPX is showing the best behavior, so concentrate on stocks that are in the S&P500 if you want to follow the bigger footprints. The R2K is trying to play catch up, and for the present time, I think it should be avoided. The stocks in the NDX, despite the end-of-day performance on Friday, are not in sync with this rally and should be avoided. I think too that this will take some wind out of the bull's sails if we do not get participation across the board from the algos.

The Price Slope Model is early and slow. Slow is the deathnail of a rally, and we need aggressive buying on higher volume to drive prices upward. We're slowly marching, which gives me pause.

The LCR Slope Model is not confirming the plodding action of the PSM. We're not seeing a large number of stocks move to the long side in aggressive (price + volume + rate of change) sprees, and this too gives me pause.

The LCR Acceleration indicator shows that there is some gas left in the tank, but we're approaching areas where we have historically sold off. Of course we could make new highs with this indicator, but I'm not seeing any evidence of this behavior. The market behavior will drive what we see in this indicator over the next week or so...

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Thanks for reading if you made it this far. Remember, you are responsible for your own investment decisions, and I am not. Please do your own diligence, and please take ownership for your actions.

I can be found on a daily basis at http://forums.effectivevolume.com. I urge you to join the site (joining is free, as is my GGT content, which is posted daily). There is far more at the site than me and the quality of the daily dialog surpasses 99% of what you will find on the web.

Regards,

pgd

Weekend Update - August 20th

2011-08-20T22:12:00.000-04:00

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I've decided to return here to post once a week, a request made by several of you. My weekday blogging and market status interpretations can be found at http://forums.effectivevolume.com, specifically in the GGT forum on that site. I urge you to join that forum if you are not presently a member -- it's free and I'm continually humbled by the experience and quality of the leadership shown by the members.

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I like to start with the various tick indicators, as they show the strength and direction of the algos which are driving our markets:

As with all my images, right-click on the image to open in a new window or tab in your browser.

This tick chart shows the S&P500 in the top pane (orange trace), the cumulative daily tick in the middle pane (red trace) which resets to zero at the start of each trading day, and a lower pane showing a white instantaneous non-resetting tick cumulator and various moving averages on that tick cumulator. The bar interval is 1 minute in duration, and hence you're looking at a bit more than 3 days of data.

Friday had me in the air flying back to the east coast from the west for the majority of the day, hence the action on Friday was mostly missed by me. The SPX was convincingly being sold off on OPX day, with the white trace solidly below the 1/2-day (195 minute) moving average line. Every time the instantaneous cumulative tick touched this value and was rejected (10:30 EDT, 12:30 EDT) itdr was a good entry point using SH (-1x ETF of the S&P500) or SDS (-2x ETF of the S&P500). I was personally worried about carrying anything into the weekend but had I seen the nearly linear behavior of the selling which occurred in the afternoon (refer to the middle plot which is red). This chart is not predictive but note that the selling on Friday, while continuous, was not at the same magnitude as Thursday's lever level (again, middle plot), introducing uncertainty as to whether we will continue the downward trajectory.

This next plot is the NDX:

The NDX has been a bit quicker in rolling over than the SPX, but not as quick as the Russell 2000, which you'll see in a moment. You can clearly see the fan pattern of the moving averages rolling over late Thursday, giving you confidence at moving into an initial position in PSQ or QID. There was strength in the NDX on Friday, which would have made you a bit nervous, but as soon as the selling started and was confirmed by the break through the 0 line (middle pane, red trace) around lunch:30 you would have had further confidence to move into the markets.

Note that the NDX finished near the cumulative tick lows for the day, which is suggestive of an early bounce when the markets open. We'll see.

This last figure is of the Russell 2K small caps:

The R2K has been fairly clear and decisive in its' signals, and as many of you know, I entered a position in TZA on Wednesday and again on Thursday. Somewhat mistakenly, and because I was in the air and TZA is leveraged, I sold my positions on Friday on layover in Denver. I was disappointed to not have carried the positions in multiple accounts across the weekend with the presentation that you see above...

Of the three presentations, the R2K is leading the way down, and the moving average slopes are all solidly down-pointing relative to the other figures. Conclude that constituent stocks in the R2K are being algorithmically sold and with the SPX being last to the party, that the selling is becoming broader. It does not appear that you are too late to the selling party if you haven't yet participated, but ensure you watch your stops. I would avoid leveraged ETFs at this point and only concentrate on long positions in the -1x or shorting the underlying 1x ETF (SPY, QQQ, IWM respectively).

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Bob English, who is a insightful and prolific blogger at the EV site, pointed out earlier in the week that the lag of the SPX to the selling party was because the yields of the S&P500 are higher than treasuries. This flight to safety is something that I regularly track, and you can see it here in the following graph:

The top pane shows the S&P500 and the bottom pane (blue with red moving average) shows the ratio of large cap stocks (as determined by the IWB) to the small cap index (as determined by IWM). Clearly, with the 34d MA pointing upward on the ratio of IWB/IWM, and the ratio making new local highs, long positions and specifically, long positions in small cap stocks should be avoided like the plague.

A key early-warning sign will be when this ratio pierces the 34d moving average. This alone is not sufficient for a pure signal, and you can see it, but we certainly want to watch for the slope of the MA to start flattening and then turning down, all of which requires that the IWB/IWM ratio fall below the MA.

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We're a great distance from a confirmed long trend. I base this on the following damage to the GGT price index model, specifically the daily change that we're seeing in the 21d, 34d, and 65d moving averages:

Shown above are the GGT price index values (left scale) and the slope of the price, given in $/day change (right scale) for the 21d, 34d, and 65d moving averages. I've artifically drawn two red lines which show the valley and peak of the last slope values over the past couple of weeks.

You will observe that the 21d MA slope is approaching -$0.30/day average, which is just under -1% change per day. You will also observe that as the MA duration goes up the slope values decrease, but all are negative (in the pink zone). Day-over-day the index is losing money, and until these move positive (white area) we cannot be convinced that the waters are clear of sharks.

The more aggressive among us will want to start adding to long positions when we hit the lower red lines and bounce off of these lines to the upside -- or better yet -- never hit these lines yet reverse to the upside. I personally would like to see higher lows on this next dip as this would indicate that we could move aggressively upwards from the turning point. Conversely, if the lower red lines are penetrated I would be concerned about prolonged decreases in price and I would aggressively add to my shorts at that time.

I'll post the status of these levels when and if they become significant.

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This next graph shows the status of the GGT database in terms of the 6 different classifications that a specific stock can hold. The vertical axis is % in that category, compared to the total number of stocks which is 2813 at the present time.

While the scaling is hard to observe for the New Longs/New Cash values, if you look closely we're seeing more stocks moving to the New Cash side on a day-over-day basis than New Longs. This bleeding is indicative of mass selling. Further, more stocks are reaffirming their "Affirmed Cash" position than any other bin, again showing that in terms of trends, the trend is solidly down. Affirmed Cash stocks are falling in price (at a minimum), and may have significant volume associated with the drop in price.

Note that the only way to determine if the falling price is coincident with aggressive, large-block selling volume is to review the individual stock or ETF candidate at the EV site. There is also a list of stocks and ETFs that are produced daily which show divergences, and overall, are very good candidates for entry as long as the EV trends remain intact. You need to be a paid member of the site to view this file.

======================

This next table shows that we are deep in kimshi:

The price slope model, which is based on the prices, volume, and rate of change of stocks in the database, has been indicating danger since 7/26, and the last rally over the past week barely saw enough strength to cause anything more than the shortest pricing MAs to move positive. We now have 4 days of downward-pointing "slopes of the slopes", and this is bad, very bad, for long positions. Do not even attempt to move long until we get a row of greens on the right side of the table.

I want to draw your attention to the GGT strength oscillator, which is a value of the database strength between 0 and 1. I've marked the previous values when we were low, and unfortunately, we're lower with Friday's action. This somewhat causes the idea of a higher low to be tossed out, but this is only one indicator in many, so we'll have to be careful here. I note that values this low in the past have been WONDERFUL buying opportunities if you have a long horizon. Unfortunately, there are far more indicators which indicate we should stay on the sidelines for now. Simply know that you should be looking for EV stocks that are dropping in price but are increasing in Large EV accumulation.

This price-slope-model chart is posted (nearly) daily in my blog at the EV site.

Related to this chart is this one:

This table is the Long-Cash Ratio (LCR) slope model table, and while we saw much green over the past two weeks on the right side of the table, the damage has been so severe that few of the slopes were able to move into positive territory (left side of the table). The LCR value, which looks at the number of stocks rated some form of long (New Long, Affirmed Long, Long) and compared those to those that have some form of cash rating (New Cash, Affirmed Cash, Cash) is now showing that only 6% of the database is long. While not as low as a few weeks ago (the measured low was on 8/9 @ 2.5%) if we can hold these levels AND see green start developing again on the right side of the table, we may see a floor being put in.

Stay tuned.

Monday isn't the day to go long on stocks by any stretch of the imagination.

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Remember, you are responsible for your investment decisions, and I am not. Please do your diligence and please take ownership for your actions.

Regards,

pgd

June 24th Weekend Update - Trendless & Difficult

2011-06-26T18:40:00.003-04:00

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GGT Price Slope Model

A review of the GGT macro indicators shows that there was damage done on Friday. The GGT price index fell -0.78% on above average volume of +28%, but the volume was due (in part) to re-balancing of the Russell indices more than a broad sell off. This being said, the Price Slope Model has completely reset:

As you can see on the left side of the figure, we've lost all pricing momentum to the upside. The left side is measured in [$/day], and when the cells on the left are red, $/day is negative. Correspondingly, on all measured time frames out to the 65d period, we're not making money. 65d = 13w = 1 quarter and I'd like to hear if anybody holding for this period has capital appreciation in their accounts (on the long side, of course).

The right side of the table also is showing red, and the units on this side of the table are [change in $ / day]. When this value is negative, we're moving the wrong way -- the change in $/day is more negative than it was yesterday. This is the case for Friday, and as you look back, there is far more red than green -- the net impact is that we're slipping further into bearish territory.

Since we put $ in the bank and nothing else, this model is telling us that our exposure to equities that typically benefit on the long side should be limited. There simply is little trend to follow.

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GGT LCR Slope Model

The LCR Slope Model shows a pause, but no breakdown, which is encouraging:

On the very left I am showing the Elder Intermediate-Length Force Index timer -- it has moved from a mixed/cautionary stance to bearish. Taken alone, we should not be long in equities for any intermediate-termed duration.

Next from the left is the raw LCR value, which shows about a 1:2 Long:Cash ratio within the database. Things are quite bearish, and Friday's action caused some upward momentum to fade, allowing the LCR to slip back to Wednesday's level. The absolute value of the LCR is not nearly as important as the direction it is moving -- although 1-day-down is not a cause for concern, we would like strength here, not weakness, in the LCR value.

The slopes of the LCR model are holding steady -- those that were bullish are remaining so, and those that were bearish are doing likewise. As long as this model does not slip backwards we may see a floor being established.

Unfortunately, the right side of the table shows that we've had increasing bearishness the past few days, with all of the "slope of the slopes" pointing downward. The result is important -- this is a leading indicator to the left side of the table and if we continue to see more red here, red will dominate on the left side of the table. This isn't good for the short-term future.

=================

Conclusions: 3 steps forward, 3-steps back. This is a difficult market that is not showing any trending capabilities, and as such, playing the long side (or short side) should only be done with a very surgical methodology. When the tables above reset, we're experiencing a shock to our equity, and since volatility is increasing, the risk is greater and reward is difficult to quantify.

Only play those strategies that you know have defined risk/reward levels.

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IBD50 with Effective Volume and GGT

Here's the latest snapshot of the IBD50:

Here's an Excel file that you can manipulate:

IBD50-11JUN24close.zip

Relatively unimpressive set of 50 stocks, in my opinion. There are diamonds in the coal that are near support levels, which is encouraging IF the support levels hold, but if support fails then this list will turn further downward.

If this week window dresses well, before you leap:

review the movie that I created and which Pascal Willain has made available on his site, which discusses using buy sectors and stocks within those buy sectors
check the sector/group EV, and ensure that you're seeing an influx of money flow to the sector/group
check the AB % level in the individual chart that Pascal provides. If the AB level is not increasing (becoming less negative), e.g., if a short-term slope is not pointing upward, then pass on the stock.
check the 2d thrust, and ensure that money flow into the stock is positive, not negative

Some testing that I do, that is not discussed here, is showing that on rallies, that the market is favoring stocks with poor GGT ratings as well as poor EV ratings, ostensibly due to short covering and shorting the rallies. Keep a list of IBD stocks that are getting pummeled, as well as those that are holding up well.

Let's hope for a good week due to anticipated window dressing of the month, quarter, and semiannual periods.

Regards,

pgd

It's hard to ignore (pending) green ... / Connors' TPS Strategy & EdgeRater

2011-05-31T11:53:00.002-04:00

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Summary

We're seeing some thawing of the bear ice regarding the pricing model slopes, e.g., the 5d EMA is above the 8d and the 8d is above the 13d. This is bullish on a short term basis only.
The remainder of the longer pricing model EMAs, e.g., those longer than 13d, are all negative. We have to watch the "slope of the slope" to see if these are going to transition positive or remain negative.
The VTI short-term timer, which is a whole-market short term timer, fired LONG with the close of business Friday, May 23rd. I have placed a buy stop loss at $69.38 due to the potential gap up this morning (e.g., it will fill if the gap fills).
The Intermediate-Termed Elder Force Index timer is in CASH, and given the numbers, is most likely there for another day or two.
The Long-Cash Ratio model slopes are thawing regarding bear ice, e.g., the 5d and 8d slopes *just* moved positive on Friday. This indicates that on a short-term basis that more stocks are flowing to the "LONG" side than those moving to the "CASH" side. This is positive for us -- we want to invest when the number of stocks that are outperforming historical averages are increasing, not increasing.

Conclusion: We are approaching a new bull leg on a short-term basis. Many indicators are still in bearish territory, but if you're nimble, you should be able to move in and out quickly and make a profit. Note that on an intermediate-termed basis you should be in CASH.

======================

Slope Models

The GGT Pricing Slope model is becoming more bullish:

As with all my images, right-click then open/save as desired.

Volume is in the toilet, which simply means that either money is sitting on the sidelines or it's being obligated in the options/futures markets, and not in the general equity markets.

Looking above at the left side of the presentation, we see two consecutive days of the 5d EMA and the 8d EMA showing positive values. This means that these two indicators have moved upward into positive territory -- they are gaining in $/day on these time frames.

A look to the right side of the presentation shows why the left side is doing what it is. Out of the last 9 trading days, 7 of these days have had an upward-pointing slope. It should not be a surprise to you that we're seeing some form of bullish signal as this occurs.

What is most important here is that we experience some form of follow through.

Here's the Long-Cash Ratio dashboard:

Again, much of the same presentation as above.

What is encouraging here is that we now have the LCR system indicating that on a short-term basis -- 5d and 8d -- that we are experiencing a net inflow of stocks with a LONG recommendation to those with a CASH recommendation. Today's action is sure to add more green to the left side of the presentation, increasing the universe of stocks we can choose from.

Conclusions: I'm dipping my toes into the bullish waters, as it appears that we can do so with some partial wind at our backs ...

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ETF Trading Bandit and EdgeRater

One of my GGT colleagues in the Dallas area, Bob Wilson, poked me to re-evaluate / use some software that I've had which has been written by Chris White. ETF Trading Bandit is a package that was originally written with Larry Connor's strategies in mind, but any list can be processed using the package and what results are recommendations based on mean reversion strategies. While the "Bandit" is based on daily closing prices, EdgeRater is a backtesting system, and it's usefulness is growing within my cadre of tools.

One of the first things I did was set up EdgeRater to backtest Larry Connor's published strategies in his book. I'm fond of a strategy called "TPS", which is an abbreviation for a strategy that means Time-Price-Scale In. The basic philosophy is to first invest a 10% position in the equity meeting the requirements, then 20% on the subsequent day if conditions are met, 30% on the next, and finally, 40% on the last day. Of course you could go further, but then you're exposure would be greater than 100% of a position size.

Connors did his work with unleveraged long ETFs; here are his results:

You see that on average, you're pocketing 1.45% on each trade over 6 days, and 89% of the time the trade works in your favor. Note that this was buying/selling AT THE CLOSE on the day of the signal.

Those are published results -- if EdgeRater can do what it says, it should be able to duplicate these results.

After setting up the program (rather easy if you watch Chris' videos), here are the results I attained:

So in the compare/contrast, here is what we have:

Connors listed 1159 trades, EdgeRater listed 1071. The difference in statistical significance is negligible.
Connors listed 88.78% winners, EdgeRater found 87.86%. Close enough.
Connors listed 1.45% average gain per trade, EdgeRater found 1.46% per trade. Again, close enough.

At first glance, we have excellent correlation, at least for published data through 12/31/08.

One thing that should catch your eye: the average profit per winning trade is $56.59 on an amount invested of $10,000 (the $10K isn't shown). This isn't a great deal of profit per trade, and the amount that you take home will be very sensitive to commissions. It is absolutely critical that you trade Connors' strategies in a low-commission account!

One very important graph that EdgeRater provides is the statistical distribution of the results. This graph can give you confidence at the repeatability of the strategy, as well as giving you some view of the significance of the outliers (the tails -- how bad or good can it get over the backtested period).

Here's the chart:

The x-axis is the % gain/loss on 1% increments.
The y-axis is the number of occurrences of the strategy within a given bar interval (here, 1% bars).
The "S" curve is the normal (bell-curve) probability distribution of the sample -- we would expect that at 50% (y-axis, right side) that we would have the largest "n" occurrences of our data.
To have an "edge", we want the 50% S-curve to be as far to the right as possible. In the upper right corner of the graph, the average of the dataset is +1.45%.
More subtle, but equally important, is the other data in the upper right corner of the graph. Here, we see that the median is 1.4545 (%), and that the standard deviation is 1.9951 (%). When the mean and the median are almost equal, this means the dataset is "well behaved" and we can have confidence in the strategy. The standard deviation means that we have a 66% chance of the results of a given strategy falling between 1.4506 - 1.9915 = -0.54% and 1.4506 + 1.9915 = 3.442%, and since more lies on the positive side than negative side, we can expect positive returns with the strategy.

Another thing to test is the ability to invest end-of-day, say in the last 5 minutes of the trading day, vs. at the open the next morning. Connors' published works all are end-of-day entry/exits, which is difficult for many people with day jobs.

To test this, EdgeRater allows to choose "Event Bar on Close" (end of day entry/exit) or "Next Bar on Open" (next morning at the open). The results are as follows:

Here, we see a drop of nearly 5% overall in Net Profit %, or a reduction in -0.18% per trade in the Average Profit per trade. This is significant, and indicates that we should attempt to enter the trade at the closing price OR BETTER (even if it is the next morning). This can be accomplished with a LIMIT order that can be placed in the overnight hours.

Having established that we have good correlation from the beginning of Connor's time to 12/31/08, what about since then? EdgeRater makes easy play of this effort:

Here is how I interpret the above table:

There have been a total of 388 trades since 1/1/09, and nearly 94% of them have been profitable.
Average profit is 1.73%. Part of this can be attributed to the bull that we've been experiencing since 3/09.
Note that Net Profit % would be less than shown because of the impact of commissions.

EdgeRater give you more info than a table; here's the equity curve:

The top graph is the equity curve, starting at $100K on 1/1/09. The bottom part of the graph is the required open positions within the TPS strategy to achieve the equity curve shown above. It should be of interest to you that the period leading up into May 2009 has little to no trades using the strategy -- Connor's has a built-in safety mechanism that the equity has to be trading above the 200d MA in order for the strategy to be valid.

While it may be hard to see, around 10/23/09 we had ~18 positions open. This is a conundrum -- if our starting equity was $100K and I was investing $10K/position, how can I commit $180K? Obviously, you cannot without the use of margin. I'll research this more with Chris White, the creator of EdgeRater, and will get back to you on this.

What this does point out is that you will need simultaneous positions opened in order to achieve the theoretical equity curve due to past performance. The results above, with 20 ETFs, there were market situations where they *all* (or the vast majority) could be invested. This suggests that on a $100K portfolio that your maximum position size is $5K, not $10K, and as a result, the amount of capital deployed and put to use to generate income is far less than what we see above.

As a test of this, I reduced the "Dollars per Trade" to $5K and reran the test. As you might expect, the Net Profit % dropped to 8.53% (which excludes commissions). I then doubled the "Dollars per Trade" to $20K and reran the test -- the result was a Net Profit % of 34.79%. To be accurate, the program should cap your ability to move into a position as long as the amount of available equity (cash) is greater than 0. Again, I'll talk to Chris about this.

Bob Wilson and I are doing further tests with EdgeRater and I'll report back here as we move forward. We're validating each other's work so that our concepts and findings are confirmed with another set of eyeballs, at least between the two of us.

In general, I like EdgeRater. Furthermore, use of the 20 Connor's ETFs, combined with a good backtesting package like EdgeRater, can give you confidence to move into the markets when the equity price is falling yet the equity is in an uptrend (which is what a mean-reversion strategy accomplishes). I'd like to see some nuances addressed, but for the most part, this is a solid piece of software that can give you (me) confidence to use the tested strategy.

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Effective Volume

I am blogging daily at http://forums.effectivevolume.com. I have my own forum there, and it is easier than blogger to have multiple threads/conversations in the running.

Please register (for free) at the EV site and submit a request to join the GGT forum if you would like to see how I use GGT + EV for my investment decisions.

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Remember, you are responsible for your own investment decisions, and I am not. Please do your own work, and please take ownership for your actions.

Regards,

pgd

May 20 Weekend Update

2011-05-22T17:42:00.001-04:00

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Effective today (May 22nd) I'm posting weekend updates here, and daily updates at my forum at Effective Volume. I'm finding it nearly impossible to simultaneously operate multiple forums due to various time constraints, so please join me at the EV site, where you will find my content as well as other very valuable content concerning market timing.

You can become a member by pointing towards:

http://forums.effectivevolume.com

If you join, please let Pascal or the administrator that you communicate with know you're from here.

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Summary

For the week, the GGT price index fell about -1.2% on volume that was -17% below the 50d MA. This is within a standard deviation over the average so I wouldn't read too much into the lack of volume. The bears are in control.
The pricing slope model clearly shows the bears being in control, as ALL pricing slopes, from the 5d through to the 65d, are pointing downward. This means that on all time frames we are losing $/day, and this further supports that the bears are in control.
Of the 5 days this past week, three of them showed a renewed attempt by the bulls to pull the market prices upward. Friday showed that they failed, and the bears resumed control.
The Elder Force Index timer is in CASH. We should not purchase stocks on the long side with the intent of holding for the intermediate term.
The slopes of the Long-Cash Ratio (LCR), which tell us how fast stocks are moving into a long recommendation on a per day basis, is solidly bearish with all moving averages through the 65 showing some negative value. This means that the number of stocks per day that have a favorable setup compared to historical performance is decreasing on a per-day basis. Put another way, your stock picking abilities have to improve when these slopes are falling, because the pool of outperforming stocks is falling day-over-day.
Despite the LCR slopes being negative, they are all pointing UP, which means that we have the internal markings of the bulls trying to make a comeback. Even with Friday's down day the number of stocks falling into CASH status was less than those moving into LONG compared to Thursday, which is important if we are to see any form of bounce from here.
Contra ETFs, as measured by the 5/65 method (presented below), are showing that we are too early to commit both feet to contra ETFs. This could easily change if we continue moving downward. Conversely, long-rated ETFs are looking poor too, so we're in middle.
Effective Volume techniques (http://forums.effectivevolume.com) are showing a net outflow of money in the market on Friday, and the value is becoming more negative in terms of change/day than Thursday. This timer remains short on the market as a whole.

Conclusion: we have confirmation between the GGT pricing slope model, the GGT LCR slope model, and the EV 20d MF model that we should not be long. The pricing model slopes are pointing down after a failed attempt to reverse this past week, which is bearish, but the LCR model slopes are pointing up, which shows that the number of stocks falling off the cliff each day is decreasing. This can be viewed as a real-time attempt by the bulls to bring in a new set of leadership to the market. Until this is demonstrated, we should not be long in the markets.

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Leveraged ETFs as an Early Warning Indicator

One of the techniques that I like is to review a composite indicator of leveraged ETFs to see what they are doing in terms of price performance. Leveraged ETFs offer an early-warning system over non-leveraged instruments because their daily changes are multiplied by the leverage value, resulting in an amplification of a change in trend.

I use HGSI software to accomplish this, as it makes it child's play to build your own indices.

Start with the Direxion Funds, which can be found here. Select only the bullish, or bearish funds for your respective index. I get 13 ETFs on either side.

When I plot the Direxion Bears, I get the following:

As with all my charts, right click on the chart to open in a separate window or tab.

The chart is very simplistic:

Along the top I have the slope of the 65d moving average of price.
In the middle I have the 5d EMA of price, as well as the 65d EMA of price.
Along the bottom I have the price of the index, as well as the 65d EMA.

The rules for this system are very easy:

Buy the components of the index en masse when the 5d EMA crosses above the 65d EMA, AND when the 65d slope line is positive.
Sell the components of the index en masse when any of the following occur:
a) the 65d slope moves negative, or
b) the 5d EMA crosses the 65d EMA from above, or
c) the price closes below the 65d EMA

So, let's interpret the graph above:

The 65d slope is NEGATIVE by a hair. This prevents en masse movement into the components of the index (but does not prevent surgical strikes)
The 5d EMA is (barely) less than the 65d EMA, preventing en masse movement into the components of the index (but does not prevent surgical strikes)
Prices are still closing below the 65d EMA, which is bearish for the index.

All this being said, what does the BULLISH side of this model appear as?

Let's use the same analysis as above:

The 65d slope is POSITIVE by a hair. This shows that we do not have complete breakdown, and although I stated above that the bears were in control, they are not 100% in control according to this methodology.
The 5d EMA is LESS THAN the 65d EMA, again by a hair. We should not be holding any of the Direxion components for the intermediate term at this point (assuming that we got in early)
Prices are closing below the 65d EMA, which means we should have exited with the signal on 5/13/11

Conclusions: Based upon the above, we should avoid contra ETFs in general as the primary component within our portfolio, as the most sensitive 3x components have not confirmed a move to the contra side of the market. Further, we are seeing a general breakdown in the long side using these leveraged instruments, and based upon these findings, we should be exiting long positions.

Given the above, it is possible to use the same criteria for the components of the index. Knowing that we are at the tail end of a bull, and knowing that an index is the average of the components, it's a reasonable assumption that there are some strong performers in the leveraged contra group that are pulling the index upward.

Here are some charts for your review given this assertion:

LHB: Direxion -3x Latin America Bear

According to this method, we have a BUY as of the close of 5/12 on LHB. This needs to be reviewed in context of Effective Volume. Unfortunately, LHB is NOT tracked at the EV site, due to the low volume of the ETF. Luckily, the other side of LHB, which is the +3 leveraged instrument called LBJ, does have $-volume greater than $10M-sh/day, so it can be used as a shorting instrument if we see short term AND longer-term LEV decreasing (e.g., removal of institutional support from the long instrument):

Here is the short-term EV view from TradeStation of LBJ, the +3x leveraged Direxion fund for Latin America. Note that 6 days of EV data are presented, and 8 days of price/volume data are shown (a quirk of TradeStation):

We see that in general, LBJ has been losing institutional support in terms of selling over the last 6 days. This is significant, and suggests that we can short LBJ as long as this trend continues. The red line above is SmEV, or the retail players, the blue line is the LEV, or large players, and the yellow line is the TEV, or total EV, which is the sum of the two values.

As a check, here is the longer-term EV view of the same ETF (LBJ):

Same color scheme as before. What this shows is that we've been experiencing a general lack of volume support for the +3x Latin America fund, and hence our HGSI 5/65d analysis holds -- we can most likely short LBJ. Note how the SmEV is remaining fairly constant to a slight downward slope, whereas the LEV/TEV pair are moving down aggressively.

As a check, let's see what GGT has to say about LBJ:

GGT is showing LBJ as "CASH", and it has been for the past two weeks (all red in the squares to the right of the word "Cash"). GGT's timing has been fairly stable on LBJ; here's the timing diagram over the past year:

The red line above shows when GGT was calling either a "Long" or "Cash" position on the equity. It appears that the signal was neutral during the December call as well as the March/April call, but as you can see, it performed will during the 2010 long period.

I'd like to see this one continue lower than Friday's low before entry on the short side, but certainly I would not enter at any level above Friday's open.

FAZ: Direxion -3x Financial Bear

Here's the HGSI chart for FAZ:

Again, using our screening criteria, it's clear that this one is just making the grade in terms of price. Any further deterioration of financials in the market will most certainly move this one off it's 65d EMA line, which will most likely remove the chance of whipsaws.

FAZ *is* tracked at the EV site, and the chart pattern is interesting:

The first thing that appeals to me is that the total effective volume (TEV) is above the average line shown in pink. We need this to continue for us to consider this instrument. Next, you can see that the average line in pink has a slight upward trend. Hence, FAZ is not screaming to the upside in terms of new money moving in, but it certainly is not being distributed as it was on the left side of the chart.

Here's what TradeStation has to say about FAZ, on a short-term basis. Note that about 4.5 days at 1 minute bars are displayed:

Indeed, the downward slope of TEV, then the movement upward that appears in the previous figure is certainly present here. On a 8-day scale, FAZ has been distributed, but as we can see by the blue trace, over the last two days this has reversed. We see this also on the previous figure, so the two correlate.

Another thing that I like in the TS presentation above is that there was considerable volume action at the end of the day, pushing price upward, and moving TEV / LEV upward also. While not a rule, when I've seen this in the past, it bodes well for the equity and in this case, since this is contra Financials, poorly for the market overall.

As a check, here is what GGT has to say about FAZ:

Here, we see that FAZ moved long this past week (Monday, to be exact), and on Friday, was jumping up and down wildly, flailing it's arms, saying "look at me". You can see this by the "Aff. Long" recommendation.

We're looking Mr. FAZ, we're looking.

Continue to give FAZ, or it's weaker leveraged ETFs (SKF = -2x, SEF = -1x) your attention.

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GGT Price Model - Slopes

I know that many of you follow this next sequence, so here's an update:

I've described this chart in previous posts; if you have questions, please submit them at the Effective Volume site in the GGT forum so everybody can learn.

The left side shows the value of the slopes of the GGT price index moving averages, from 5d in length to 65d. Aside from two days where it appeared that the 5d was going to lead to a thawing of the bear ice, we've been solidly in bear territory since 5/6 and have had early warning indicators of this occurring since 4/29.

The right side of the table shows us the direction of the slopes, independent of whether they have a negative sign in front of them or not. THE RIGHT SIDE MUST HAVE MORE GREEN THAN RED if the bulls are going to resume the upward march. If you do not understand why this is so, you need to ask. It's crucial. THE RIGHT SIDE IS A LEADING INDICATOR relative to the left side of the presentation. Again, you must stop and think about this, and if you do not understand why this is so, please ask. It's crucial to understanding any form of slope analysis, whether it be mine or someone else's.

The above presentation should leave no doubt in your mind that we are in bear territory, and for now, we have no indications of moving out of this territory.

Defensive postures, please.

====================

GGT LCR Model - Slopes

The same presentation can be applied to the number of stocks in the database with a "Long" recommendation compared to those with a "Cash" recommendation. We typically do not want to buy Cash-recommended stocks except only as a bottom feeding exercise and ONLY when we have positive-moving Large Effective Volume / Total Effective Volume.

Here's the latest:

The presentation is more or less the same: the left side is the sign of the slope, red = negative, green = positive, and the right side is the direction of the slope, independent of the sign. On the right, red = pointing downward and green = pointing upward.

As can be seen, the database LCR (Long Cash Ratio) has been moving downward steadily since 5/3 on multiple time scales. Look carefully at the right side, and you'll see that the few days prior to 5/3 we had negative-pointing slopes, as evidenced by the red. Hence, we have leading indicators on the right compared to those on the left. This is important.

Look at the presentation on the right for 5/18 - 5/20; the number of stocks moving to the dark side is reversing. While still losing in the number of stocks/day, the rate of the bleeding is tapering off, day over day.

This indicates that we may be seeing some form of rotation/rally appearing, and we must be vigilant for this occurring this next week.

For now, buying stocks is not advised, as there are a number of indicators that say we'd be swimming up stream against the current. Remember -- salmon, when they swim up stream, they get eaten by the bears....

=====================

I'll post my review of stocks in the EV forum either later tonight or in the morning.

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Monday, May 16: Timers in CASH, GGT + EV Stock Candidates Explained

2011-05-16T09:59:00.001-04:00

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I'm traveling on the west coast for the remainder of the week and will not arrive tonight until very late. Correspondingly, my entry tomorrow (Tuesday, May 17) will be delayed (hey, I have to sleep some time).

This content has been cross-posted to the new Value-In-Time GGT forum. If you are not a member, you should elect the free membership for the next 4 weeks, as there is considerable content there which gives you much to consider, and more importantly, to act upon.

You can become a member by pointing towards:

http://forums.effectivevolume.com

================

As established this weekend at our monthly face-to-face meeting, we are clearly in an intermediate down-trend according to numerous slices of the market:

1) 20d Money Flow is cash/short
2) Elder's 13d Force Index timer on the GGT universe of stocks is solidly in cash
3) A simple 5d / 65d EMA on the GGT universe of stocks moved to cash on 5/11
4) GGT's pricing slope model is 100% in cash through the 65d EMA (we are losing $/day on every time frame through the 65d)
5) GGT's long-cash ratio (LCR) slope model has been contracting for a large number of days (as the database contracts, indicating poorer performing stocks, your stock picking abilities must improve dramatically)

Given this, it's really not in our interest to move long into stocks.

Despite that statement, we have a number of GGT + EV candidates worthy of consideration. I will not be providing a detail like what follows every day, but will do so when I have time. You should be able to follow everything I am doing (teach a man to fish and .... ) Here's how I break each one down:

CHS: CHS has improving stats on a short-term basis but is lacking longer term EV support. GGT has this as a CASH-ranked stock, and it simply is not meeting historical volume levels, which is keeping it in a CASH-ranked status. AB is lower than I prefer -- I like 80 and above, and this one is coming in at 57, indicating that the R/R is poorer but still around a 2:1 upside. 2d thrust and Extension EV are positive, so money flow is inward. CHS is not providing any earnings guidance as of 5/13.

CPWR: CPWR is a technical stock and the sector is presently been in the weeds. LEV looks good on an 8d and 40d scale, showing institutional support. LEV held nicely on 5/11 with downward price pressure, so there was no selling to speak of from the big boys. SmEV has been decreasing, shaking out the weaker positions. AB is a 97 which indicates a favorable R/R ratio provided this one continues to move upward. CPWR has been ranked LONG by GGT for 4 days, which means that it is outperforming it's historical levels. 2d thrust and Ext EV are both negative, which most likely reflects the sector performance as well as the individual stock performance. Note that CPWR is guiding down on earnings, which is problematic for longer-term institutional support and needs to be watched.

DGX: DGX is in the healthcare sector which is a favored sector. 2d thrust and extension EV are indicating a new-found breakout, and AB = 72 indicates that upside and a favorable R/R ratio are available. Longer-termed LEV is showing solid institutional support. Volume is increasing in the stock and GGT has had it LONG for 6 trading days, showing a relatively new breakout. On the negative side, DGX is guiding down in EPS but inline with earnings, but it doesn't report until 7/21.

EL: EL has been on the list for several days and is experiencing a bit of outflow as measured by the 2d thrust and Ext EV, both of which are negative. This being said, it is in retail, and as a whole this is a favored industry. Volume has been steadily increasing over the last 4 weeks which is contrary to the overall trend of the market. EL has reaffirmed earnings inline to lower than consensus, but this should not impact the stock until August. GGT has had this stock long since 4/27.

ENDP: ENDP has favorable longer-termed LEV support, and is seeing minimal downward pressure over the last two days as measured by 2d thrust and Ext EV. This stock is in the IBD50 list. With an AB = 53, R/R is lower than I like, but it is in heathcare, which is a favored sector. The stock is guiding inline as of 4/28, which I consider positive. The stock has been LONG in the GGT universe since 3/29 if you consider the whipsaw it experienced, and if you disregard the whipsaw, since 2/28. In this time it has moved 18%. It recently cleared a Darvas box of $42.37 but has pulled back below the threshold, so we need to see strength here in both pricing and EV.

HOG: HOG is GGT-ranked as CASH because volume is poor compared to historical levels, but everything else looks good in the GGT universe. The AB = 100 suggests favorable R/R, but note that this is railed against the lower level for this indicator and I'd want to see it drop from 100 towards 80 before I move on HOG. The stock fits into consumer discretionary, which is a favored sector overall. The stock has seen three days of solid accumulation in terms of LEV while the price has moved sideways, which I consider very positive. It is presently within a Darvas box with a ceiling of $38.75 so I need to see it clear this level and sustain a move upward before entry. Harley Davidson is not offering guidance on HOG but the stock has met or beat estimates QoQ since this time last year. Latest YoY revenue growth is 53%.

IR: IR is in a difficult sector that is tied to expansion of infrastructure. Despite this, GGT has the stock ranked LONG and as important, we've seen a 3d expansion of LEV while price has seen downward pressure. Longer-termed LEV is solid, showing institutional support. Volume has been increasing but is relatively low, slowing my excitement. IR is within a Darvas box and is contained from $49.08 on the low side to $52.33 on the high side. I'd like to see it move above the $52.33 level prior to entry, simply because the sector is underperforming.

JBL: JBL closed a Darvas box on Friday, May 13th, and it will be interesting to see what it does from here. The ceiling is $21.87 and it was tested at least 3 times this past week, establishing a firm resistance. Shorter-termed LEV is improving but weaker than I like, and longer-term LEV is wishy-washy. 2d thrust shows some money flow inward, and an AB value of 76 shows a favorable R/R ratio. JBL has products in consumer discretionary, which is a favored sector. They are guiding up on both earnings and revenues, and are due to report June 22nd.

MENT: MENT has experienced a 2d breakout on short term LEV, and this is indicated by the 2d thrust and Extension values. The AB value of 86 is quite favorable. GGT has the stock as CASH because it is not seeing significant moves to the upside compared to historical levels when it broke out, indicating a weaker stock at the present time. The stock moved to a GGT CASH status on 4/29. MENT is guiding up in both earnings and revenues, and reports on May 27th. Note that the 1-year ago report showed a declining YoY revenue number, but since then, every YoY revenue number has been positive. The stock has longer-term LEV institutional support. Note that it is in a weaker sector, so we need to watch the group as a whole.

MYL: MYL has solid LEV on both short term and long term scales. The AB value of 74 suggests favorable R/R ratios. 2d thrust and Ext EV are showing an inward money flow. The stock is in a favorable sector (healthcare), but is a GGT ranked CASH stock due to poor volume, compared to historical breakout levels, as well as poor pricing, again compared to historical breakout levels. The stock is in the lower range of a Darvas box with a floor at $23.41 so this combined with the LAB could provide a very good R/R potential. MYL is guiding inline.

NSM: NSM is a takeover candidate from TXN and is essentially a safe haven. It gets a pass from me.

RAD: RAD is in the retail group which is presently favorable. It has a GGT LONG ranking, which means that it is above it's historical, favorable thresholds. AB = 82, which is in my sweet zone. While 2d thrust is positive, Ext EV is negative showing some short-term downward movement in EV. Despite three days of downward price movement LEV has remained intact, which I consider positive. RAD is guiding up on revenues only, and is due to report June 23rd. Note that they have not had a stellar report card in terms of revenues on a YoY basis so be watchful.

SYK: SYK was covered in detail at my seminar this past weekend and is a solid buy candidate in a strong sector.

XRAY: XRAY looks good as of recent but has lacked institutional support, at least on the 40d scale. It just cleared a Darvas box of $38.74 but has fallen back below that level, indicating some weakness. It's in a good, favored sector (healthcare) so it is a good candidate. XRAY is guiding down on earnings, so be watchful of this.

==================

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

May 12: Very Few Choices in GGT + EV, a Few Contras Look Interesting

2011-05-12T07:50:00.000-04:00

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We have a meeting Saturday morning at the Great Falls Public Library in Great Falls Virginia. Doors open at 10:00 and we'll get started around 10:15.

WebEx information will be posted in the GGT group today. The library indicates that they have a high-speed connection in the meeting room.

===============

Summary

The GGT price index fell -1.39% on volume that was -9% below the 50d MA. This volume level is within a standard deviation so we have a solid distribution day. In fact, we've had several over the last few weeks:

5/11: -1.39% on -9% 50d MA volume
5/6: -1.93% on -4%
5/4: -1.01% on +6%
5/3: -1.17% on +5%
4/29: -1.21% on -3%
4/18: -1.3% on +3%
4/12: -1.11% on +1%

7 distribution days in the last month is a wakeup call. We need to be paying attention right now.
ALL of the slopes of the pricing moving averages (MAs) have turned negative again. This is measured from the 5d to the 65d. This is BEARISH, as it indicates on all those time scales that we are losing $/day in our portfolios.
ALL of the directions of the pricing slopes are pointing down, again through the 65d MA. This means that not only are we losing money day over day (see the previous bullet), that we're doing it at an accelerating rate downward. Protection of profits is a good place to be.
The Short-Term LCR Change Timer moved long Tuesday night and I entered a VTI position yesterday at the open, and was immediately stopped out in the afternoon. The timer is now LONG-CASH (0), indicating that if today is a down day there is a high probability that it will move back to cash tonight.
Elder's Force Index timer is clearly negative by several days. Stocks should not be purchased on the long side.
Despite the downdraft yesterday, the LCR only fell -4%. This means that there was not a broad, deep selloff, which is actually dangerous. Put another way, had the LCR moved down quickly, we could expect a bounce, but since it moved down only gradually, I expect to see continued bleeding.
ALL of the slopes of the LCR are still negative - 6th contiguous day. ALL but the 8d slope are pointing downward. The database is contracting day-over-day faster than it was yesterday, so stock selection abilities must improve dramatically.

Conclusions: Cash is king. New entries into stocks on the long side.

=====================

GGT + EV

There are only two candidates that appear on the screen today: NSM and MENT. NSM is a takeover target by TXN, but volume has been quite heavy as of late and LEV on a short term scale has been moving upward. Longer-termed LEV is poor, as we would expect, so this is not really a serious play as far as I'm concerned.

MENT held up rather well yesterday but did show a net outflow in LEV for the period. SmEV has started to move up and in to the stock while LEV is decreasing, which is the exact opposite of what I like to see. TEV is moving up in aggregate though, so this is good overall. While somewhat moot, as I'm not moving long on anything, I think that there is good potential here once the market finds a base.

On the ETF front, we have three ETFs that are "New Longs":

UUP: EV is not supportive of a move into this ETF, but it has flashed a buy signal in the weekly and daily charts based purely on price.
SMN: LEV made a real good move in terms of the short-term LEV yesterday, and longer-termed LEV is solid.
DUG: mixed signals on EV, so this one gets a pass.

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Trading Plan for Thursday

I shed most of my positions over the past two days using 1% trailing stop losses on the weakest of performers, and I exited many positions at the waterline with simple market or limit orders. The exit of the contras was premature (obviously), but there was no way of knowing what was going to transpire in the afternoon and as of yesterday morning, life wasn't all that bad for the bulls.

My wife's TSP is still fully invested and the adaptive timers on those positions are indicating to stay in the market as of the close of last night. Her portfolio from our latest entry is down -1.38%, but overall us up over 10% over the rolling last 12 months.

My VXX positions, which were heavily underwater going into the market yesterday, have halved their losses, and with the market looking poor today, I'm expecting that they will continue upward. These positions are worse-case down -2.9% and while very volatile, are exactly where I need to be with the portfolio.

My CMI positions (AB = 100, LER = -62, Rating = 14) have not yet triggered to fire to CASH according to GGT, but saw some distribution yesterday which has me concerned for their longevity. CMI looks great on the longer-termed LEV chart but is clearly experiencing distribution on the 8-day LEV chart; you can see this too in Pascal's data which shows a 2d thrust of -1.63. From HGSI's perspective, CMI is still a hold:

13d Force Index (both calculation methods) are not confirming (EMA is negative = sell, SMA is positive = hold),
13d and 34d slopes are both positive
all relevant EMAs are aligned properly: 8d > 13d > 21d > 34d > 55d > 140d

So, for today, CMI is a hold.

In a review of the Contra universe, I'm not seeing anything yet in the 3x leveraged contras (from Direxion), so it's too early to move into these. If I were to purely speculate the -3x bear on Energy looks somewhat interesting, but again, LEV is poor. SKF, the -2x on financials, is looking pretty good. FAZ, the -3x on financials, is looking equally good in terms of LEV, but is incredibly volatile and hit my stops a few days ago when I tried to enter. BZQ has flashed a buy signal on the daily and weekly and LEV is supportive of an entry.

=========================

Remember, you are responsible for your actions, and I am not. Please do your diligence, and place take ownership for your actions.

Regards,

pgd

May 11: Some Timers Pointing Long, Others Still in CASH, Few Candidates to Choose From

2011-05-11T10:04:00.002-04:00

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We have a meeting this Saturday at the Great Falls Public Library in Northern Virginia. Doors open at 10 and the presentation will start around 10:15

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Summary

Tuesday was a good day in terms of prices, with the GGT price index jumping another +1.1%. For the Monday-Tuesday sequence we've moved almost +2.0%, which does not erase the damage of last week, but it certainly helps.
The slopes of the pricing moving averages are showing some signs of life. The 5d and 65d (only) have now crossed back into positive territory. The 65 moved back because it has only been negative for 2 days -- shallow, and the 5d moved positive because we are seeing pricing strength in this local bounce.
ALL the pricing moving average slopes are pointing higher, independent of whether they are negative or positive. This is necessary for a bull to continue, and so far, we have two consecutive days of this occurring. The bulls are regaining control on a short term basis.
As stated yesterday, the Short-Term LCR Change Timer based on the LCR and tradeable with the VTI has moved LONG. If you choose to play this (I will this morning), enter at the open this morning.
The Intermediate-Termed Elder Force Index timer is in CASH, but only barely. If today is a solid day on volume and price appreciation, we could see the FI(13) signals move LONG with the close of markets today. This would be bullish overall if we can get the change.
Pascal's Money Flow signal is still SHORT, although money did flow back into the markets yesterday. Despite the fact that money flowed in, there are few GGT + EV candidates to review, so while I may frustrate some of you, I'm not going to be aggressively bullish at all in this market.
The Long-Cash Ratio (LCR), which is a measure of the GGT universe in terms of the number of stocks with a LONG rating compared to those with a CASH rating, has moved up +2% on Monday and +19% on Tuesday. ALL of the LCR moving average slopes are NEGATIVE, which is bearish. Despite this, ALL of the slopes are pointing upward from their negative levels, which is encouraging. I simply do not move long in an aggressive manner when the LCR is negative.

Conclusions: This is a tough market to make money. Prices are moving upward, the database is starting to move with the prices (upward), but many of the "all clear" timers are in cash or short. Markets get choppy as they see-saw back and forth, and this is the best description I can provide. I may move long on a few GGT + EV candidates; more below.

======================

What Say HGSI about the GGT Universe?

Take all the GGT stocks, dump them into a list, and import them into the package. The result is the ability to look at my own index:

As with all my images, right click on it to open in a new window or tab.

I went through this chart format recently with respect to Contra ETFs so I'll not go line-by-line here. What is most interesting to me is that:

Elder FI(13), using both the EMA and SMA methods, have *just* moved long with yesterday's action. This is calculated a bit differently than my personal method, so I'm inclined to tip the balance towards moving long since the past trend has been long. It is a coin toss though...

[For those of you wondering, my personal method adjusts for additions and deletions of stocks so not to skew the calculations (much like how the DJ30 index is calculated when a stock is added or removed), whereas the presentation above simply considers the basket held as of the date on the right side of the graph. The history shown to the left is not the same history that actually existed, hence the difference in calculation methods]
The 13d and 34d slopes are pointing upward (bullish) AND they are about to both move positive in value. This is based on price, not volume, and I think it important that we consider moving long when these both cross into positive territory.

What gives me pause in the chart above is that:

The MACD is still showing a negative histogram -- this is bearish in general
%B is already "yellow", which means we're entering overbought conditions. Any further movement upward will cause this to turn pink or red, which is not a time to purchase stocks.

Conclusions: Using HGSI, we are clearly moving upward towards a resistance level, and with the Elder FI(13) methods now showing bullishness, as well as the 13d/34d slopes moving positive, we should consider entering longs on a shorter-termed basis.

=====================

GGT + EV

So the question becomes which stocks to consider?

Let's look at each and see if they are further candidates:

EL beat guidance on May 5th and has run up nicely into that announcement. AB is a 76, which is just on the lower threshhold of 80 (an arbitrary value I may add) that generally is my cut off. 2d thrust is barely negative, and there has been some money flow out of EL over the past day or two. Nevertheless, this looks "ok" if it can move higher that the previous day's high and resume LEV inflow.
ENDP has an AB Buy Signal level that is lower than I like at 55 -- I prefer numbers close to 100. The stock is about to clear a Darvas box level of $42.37, but the AB level suggests that caution should be advised. This stock has been strongly accumulated by large players on both short term and long term EV scales, so give it a review. The stock is guiding in-line.
MGLN looks poor from a couple of different viewpoints. First, from a long-term view, LEV is below the SmEV levels, showing lack of institutional support over longer time frames. On a shorter-term view, the LEV is falling, showing distribution. The AB level is 49, and there is less than $2 upside until we hit the upper active boundary. This one gets a pass from me.
MENT looks good from a LEV perspective on both short-term and longer-term scales. Volume is steadily increasing, which I consider positive. LEV is diverging from SmEV, which I love in overall patterns. The AB level of 98 translates to a projected UB level of $18+, or over a 25% potential move up from here. MENT is guiding up in earnings AND revenues, which I consider positive. This is a buy.
MSTR isn't providing guidance on earnings and revenues, which I always consider suspect. Short term LEV has been decreasing after two large-block orders on 5/5 move LEV up dramatically -- e.g., there has been some selling as of late. This is also reflected in the slight negative value of the 2D-Thrust values. Upside looks good according the AB signal, but the recent distribution of LEV gives me pause. I'm passing on MSTR.
CA has started new LEV accumulation -- short term looks strong, longer-term is poor but improving. Active boundary levels show that there is 10-15% upside from here with defined risk to the downside. CA is guiding inline and has earnings announcements on May 12th (tomorrow) after the market closes, so I'm going to give this a pass.

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Trading Plan for Wednesday

While I'd like to move into the markets, pickings are slim. The LCR slope values all still being negative give me pause despite their pointing upward -- a negative slope means "loss/day" and in this case, stocks are losing ground faster than those that are moving upward in terms of volume and price. This is relatively easy to understand -- GGT requires volume AND price to move LONG, and only requires poor prices to move to CASH. Hence, in an environment where volume is poor, the GGT Long-Cash Ratio will always favor the bears. This is by design.

Further to my point here, there are few GGT + EV stocks to choose from. This is due, in part, to the lack of volume (GGT stocks are moving to CASH), but it also points to many cross currents that I'm seeing in terms of EV.

MENT looks like a good candidate, so as long as LEV continues upward as prices move up, or at least holds steady as prices drop, I plan to enter. EL also looks interesting overall.

My Contra ETF positions are underwater, but only slightly. Most of my longs (CMI, ORCL, SPY) are slightly above/below the waterline and are unremarkable. My VXX positions are down hard, now nearly -6%, but I consider them a good hedge to hold if the market moving around in a sideways pattern.

================

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

May 10: Sitting Pat, Trial Balloons on a Few Contra ETFs, Holding My Longs

2011-05-10T09:30:00.001-04:00

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There is a meeting this weekend at the Great Falls Public Library in ... Great Falls, VA. Doors open at 10:00 and the meeting will start after I get set up, around 10:15. We will broadcast the meeting if a web connection is fast enough.

================

Summary

The GGT price index rose nearly +1% on volume that was 30% below average. No, this is not due to C and their reverse split -- I do a simple average so C only gets a 1/2400 piece of the volume pie. Volume was simply very, very low, as in "outside of 1 standard deviation low". This is abnormal and indicates tremendous uncertainty in the markets.
The pricing slopes moving averages are all negative, especially the 65d MA, which now has notched a 2-day negative value. This has not occurred since last August and is bearish for the intermediate term (65d = 13w = 1 Qtr).
We did get a bit of a bounce in the DIRECTION of the slopes of the pricing moving averages -- they all turned upward with yesterday's action, just the slightest amount. This is a necessary condition for the bull to live -- all I can say is that it's on life support. We need more sustained up days of the DIRECTION of the slopes (which are all negative but now are pointing upward). If this is confusing look at yesterday's blog, specifically the first chart.
My price accumulator tool, which tells me on a short-term basis whether I should buy stocks, actually moved from an extreme "oversold" level of -14 to +10 with yesterday's action, indicating that even if you were convinced of the market uptrend, that you would NOT move into the market today. The risk of tomorrow being a down day is better than 70%...
The Short-Term LCR Change Timer, which uses the VTI to move in and out of the market, is ready to move LONG today if the markets are up. We've not made a lot of progress since February with this timer -- on 2/1 the equity curve was at $1.465, and the close of yesterday was $1.473. In that time frame it's moved as high as $1.529 and as low as $1.416. Sometimes timers work, sometimes they do not. It's a given that if you are out of the market you'll miss the best performance of any timer.... :)
The Intermediate-Termed Elder Force Index timer is clearly negative, and will remain so for the foreseeable future. It will take a huge price/volume day to move this long.
The LCR moving averages are all negative through the 65d MA, which is bearish. The database is contracting, meaning the number of stocks that are moving to a CASH recommendation is outpacing those that are moving to a LONG recommendation ON ALL MEASURED TIME SCALES. The implications of this are important -- your stock picking ability must improve dramatically if the pool of available outperforming stocks is getting smaller and smaller. We want the reverse, so we ride the tide upward, not invest when the currents are flowing outward. Sit pat.

Conclusions: although futures are up this morning, there is nothing suggesting that this price movement can be sustained. The biggest issue I see is the lack of even the shortest moving averages - 5d is my inside - to budge off of their negative values (price MA and LCR MA), suggesting that nothing is powerful (yet) in this climate to reverse the slide. I intend to hold my positions today, and not initiate any new ones.

=================

Momentum

I'm a big momentum guy. Correspondingly, I have a tool that helps me gauge momentum in the GGT universe:

As with all my charts, right-click on it to open in a new window or tab.

The chart shows the GGT price index (red) with momentum (blue). Momentum is measured as the daily accumulation of CHANGE in the LCR, on multiple time scales. The slight blue uptick that we see on the right of the chart is normal after coming off a peak -- simply look back at other peaks and you'll see the same behavior. What is crucial here is whether this new uptick starts a new trend upward, or if we continue downward. I simply don't know, and as my colleague David Steckler states, this is "something we'll know in the fullness of time". What I DO know is that I will not attempt to anticipate this turning point -- I'm happy to wait and see what the market provides.

====================

GGT + Effective Volume Candidates

Slim Pickins. No, not the tycoon -- the number of stocks in the union of the two universes. It really is ugly when we only have a few to choose from:

ENDP and MSTR have negative 2d thrust, so even though they are being acquired on a longer time frame, they are being SOLD on a 2d time frame. CA is netural. NONE of the candidates have a 2d thrust that is remarkable, and this is also confirmed by the GGT "Long" recommendations -- none are "new long" or "aff. long", which means they are jumping up and down waving their arms for you to review.

Simply put, a "yawner". I see nothing here that is compelling to purchase, even on a internal EV review of the basket. Yes, they are being bought on the longer term scale. Yes, they are GGT ranked "Long". Yes, they have a rating above 80, which is favorable.

If you decide to move on these (the price accumulator tool is saying that there is a greater chance that tomorrow will be down than up, the LCR moving averages are all negative so you would clearly be swimming up stream), stick with the ones that have a positive thrust with a good AB rating (above 80 or so). That only leaves one or two to review.

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Trading Plan for Tuesday

I'm sitting pat. I moved into a short position in IWM in my two trading accounts and a long position in RWM in my IRA (I can't short in the IRA). I have set stops and if they trigger, they trigger. I unloaded a number of my long positions with poor LEV patterns on the longer-termed basis using a 1% trailing stop loss yesterday and lost about -0.2% overall in my combined holdings, all accounts. C'est la vie.

I also moved into a couple contra positions with initial 100-share block orders, just as a trial balloon. I'll potentially add to them today if I see that contra positions are gaining momentum after the "futures are indicated higher" dust settles. Specifically, I'm in FAZ (LEV down just slightly on the day but overall looks solid), FXP (LEV gained throughout the day and upticked at the end, always a positive sign), SDS (bought 2 100 share blocks and will add, down slightly on the day in terms of LEV, but overall, LEV looks good on multiple time scales),

ORCL has a 1% TSL on it that never fired yesterday, but as a GGT CASH recommended stock, I'm not looking to hold it longer than it will produce a gain. CMI looks good across the board and I intend to hold. SPY is gaining me out of a hole and I'll continue to hold unless it looks like it will reverse (it's presently hedged with SDS position, but the SPY position is much larger as I scale into the SDS position). VXX is way underwater and I'll most likely add another 100 shares in both my accounts as it drops (total holdings in both accounts is only 500 shares).

My wife's TSP (ggt-tsp.blogspot.com) is 100% invested, with 97% of it sitting in the equivalent of the S&P500. An adaptive timer system is used there (as volatility drops the thresholds drop too), and as of last night, it's saying to stay in the market, damned the low volume or not.

====================

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Monday, May 9: Too Early for Mass-Movement to Contras, but No New Longs

2011-05-09T07:29:00.200-04:00

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There is a face-to-face meeting this Saturday, May 14, at the Great Falls Public Library. Doors open at 10, and the meeting should start around 10:15. I will attempt to broadcast via WebEx; stay tuned to the GGT Yahoo! group for details.

====================

Summary

According to Effective Volume considerations, we are in a confirmed "short signal". Aggregate money flow is moving out of the market. According to backtesting, new long positions should not be initiated.
The Intermediate-length Elder Force Index timer, applied to the GGT universe, is confirmed in cash, and has been since 5/3.
The short-term VTI timer, which is based on the day-day movements of the GGT long-cash ratio (LCR), is confirmed in cash and has been since 5/3.
ALL slopes of the GGT pricing moving averages are now negative. The last time this occurred from a long --&gt cash view point was 8/12/10, and we stayed in these conditions until 9/7/10. This means that on all time frames less than 66 days in length that the average daily change is now negative $/day, and this is unhealthy for our portfolios.
ALL slopes of the GGT LCR moving averages are now negative. This does not look at price, but at the ratio of stocks in the database with a favorable recommendation (LONG) to those with unfavorable recommendations (CASH). Right now the all slopes less than 66d in length are negative, which means that we are losing more stocks to the CASH side on a per-day basis than we are gaining. Put another way, your stock-picking abilities must improve dramatically as the pool of stocks gets smaller day-over-day.

Conclusions: Aside from being oversold to some degree, it is difficult to justify any new long positions. Holding existing long positions, cash and a careful review of contra ETFs look good from here.

==================

Same as Last Year?

Take a look at the following chart:

As with all my images, right-click on the figure to open in a new tab or window.

The chart shows the daily change in slope for the 13d, 21d, and 34d prices of the GGT index. We have seen levels like this -- one year ago to be exact. I've adjusted the chart to review 1 year ago and you can see that the GGT price index bounced around a few % here and there, but in general, tested new lows prior to moving higher at the end of the summer.

This is the data view of this next table, which many of you will recognize:

Whereas the previous chart showed only the 13d, 21d, and the 34d slopes, the left side of the table above shows us the 5d through the 65d slopes. Compare the table above with the chart above for the 13d/21d/34d and see if you can convert between the two -- it's important that in your mind when you see a transition from green to red in the table above you understand what is occurring in the figure above.

Of particular importance on the left side of the table is that the 65d moving average has now reverted to RED/Bearish, and this hasn't occurred since August 2010. Even though we may move up and down from here, it takes a fairly strong up signal to move a 65d moving average, so I'll go on record as saying that I think some opportunities to play the contra side of the market are about to evolve.

The RIGHT side of the table shows us that the "slope of the slope", or visually, the direction that the slope is pointing, is down. Whereas slope is a measure of "change/day", and in this case, "dollars change/day", slope of the slope is "change in change/day", and the sea of red on the right side shows us that we are changing MORE to the downside per day than up.

Takeaway point: we absolutely need the right side of the table to start showing green before the left side does (why?). The fact that the right side is a sea of red, and we don't have any green anywhere, is solidly convincing that the bears are in control, bounce or not.

===================

20-day Money Flow

I'm going to use a chart from Pascal's Effective Volume work to show you just how hard the market is working to get no where:

The top figure is the daily % change in 20-day money flow, e.g., this is the equivalent of my slope analysis but applied to money flow instead of GGT prices or the Long-Cash Ratio. The top pane shows us that the 20-day money flow has just crossed the moving average from above (a bearish indicator), as well as crossing below 0 (confirming the MA crossing to the bearish side), causing us to realize a "short signal". This doesn't actively mean short everything, but it does mean that historically, when this has occurred, initiating new long positions from here has not worked.

The middle pane is the S&P500. As you can see, typically, when we get a "short signal" the S&P has churned around a bit, all with the exception of January 2011. Every signal is not full proof, but when this signal changes, we should pay attention and look at other indicators.

The bottom pane is Pascal's Overbought/Oversold indicator, and as you can see, we've taken out the lows of April 2011 and are working on moving lower. Sure, we can bounce upward from here, but right now, and with my aforementioned GGT pricing slope analysis, specifically the 65d signal, we are not in a position to have a raging bull from here.

I simply cannot see any compelling reason to move into new long positions on Monday, May 9th.

=====================

Contra ETFs

With the indicators largely blocking any new entry into long positions, the question begging to be answered is "what about Contra ETFs"?

Take a look at the following chart:

Again, right-click on the image to open it in a new tab or window.

The chart is created in a software package called HGSI, and it permits visualization of the market in ways that are easier than some of my other platforms. The chart was created by taking the leveraged 3x contra ETFs from Direxion and creating an index. I use the 3x leveraged ETFs because they are ultra-sensitive, and together, they can form an early-warning system for what is developing.

There is a considerable amount of information here, so let's look at each piece individually:

Bongo Weekly: this is RED, which says for Contra ETFs, the overall trend for contra ETFs is down. WE ARE EARLY to move en masse into contra ETFs or to short stocks on an intermediate basis, as indicated by this tool.
Bull Power: This is a measure of Elder's, and it basically looks at the highs of the bar in relation to the 13d moving average. In the chart above, this is POSITIVE, which is BULLISH for Contras.
Bear Power: This too is from Elder, and it looks at the LOWS of the bar in relation to the 13d moving average. To confirm an uptrend, we want this to be positive (lows above the 13d). Right now it is NEGATIVE, which is BEARISH for Contras.
Force Index: Another Elder indicator, I'm showing two calculation methods. The top one is an Exponential Moving Average (EMA), and the lower one is a Simple Moving Average (SMA). When these two are the same color, they are aligned. When they are mixed colors, we have uncertainty. We are mixed, with the EMA showing LONG (for contras) and the SMA showing CASH (for contras). We are early for Contra ETFs according to this system.
(skip 2d Force Index)
The chart below the Elder work is a MACD. Here, we have a positive histogram (black bar is positive), so we are uptrending, and have been for the past 4 days. This is a good sign overall, and with the MACD and MACD Signal lines in the lower half, we are poised to move upward a significant amount if the trend continues. Color the MACD bullish.
(skip %B)
The chart below the %B ribbon is a graphical view of the 13d and 34d SLOPES of these moving averages. The faster moving average, the 13d, is positive, which means on this time scale that contra ETFs are gaining in $/day. The slower moving average, the 34d, is negative, which means that on this time scale that contra ETFs are LOSING in $/day. Hence, we have a mixed signal -- I want both of these to be positive, and until they are, we are early for Contra ETFs in terms of momentum.
Finally, in the lower panes, we see moving averages superimposed with the daily price candles. NONE of the moving averages have crossed each other from below, so we certainly are early here.

Conclusions: We are early to move into Contra ETFs as an entire change in position. Until we get confirmation across multiple indicators, the bull trend is intact, but obviously it is very weak right now. While there are some Contra positions that are worthwhile to play, consider those that only have a positive-trending LEV.

=====================

GGT + EV Candidates

The following are stocks that I am watching in the event the market money flow reverses and we have a new long signal:

Many of these have a 2d Thrust which is negative, so although buying continues and they are rated in some form of GGT long, money is exiting on a short-term basis. I do like the chart patterns of many of these from an EV perspective, but I will not swim up stream on Monday.

GGT + EV Contra ETF Candidates

Although we are early to move into Contra ETFs en masse, there are some worthy of our attention. Here are a few for your review:

SMN -- solid longer-term LEV support, short-term LEV just starting to positively diverge from the SmEV. Presently in the middle of a Darvas box which found a floor on 5/2, so the downside is defined. GGT Affirmed Long on Friday.
FAZ -- solid longer-term LEV support, short-term LEV started the positive divergence in earnest on Friday. In the middle of a Darvas box which formed the floor on 5/2. Weekly tools do NOT confirm a move into this ETF, but it is hard to argue with LEV. GGT Long on Friday.
FXP -- good looking longer-term LEV pattern, but short-term LEV pattern is mixed. Broke out of the upper right corner of a Darvas box on 5/3 at $26.49 or $26.76 (depending on how you calculate the box), and this typically is a bullish move. GGT Long on Friday.
SKF -- same as FAZ but with a 2x leverage amount instead of FAZ' 3x leverage. GGT Long on Friday.
SDS -- although this is a GGT "Cash" recommended ETF, it is only so because volume is relatively poor. The strength of SDS is a +3, which means that if we get ANY volume here it will convert to a New Long. LEV patterns on both the short-term and long-term basis are strong.

Futures are up, so if these make a solid dip then reverse, we may have a good entry. VERY RISKY given the broader picture for Contras, so DO YOUR OWN WORK!

========================

Trading Plan for Monday

Many of my long positions are at the waterline, and I've placed a 1% Trailing Stop Loss on those that have falling LEV, with the hope that the futures today move them upward then close.

I'm watching the GGT + EV Contra ETF Candidates closely.

I'm still long in my wife's Thrift-Saving Plan (TSP), the blog which you can find here.

=======================

Remember, you are responsible for your own trading decisions, and I am not. Please do your own work, and please take ownership for your actions.

Regards,

pgd

GGT Indicators Showing Possible Bounce Developing ...

2011-05-06T00:37:00.002-04:00

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We have a meeting at the Great Falls Library on May 14 at 10:15 (doors open at 10). I'll attempt to broadcast the event via WebEx; please stay tuned.

I'm traveling today from the west coast back to Virginia, so there are no GGT + Effective Volume recommendations for Friday, as Pascal doesn't update this content until the following morning (his time), and I will not be able address before I begin my travels.

===============

Summary

Obviously, another challenging day for the bulls. The GGT price index fell another -0.63% on volume that was 7% above average. 3 of the last 5 days have seen greater than -1% decrease in the GGT index on average volume, and with all of the past 5 days being down, we are quickly moving to an oversold condition.
The 55d slope of the price index moving average has fallen below 0, which is the first time this has occurred since 11/16/10. The only soldier that is standing in positive territory is the 65d slope of the moving average, and if this falls, we will have a confirmed intermediate-term call to move everything to CASH. 9/7/10 was the last date that the 65d slope was negative, so this has been quite a bull leg.
Needless to say, all the timers are in cash, both short-term and long term. Moving into long positions right now for anything longer than day trading is really not advised.
Surprisingly, the 5d "slope of the slope" with respect to the price moving average, AND the long-cash ratio (LCR), have both moved positive. This is an interesting situation -- it means that on this 5d time frame we actually have slowed our drop, e.g., a reversal (bounce) could be in the making for Friday. It simply means that enough stocks moved upward to somewhat offset those that were falling, hence, we are slowing in the drop. I feel that money flow at this point will be critical to determining how aggressively we move back into the markets.
The LCR, which is a measure of the number of stocks in the database with a LONG recommendation vs. CASH recommendation, has just moved below 1.0, which means there are more stocks on the CASH side than on the LONG side. The trend is down, and this is bearish for the short term. The LCR fell another -20% on Thursday, so the week's sequence is -11%, -28%, -25%, and -20%. If we fall less on Friday, or even reverse it to the positive side, then I think it possible that we could have a short-term bounce.

Conclusions: I have no intention of placing any positions on the long side. I am anticipating a bounce here, as the slope of the slope indicators on both the prices and LCR system are indicating a slowing in the falling of the knife. Given that it's a Friday, I can't see any compelling reason to hold anything over the weekend.

===================

Today I unloaded EPIQ, as planned. The position was slightly underwater.

GGT has indicated that ORCL, one of my holdings that I have a very slight loss (-0.5% in two accounts), should be sold as it has transitioned to a "New Cash" recommendation. Short-term LEV has been decreasing but is sill above the SmEV levels, and we had a slight uptrend in LEV at the close of the day, so I'll see if the accumulation trend continues. If not, I will unload ORCL.

CMI, which is indicated "Long" by GGT, saw a considerable amount of LEV accumulation on Thursday although the price was moving all over the place, both upward and downward. I see no reason to unload CMI even at the slight loss level of -1% in two accounts. In fact, if LEV continues to increase, adding to the position as price falls will most likely be a course of action for me.

DOV is underwater -3.5% and on the short-term view, is having LEV problems. Long-term LEV is still looking better, but the end of day LEV pattern showed a significant uptick in price as LEV plunged. This is opposite of what I consider a good EV pattern, so I'm concerned about DOV in general. GGT has it at a "Long" recommendation but with a strength of -2, so it could move to a sell with any further decrease in price.

My VXX position is up slightly and given the present downdraft, I think the trend is up for this. If we get a reversal I will unload.

========================

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

No New Long Entries; Not Anticipating a Bounce Today

2011-05-05T09:02:00.000-04:00

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We are having a face-face meeting on May 14 at the Great Falls Library in Northern Virginia at 10:15 a.m. (doors open at 10:00). I'm attempting to determine whether we have a solid internet connection so that we can broadcast the meeting via WebEx. Stay tuned.

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Summary

The GGT price index fell -1.01% on volume that was +6% above the 50d MA. This is solid volume on a a down day, the 4th one in a row, and is significant overall.
The pricing "slopes of the slopes" are all pointing down on the 5d through 65d timeframes, so we are accelerating downward and have not yet stabilized. This is bad for the bulls and we need to protect profits.
The long-cash ratio (LCR) indicators have all turned negative and remain downward pointing through the 65d time frame. This is significant, and indicates that the database is contracting in terms of the number of stocks that are outperforming their historical behavior. Unless you are really good at picking stocks, it is ill-advised to enter stocks on the long side, as the currents are flowing against you.
GGT has the ability to determine the "strength" of the database; we're in quasi-"could-go-any-direction"-land but because momentum is pointing down, I think we'll continue that direction for the next day or two.

Conclusions: we have confirmation of yesterday's comments that this bull leg is under pressure and is in significant trouble. We have not yet entered an area where historically, we have bounced, so I'm anticipating further downside movement.

================

Holdings

Most of my positions just dropped below the waterline with the action of yesterday's market. I intend to hold onto them for the most part, unless the wheels simply come off the wagon today. Here's my decision process; I use the TradeStation plugin for analysis:

CMI: Short-term LEV is poor, longer-termed LEV can be interpreted either way. GGT has the stock at a LONG status. Total EV status is "buying continues". Briefing.com has the earnings guidance as guiding higher, but revenues only. Healthy but under pressure.
EPIQ: EV has been dropping since my purchase, and now the LEV levels are below the SmEV levels on multiple time scales. GGT transitioned to CASH on Monday, and I should have sold on Tuesday. EPIQ is guiding up earnings for the quarter. EPIQ is not tracked in Pascal's EV universe.
ORCL: Short-term LEV is above SmEV but the two are converging, showing distribution. Longer-termed LEV just fell below the SmEV level showing a general distribution over the last 40 days. GGT has the stock ranked as a LONG, and the guidance is positive for the quarter concerning earnings. Pascal has a rating of 62 for the stock, which is favorable but not above my desired threshhold of 80.
SPY: LEV is poor on both long-term and short-term timeframes. If we hold around $134.00 I'll most likely add around that point, provided that I see some movement in terms of short-term LEV.
VXX: I just went positive on my VXX position, and with this morning's action, it looks like it is moving upward aggressively. This was a hedge and has been in contrast to LEV, which has been very poor. I'll most likely lock in the gains if I see any form of topping.

=================

GGT + EV

While I'm not entering any new long positions, I do feel that I need to generate the list of candidates that I would closely review if I were to move back into the markets. As we know, they can change quickly. Here's my most recent list:

As with all my images, right-click on the figure to open in a new window or tab.

Note the high level of Health-Sector stocks; give them a close review, as they are being accumulated.

=====================

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Elder Force Index has moved to CASH, storm clouds on GGT horizon

2011-05-04T15:55:00.000-04:00

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There is a meeting on March 14 at the Great Falls Public Library in Great Falls Virginia. Starting time is 10:15, although doors open at 10:00. I will make every attempt to provide content via WebEx, but I do not presently know about the quality of the connection from this library.

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Summary

The GGT price index fell -0.67% on Monday and another -1.17% on Tuesday on volume that is within the normal bell-curve of 50d MA volume. The drop of 2600 stocks with an average over 1% is significant and we need to pay attention right now.
The slopes of the pricing moving averages are now BEARISH through the 34d time frame, which is not good for the bulls.
The "slope of the slopes" of the pricing moving averages has been downward for the last three days (through 5/3), indicating that not only are the aforementioned price/day changes negative, they are accelerating in this downward value, losing more and more each day. This is not good for our portfolios.
The Short-Term VTI timer has signaled a move to CASH.
The intermediate-termed Elder Force Index timer that I apply to the entire database has signaled a move to CASH as of the close of 5/3. This has been confirmed using both exponential and simple moving averages. Initiating new long positions on an intermediate-termed basis is not advised at this time.
Over the last two days, the Long-Cash Ratio (LCR), which is a measure of the number of stocks in the database with a LONG rating compared to those that are recommended CASH, has dropped -11% on Monday and another -28% on Tuesday. The present value is now 1.517, indicating that 1616 stocks have a long recommendation and 1065 have a cash recommendation. The low point for cash-rated stocks was 803 which occurred on 4/29, so we have a significant increase in the numbers.
More ominous is that the slopes on the LCR are starting to turn negative, with all slopes below 21d being negative. We want the database to be expanding (positive, green) during a pullback to give us confidence to enter, and right now, we are not seeing this trend continue.

Conclusions: I think that the confluence of indicators showing a breakdown in price, price+volume, and long/cash recommendations suggests that we need to 1) not enter new long positions, and 2) employ good money management techniques if our long positions do not sustain their gains.

====================

Slope Analysis

The table below is a summary view of the GGT price index moving averages, all with a length of 5d through 65d. On the left side of the figure, when the respective value is "green", we have a slope that is positive, e.g., the dollars gained per day is positive, and when it is red, we have a slope that is negative, e.g., we are losing dollars per day.

The left side of the table shows that we started to break down as far as the 5d and 8d moving averages this past Friday, this carried into Monday, and with Tuesday's close, we are testing the same waters as we have done many times in the recent past. As you can see, we are at a critical level in this table -- we've not violated an uptrending 55d moving average since 11/16/10 (not shown), and the most recent instance of the 65d moving average being negative was when it transitioned from down to up on 9/7/10. That's a long bull leg.

The right side of the table simply shows the "slope of the slope", or the rate of change of the left side of the table. Hence, if we have green on the right, we are gaining dollars per day faster than yesterday. Conversely, if we have red, we are losing dollars per day faster than the previous day. As you can see, the most recent bearishness started on THURSDAY, 4/28, and has been solid and broad since that time.

Because we put prices in our bank accounts, we must be cautious at this time.

==============

This next table is of the Long-Cash Ratio system. Stocks in the GGT universe have two broad classifications -- LONG, which means price and volume are above historical optimized levels (it is outperforming compared to the last year), and CASH, which means that price (only) is underperforming the last year. The ratio of these two classifications tells me the trend of the market from a deep-internal perspective.

The major crack in the bull ice right now is that the slopes of the 5d, 8d, and 13d moving averages are all negative. On these time scales we are losing more stocks to the CASH side than we are gaining on the LONG side -- we are bleeding. Investing long at this point is dangerous -- you are clearly swimming up stream against the current.

I can prove this assertion on the right side of the table. We see that as far as the database is concerned, Monday and Tuesday have seen a greater outflow of stocks to the CASH side than an inflow of stocks to the LONG side, day-over-day. The bleeding is increasing day-over-day, and this means that fewer stocks with a long rating are available today, and even fewer will be available tomorrow.

Only buy stocks long when the right side of the table is green, which shows that we are moving upward in the number of stocks that are participating in the rally.

===================

This last chart is one that I've kept my eye on for the past few months, and it has been a good tell of momentum in this POMO-driven environment.

This chart shows the GGT price index (red) compared to an accumulator of slope movement within the database (blue trace). As you can see, historically, when we have entered areas near the yellow zone, we have been turned back. With all indicators, this one could certainly fail going forward, but also, it has worked the last three times we have hit this zone.

Somewhat disconcerting is that it suggests that we could pull back to a level of $32 from our present level of $33.66, so we'll have to keep an eye on this as well as the other pivot levels of the S&P to see if we're violating any support. I am somewhat concerned though, so again, no new long positions.

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GGT + EV (Effective Volume)

While I do not intend to move into new long positions, it is always good to review which stocks are meeting the GGT and EV screens:

As with all my images, right-click on the figure to open in a new window or tab.

The list is the intersection of GGT-above averaged ranked stocks with those that are experiencing improving institutional support as measured by EV. All the stocks listed have a rating above 80.

Notable is that NOT ONE of the GGT stocks has a recommendation above Long -- this means that they are all experiencing some form of downdraft in price, but are holding above historical levels where they start to perform poorly. Another notable is that we see buying continuing/surging for most, even though prices are dropping. This is positive, and I suggest that you review each stock's LEV pattern to discern which ones have favorable (bullish diverging LEV pattern compared to the SmEV pattern.).

I'll leave that bit for you to work out.

====================

Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

All Signals Long, Watch for Profit Taking, which Could be a Good Entry Point

2011-05-02T07:38:00.001-04:00

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There is a GGT meeting Saturday, May 14, at the Great Falls Public Library, 10 a.m. I will work to see if it can be broadcast via WebEx or equivalent. Stay tuned.

There will be no blog entry early for Tuesday, May 3rd, as I will be traveling late Monday to the west coast (Washington).

Summary

Despite the markets advancing (somewhat) on Friday, the GGT price index fell on average volume, indicating that filtered, higher-quality stocks (above $1, above $1Msh dollar-volume, three primary exchanges) actually saw some profit taking. In the present climate this is healthy, but we need to watch for any sustained pullback.
The 5d and 8d slopes of the pricing moving averages have dived negative, while everything longer than the 8d is still very positive. This in general is bullish.
My price accumulator change oscillator, which tells me if due to price changes the market has moved too fast, is indicating that we have favorable reward/risk characteristics for Monday, May 2nd. The value is -14, the lowest it can go.
The GGT strength indicator is contrasting with the oscillator, and is at a value of 0.812. This is slightly overbought (anything over ~ 0.8) and indicates we could see a pullback in the next few days.
Both short-term timers, the LCR Change Timer and the LCR VTI timer, are LONG, and have been since 4/20 and 4/21 respectively.
The Elder intermediate-termed Force Index timer is LONG, and has been since 4/27 close.
Despite prices dropping on Friday, the Long-Cash Ratio, which is a measure of price-volume participation of all stocks in the database, rose another 12%. This is bullish and says we should be long in the market.
The slope of the LCR moving averages are all positive, which is extremely bullish.

Conclusions: We should be long in the market, and the bullishness of the LCR says the risk of reversal, baring any bad news, is relatively low. We are nearing profit-taking levels, so entry after a slight pullback into strong Effective Volume + GGT stocks is the most prudent approach.

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Slope Analysis

The following table shows the relative behavior of the GGT pricing system. When the slopes are positive across multiple time frames we have a price-appreciating market, which is good for our bank accounts:

The table above shows that on Friday, April 29th, that the 5d and 8d pricing slopes moved negative, which is BEARISH, and if you look on the right side of the table, you see that on both Thursday and Friday we had the "slopes of the slopes" -- e.g., the direction that the end of the slope was pointing -- pointing down on these time frames. You also see that ALL slopes of slopes were pointing down, which shows some profit taking occuring on Friday that was significant enough to affect the moving averages through the 65d. A one-day pullback like this is normal (simply look above), and offers us a good entry point if the upward trend resumes.

Conclusion: watch for stocks to pullback, then make a high that clears the pull-back day. Enter once the stock clears the pullback high.

LCR Slope

The LCR slopes differ from pricing moving average slopes in that we're looking at a ratio of the number of stocks with LONG/CASH recommendations with the LCR moving average slopes. This gives us a trend of the market, and more importantly, when the LCR slopes or the LCR "slope of the slopes" are negative, we know that we need to protect profits.

As you can see below, we are "smooth sailing" as of the close of business Friday:

The table here shows that we had a slight consolidation day on Thursday (see the slope of the slopes on the right), but as far as we are concerned, we are expanding in terms of this bull leg and playing the long side is prudent.

Conclusion: The LCR is at a high level compared to recent times, but everything is looking good as far as internals to the GGT universe.

======================

GGT Momentum

Always watchful for a shift in momentum, the graph below is an indicator that I use to keep track of the GGT universe in terms of it's upward march in prices.

What we see in the graph above is that we may be entering a period of decreasing momentum, which historically has been associated with pullbacks in prices. A one-day-downtick does not make a trend, but keep an eye on the overall market, and if it rockets hard upward from here over the next day or two, I would expect this indicator to not stay in the "yellow zone" too long, e.g., I would anticipate a pullback, as these levels that we are at have historically resulted in profit taking.

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GGT + Effective Volume

I you are not a member of the Effective Volume site, you need to be. Many positive changes are coming and this is a very powerful indicator. If you join because of my promptings, please tell Pascal at the site. In full disclosure I don't get anything for it, but it's nice for all of us to know where he is deriving business.

Note that at the present time your EV membership monies go mostly to charity.

Here's my watchlist of GGT + EV stocks for Monday, May 2nd:

The top 10 strongest GGT industries, as of the Friday 4/29 close are:

The top 10 greatest 1-day delta in strength of GGT industries on Friday are:

I note with some interest that selected stocks in the GGT + EV group are not included in the strongest industries as determined above, which simply indicates that you need to look more for sector overlaps, and not necessarily industry overlaps (e.g., Retail, Electrical/Electronic, Energy, Health are all sectors that are in favor between the strongest industry groups as well as the individual GGT + EV stock lists).

A list of the stocks in each industry group can be found in the Yahoo! GGT group Files section, which you need to be a member to view.

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Trading Plan for Monday

I plan to enter stocks early on the long side if they are showing strength.

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Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Broad Participation Underlying the Database; Be Aware of Potential Profit Taking on Bernanke News

2011-04-27T10:59:00.000-04:00

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Summary

The GGT price index rose 0.67% on volume that was -4% below the 50d moving average. -4% is within the "noise" of the market, so this was a good day in terms of prices.
The slopes of the pricing moving averages, which range from 5d in length to 65d, have now been positive for 4 consecutive days, with three of those days pointing upwards to "more positive" readings. This is net bullish on the market.
The price change oscillator, which is a tool I use to determine overbought/oversold conditions, is unchanged at a value of 0. This indicates that there is equal probability of a move up, as well as a move down, from this point (same as yesterday by the way). Put another way, moving into stocks on the long side could have favorable risk/reward characteristics.
The GGT database strength indicator, which is an oscillator that moves between 0 and 1 and indicates stock participation in terms of prices and volume, has just moved to +0.862 from 0.695. This is a large change for a single day and values above 0.8 are typically indicating overbought, so some caution at entering on the long side is advised.
The Intermediate-termed Elder Force Index timer is still in mixed mode. Volume has not been high overall and as a volume-based timer, this one is not confirming the market in terms of price-volume. December 2010 showed us that we can move upwards a significant amount without volume, so this is a datapoint more than a driver.
The slopes of the Long-Cash Ratio, which range from 5d in length to 65d, have now been positive for 2 consecutive days, with the last 5 consecutive days all pointing upward. This indicates that the underlying database is participating in terms of volume and price, compared to historical levels, and that we should be moving long into the market.

Conclusions: markets climb a wall of worry, and The Bernanke will be speaking, which will create volatility. Overall, while we have some indications of a potential pullback, as of last night's data nothing suggests that this bull leg is in trouble. I intend to buy the breakout off of a pullback, and I'm long VXX in the interim.

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Momentum

As a market timer, I'm interested in momentum. One of the indicators that I've developed shows me overall momentum, relative to past history. Here's the view:

As with all my charts/figures, right-click on the image to open in a new window or tab.

The chart shows that we are clearly in an upward trend according to the entire GGT database, measured in terms of prices and volume moving above historical thresholds where the stock price moved upward. This is bullish, and while we certainly can reverse at any time, participation on the up legs has historically been healthy to our bank accounts.

Pricing Slopes

We're clearly bullish on time scales out to the 65d EMA on GGT price:

As you can see on the left side of the figure, we've been "green", which indicates a positive slope for the moving averages, for the last 4 days. This means that on average, the prices of the database are moving upwards on multiple time scales. This is important.

The right side shows us the "slope of the slope", e.g., whether the positive slope line is pointing upward or downward. Out of the past 5 days you can see that we've been pointing upward 4 of the 5, which means that there is a net acceleration upward in day-over-day prices on multiple time scales. This is important -- and it is bullish through last night's data.

Long-Cash Ratio Slope

The same presentation can be applied to the LCR, which gives us a combined view of price and volume behavior within the entire GGT universe:

Of particular interest is that we are green-green-green on multiple time frames -- this is bullish.

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GGT + Effective Volume

A number of stocks continually are meeting this screen, jumping up and down, waving their arms. According to the Active Boundary numbers they are still showing good value. Here's the output of the screen:

These stocks have been performing well overall for the last few days. Give them a careful eye.

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Remember, you are responsible for your investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

LCR Signals "All In" on the Long Side, Price System isn't Confirming (Neither is Force Index)

2011-04-26T09:02:00.000-04:00

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Summary

Monday's action resulted in prices falling -0.75% on volume that was -30% below the 50d average. When I see such poor volume it simply indicates that we are on autopilot -- most likely due to the Fed's anticipated remarks on Wednesday. Until Wednesday p.m., I do not anticipate any significant moves in the market.
My pricing change tool relaxed off of "overbought" at a reading of +14 going into Monday's market to "neutral" (+0) going into today's market. This is telling me that (Fed minutes notwithstanding) entering long positions today should be okay provided "quality" and "high demand" stocks are the target candidates. Put another way, I'm considering strength above yesterday's high, not pullbacks.
The Elder intermediate-termed Force Index timer is still mixed, and Monday's action did nothing to assist clearing this to a long signal. Until I get a signal either way, I'm largely in cash.
The slopes of the LCR system have all moved positive, which is a divergence from the pricing action of yesterday. This tells me that the database is participating on the long side in terms of price and volume, and this is certainly an "all-in" signal.

Conclusion: The Elder Force Index indicision has me cautious, as does the extremely low volume, but the LCR now signalling positive slopes for all time periods out to 65 days is a powerful long signal.

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Pricing Analysis

As can be seen above, the pricing system has been fully long for the past three days on all time frames from 5d through 65d. The slopes of the pricing slopes did turn down, and this was indicated by the overall GGT index dropping -0.75%. "All green" in terms of pricing is bullish -- historically, I have wanted to be long in the markets when the pattern above has existed.

Next, here is the LCR slope system:

What is remarkable about the presentation above is that the LCR slopes have all turned positive, despite the database price dropping on Monday. Even on low volume, we were close enough to threshhold levels in prices and volume such that we "went over the edge", and the presentation above tells me to get my feet in the (long) market.

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Effective Volume

Today's combined GGT + EV scans returned a larger-than-normal list of candidates to review, which means more stocks are favorable for entry than not. Here's my watchlist:

Many of these stocks are appearing multiple days here, due mainly to continued buying, so given that the pricing change tool is indicating a more favorable entry risk/reward ratio, I will probably enter selected candidates on strength today.

I do note that we DO NOT have a confirmed EV money flow indicator to either the LONG side or SHORT side. The indicision of the money flow indicator gives me tremendous pause at entering major positions, so I most likely will only float "trial balloons" of 25% size or so.

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Remember, you are responsible for your own investment decisions, and I am not. Please do your own work, and please take ownership for your actions.

Regards,

pgd

My Bias is Bullish, but not all Indicators are Confirming

2011-04-25T09:05:00.002-04:00

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Summary

The slopes of the pricing moving averages are all positive and are pointing up, which can only be interpreted as bullish.
My price change oscillator is at the top of the "overbought" range at +14, indicating today is not a good day to enter stocks long, as the chance of a pullback in the next day or two has increased significantly.
The Short-Term Long Cash Ratio (LCR) change timer has transitioned LONG
The VTI timer, which is an ETF based on the movements of the short-term LCR timer, has confirmed the movement. Placing a position on VTI today, even though the price change oscillator is overbought, is something I'm considering. The equity in this timer since September 2008 is at $1.52 / dollar invested.
The Elder Force Index timer, which is an intermediate-length timer (at least 18 days if not more), is in mixed mode. This means that we do not have strong dollar-volume participation in the market, and that while we certainly can go up from here (remember December?), the chance of gains from here are less.
The slopes of the LCR moving averages are just starting to turn positive. For this bull to be sustained, we need these to all turn positive.

Conclusion: the bias is bullish, but several indicators are having a hard time confirming this bull leg. I intend to be cautious.

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Slope Analysis

I use slope analysis of moving averages to give me an idea of how the markets are performing. There are two key areas I pay attention to:

slopes of pricing averages, which tell us how we are performing on an index level from 5d to 65d in length, and
slopes of moving averages of the ratio of stocks with a LONG rating compared to those with a CASH rating, which tells me how well the stocks within the database are performing relative to price AND volume behavior ( I do believe to have a sustained bull that we need a few days of up prices on above-average volume ).

Here's the slopes of the pricing averages, as well as "slope of the slope" (right side):

As with all my images, right-click on the picture to open in a new tab or window.

What the image above shows, starting on the left red/green area, is that we just transitioned from a period where the shorter moving averages were all bearish, but the longer moving averages were bullish. While the pain in your portfolio increases as the red flows from left to right, the fact that the 55d and the 65d slope indicators have remained green (bullish, positive) for the entire time of the presentation should key you in that we are still in an intermediate-termed bull leg.

The right side of the image shows us that the slopes of the moving averages are all pointing upward, and have been for the last 3 days. In fact, Wed/Thurs a week ago showed an initial movement upward, followed by a down sequence Friday/Monday, only to be followed by progressively stronger days Tu-Wed-Thurs of last week. This is a leading indicator, and the combination of the "all green" on the left side as well as the "all green" on the right side compels me to only consider the long side of the market at the present time.

Here's the same presentation, but now applied to the Long-Cash Ratio (LCR):

The LCR slope presentation is not nearly as bullish as the pricing presentation, but in general, it rarely is. What is important above is that:

we're seeing green starting to emerge in terms of the slopes of the LCR EMAs. This must continue for this bull leg to find it's footing
we're seeing strong performance in the "slopes of the slopes", e.g., they are all pointing up through the 65d period, which is necessary for the left side of the figure to continue to "grow green".

What concerns be in the above presentation is simply that we do not have the participation that we need in terms of volume. How do I know this? Simple -- LCR considers BOTH pricing and volume, whereas the previous discussion was concerning prices only. Volume is lacking, and has been lacking, so this seems to me to be "artificial". Whether this is evidence of related POMO money supply from Uncle Sugar is speculation that needs to be debated over your favorite beverage.

Conclusion: from a slope analysis point of view, pricing signals are strong, but the underlying database is just starting to show some life. The two are not in sync, and until they are (if they will be that is), I will be careful of this market in general. "Being careful" means long positions in stocks that are moving to new highs on good volume.

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GGT Files

If you are a member of my GreekGodTrading Yahoo! group, you have access to files which represent detailed snapshots of stocks with respect to the GGT methodology, as well as Effective Volume. I posted the updates for both stock and ETF files this past weekend, and there have been some subtle changes that you may find interesting.

In the file "GG_stks_21Apr2011_DashboardEV.htm", you'll see a complete listing of the GGT universe of stocks unioned with the EV universe of stocks. Stocks listed on the GGT side but with no corresponding data on the EV side will have a "NA" indicated, simply showing that they have not yet been added to the EV universe. Here's a summary snapshot:

Again, right-click on the image to open in a new window or tab.

If you open the file in Excel, you can use the filter function in Excel to select the stocks that have the best combined statistics. For example, a screen that I like is the following:

GGT Recommendation: select only those stocks that are New Long, Aff. Long, or Long.
EV: select only those stocks with a Rating >80

This gives you a subset of stocks that are historically outperforming their previous behavior (due to criteria #1), and that have favorable EV characteristics with pricing behavior (due to criteria 2).

If you end up selecting any stocks with a LER Status of "Do not buy" (unlikely if Rating > 80), simply filter those out. Same situation for Tot EV Status of "Selling continues" -- avoid those stocks.

I can only backtest to February 17, 2011 using this methodology but I will state that the quality and performance of hypothetical portfolios of these stocks has exceeded other types of buying strategies where EV or GGT status is not considered.

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Another major change that you will see is in the "GG_stks_21Apr2011_Dashboard.htm" file. Again, if you open this file in Excel, you can use copy/paste functions to select symbol baskets.

You'll see that there are a number of portfolios listed:

GGT Top25 Earnings Optimized Portfolio
GGT GorillaTrades Optimized Portfolio
GGT IBD50 Earnings Optimized Portfolio
GGT Dow30 Earnings Optimized Portfolio
GGT NASDAQ-100 Earnings Optimized Portfolio
GGT Stocks Guiding Higher

Here, "Earnings Optimized" means that the indicated stocks must have appreciating earnings AND that the CEO/CFO is on record over the last 90 days indicating that they are guiding earnings, revenues, or both higher than consensus. Typically, when the CEO/CFO makes such a statement, the stocks have positive earnings/revenue surprises 80% of the time, and more importantly, the stocks continue to guide higher the following quarter (which generally causes their price to increase).

To make one thing clear -- I do not have a subscription to GorillaTrades, but it's relatively easy finding the most recent portfolio simply by doing a Google search.

"Optimized" also means that I've done a risk/reward analysis on the stocks in the respective universes and have selected only those stocks with favorable risk/reward characteristics over the past 100 trading days or so. This isn't to say that other stocks in the Dow, NASDAQ, etc. aren't appealing, it simply says that when traded in the basket shown, the stocks presented have the best balance of risk, reward, and diversification.

This leads me to the last column on this file, which you will see indicates "Recommended Allocation". Simply, if you trade an individual basket, your allocation should be in the ballpark of what is shown. This will balance risk, reward, and diversification, and prevent concentration in an area that is underperforming.

Finally, at the bottom of the file, you will see an area "GGT Stocks Guiding Higher". This is a list of GGT stocks for which I have positive guidance data in the present earnings cycle. I don't think that I have to describe what this means. A CONSIDERABLE AMOUNT OF WORK has gone into generating, testing, and maintaining this list, and I ask that you NOT distribute this list, period. I pay for the data, and if I find it out in the public domain, I'll simply pull the files and use them for my own consumption.

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Stock Watchlist for Monday, April 25th

Here are the stocks that I am considering today:

This list is not a recommendation to purchase, it is simply a listing of stocks for consideration. Please do your diligence, take ownership for your actions, and be respectful of the work and preparation that goes into producing the content in this blog.

Regards,

pgd

NOT All Indicators are Confirming LONG; We Need Followthrough

2011-04-21T09:31:00.000-04:00

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Summary

Yesterday's (4/20) big move in the markets added 1.69% to the GGT price index on volume that was 3% above the 50d MA. Given the state of lower volume being normal, this was a broad move with almost across the board participation.
ALL of the GGT price index slopes, 5d through 65d, are positive AND they are pointing upward. This is bullish for stocks on the short-term and intermediate term.
My reward/risk tool, even with the large move on 4/20, is only at +6, which is suggesting more upside on a short-term basis. Entering stocks on the long side should only be accomplished if they are breaking out with significant price and volume.
The Short-Term Long-Cash Ratio (LCR) Timer has moved LONG. The tradeable VTI Timer, which is based on the ST-LCR Timer, is still in CASH. This is a mixed message that needs to sort itself out.
My Elder Force Index Timer is MIXED. The simple moving average (SMA) method of calculation is in CASH, the exponential moving average method is LONG. IF YOU ARE CONSERVATIVE, then you want to pay attention to the SMA method. If you are aggressive and nimble, then you want to pay attention to the EMA method.
Only the 5d and 8d slopes of the LCR are positive, the rest are negative. This is NOT confirming an en masse jump into the market. Given this, and supporting the bullish case for the aggressive investor, is that the slopes are all pointing upward, which is necessary for a bull to be sustained.

Conclusions for Thursday: Futures are up as I write this, so we will open to the up side. NOT ALL INDICATORS ARE CONFIRMING THIS BULL MOVE, so until they do, I will not commit monies to 100% positions. 25% trial-balloons are my focus. Candidate stocks for review are below.

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GGT + Effective Volume Stocks

Given that the climate is supportive of long entry into stocks, the following is a list of stocks that I am screening. The list below HAS NOT BEEN SCREENED for specific patterns of EV; it simply is a listing of the most favorable stocks in both the GGT and EV universe.

As with all my figures, right-click on the image to open in a new window or browser. Stocks with a "New Long" or "Affirmed Long" recommendation, combined with "Buying Surges", are especially attractive.

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Remember, you are responsible for your own trading decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd

We are close to a sell signal, but are not there yet...

2011-04-14T09:13:00.000-04:00

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Summary

I conducted a seminar yesterday for High Growth Stock Investing; the video can be found here. In the video I present evidence of why the markets are rolling over and why we should not initiate new long positions.
The Elder Intermediate-Termed Force Index Timer, when applied to the GGT universe of stocks, is 0.1% above the sell line using a simple moving average (SMA) method. The exponential moving average (EMA) method has already been in CASH since close of business Monday. If today's action is negative (futures are down -0.25% as I write this), we will have a confirmed sell of the long portfolio.
Effective Volume (EV) Money Flow (MF), which can be found here if you are a subscriber, is confirming a move to cash as of the close of April 11th (Monday), and if today's behavior is down, will move to a SHORT mode.

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Damage Control

I'm presently holding AA, CAT, DIS, FCG, GE, IYR, JPM, KOL, SLV and XLI.

IYR and XLI are Connors TPS trades and are performing as expected.

FCG and KOL are remainders of the Optimized ETF portfolio, and are both underwater. FCG is down -4.18% into this morning's action, and KOL is down -2.39%. FCG is within a Darvas box with a floor at $21.84, so it is not an outright sell on this metric alone. Of course, the Elder and EV timers indicate that this should be unloaded. EV on FCG has been deteriorating, so I'm seriously considering selling any intra-day bounce or the floor of the Darvas box, whichever comes first.

KOL is also within a Darvas box with a floor at $47.95, and it bounced off the floor two days ago. Again, the timer models indicate sell, but the behavior in the box isn't a panic pattern. Further, the EV charts, while showing some short-term selling, are showing longer-termed LEV support from institutionals. I'm not as inclined to sell this position today unless it drops through the floor of the box and stays there on the 39m charts.

AA is being punished for "missing" sales, but in general, it's a solid stock on many fronts. Short-termed EV has been selling, but overall, it still has considerable support over the past 40 days. My sell price is $16.13, which is the top of the box that concluded on 3/18

CAT is another stock that is a great performer, but is being hit by perception that Japan will slow purchasing of CAT products, which is exactly BACKWARDS of what is anticipated within CAT. It's bouncing around within a box with a floor at $97, but I can't let it fall that amount due to other money management rules that I have. Hence, if it falls much further from the -5.51% loss that I presently hold I most likely will unload, e.g., if it falls and closes below the 50d MA on the daily it's time to unload.

DIS is a solid company that is performing well on the long term, but is not doing much of anything on the short term. It's rattling around in a box with a floor at $41.25, which it has tested 3x, so unless it falls through the floor, I intend to hold.

GE has EV support but closed below the floor of my box yesterday, the floor being at $20.07. Given this, I have to say goodbye to GE today.

JPM is a quality stock with a good dividend, but it got hit yesterday when Mr. D. made it public that we shouldn't look for an increase in the dividend any time soon. Despite EV holding well, the stock closed below my sell point of $46.32, so I will say goodbye to JPM today.

I hold SLV in a speculative account and am up 12% since entry. It appears that EV support is mostly from retail traders now, as the large folks are exiting and locking in their profits. I will continue to hold, and my sell point is a close below $37.26.

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Contra ETFs and Shorting

I discussed contra ETFs in my video yesterday, and concluded that a few of them look attractive here, but only for trading and surgical strikes, not for any form of intermediate-length holding.

With last night's data, this position has not changed.

Further, take a look at the following chart, which shows the VIX combined with a number of moving averages:

As with all my images, right-click on the figure to open in a new window or tab.

The figure shows the candles of the VIX and various moving averages. I've placed vertical lines showing the dates when the VIX has closed above or below the ribbon. Furthermore, you see the candles are colored red, blue, and green, which is Elder's system for buying/selling based on price action.

You can see that volatility is really low. The VIX continues to close within a range, and overall, is not indicating a mass anticipation of increasing volatility. This is BULLISH for the markets, NOT bearish.

I use the above chart as follows:

When the VIX closes above the ribbon for the first time after having been long in the markets, ensure long positions are CLOSED. We're not there yet.
When the VIX closes below the ribbon for the first time after having been short in the makets, ensure that short positions are CLOSED. Again, not applicable to our situation.
The color of the candles influences my decisions. A transition from a blue candle to a green candle typically will cause me to place trial entries in contra ETFs. A transition from a blue candle to a red candle will cause me to lock in some profits, but keep the position open.

The chart is telling me to continue to hold my longs and not enter contra ETF or short positions.

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Trading Plan for Thursday

I intend to enter Connors TPS trades as the market makes new local lows. I intend to unload GE and JPM. I intend to sit pat on everything else unless my mental stops are hit.

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Remember, you are responsible for your own investment decisions, and I am not. Please do your diligence, and please take ownership for your actions.

Regards,

pgd