Wednesday, December 30, 2009

Notables from Tuesday, December 29th

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Summary:  Short term strengths of mid-cap and small-cap stocks are falling from their lofty highs, putting the rally under tremendous pressure.  My earlier purchases this week are down 1-2%, yet my contra purchases yesterday are poised to rocket upward.  I intend to purchase additional contra positions this morning on any sign of weakness.  Based on intermediate and long-term trends I intend to hold onto my positions that are on the long side.

GGT Price Index

The GGT price index moved up $0.02 to $21.00, on low volume of 812K shares.  All price EMAs are decelerating, but are very positive, e.g., still upward but at a lower rate.  Intermediate and long-term trends are very much intact, so on those time frames, stay the course.

GGT Volume Index

Volume continues to dry up, and when combined with lackluster pricing, is generally no cause for concern.  Volume Tuesday was 812K shares, with average now falling to 1.32M.  We're in a historically slow period of volume, so we have nothing out of the ordinary.

GGT LCR

The GGT Long-Cash Ratio (LCR) inched upward to 1.87 from 1.82, indicating that 2826 stocks have a long recommendation and 1511 stocks are recommended as cash.  Like the GGT Price, EMAs are all decelerating or topping out, but mostly are pointing upward, so we'll continue to keep an eye on these.  The 13d EMA is obviously going to be the first to break down, but since we have a long way to go before crossing (LCR(13) = 1.441), we're still intact for this bull market.

LCR Change Timer

The LCR Change Timer is still indicating LONG at +1.  Given the pending New Year holiday, we will be here until at least Monday, January 4th.

Index Strengths

The following indexes fell on Tuesday: DJ30, NDX100, Russia, India, China, SP500, SP400, SP600, Russell 2K, leaving only Brazil with an incremental increase.  On a short term basis the lofty values within the SP400, SP600, and Russell 2K are indicating a downward movement.  I suggested contra positions yesterday as a hedge; any further decrease in the markets early today could be a good entry.  I'm holding MZZ and TWM, and will look further at others that represent the indexes.  For me, these are presently a short term trade.

Tuesday, December 29, 2009

GGT Notables from Monday, December 28th, 2009

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Summary:  From a short-term perspective, I'm placing hedge positions on contra ETFs if there is *any* show of strength in contras.  Many of my strength oscillators are showing overbought status.

GGT Price Index

The GGT Price index peaked on 12/24, even with the shortened trading day, at $21.02, the highest price attained since we started keeping track in September 2008 (16 months).  The 12/28 closing price was $20.98, barely a change to the downside (-0.2), but significant that we didn't push higher with more market participation (volume).  This slight drop has caused the 13/22/34/55d EMAs to slow in their velocity, but they are still moving upward (which is bullish).  The canary, the slope of the 65d EMA of price, continues upward at $0.035/day, which is long-term bullish.

From a GGT pricing perspective, there is nothing stating that the market is in trouble, low volume not withstanding.  I am staying the course.

GGT Volume Index

The GGT Volume index is at the lowest value and slope direction since early February 2009, and is coming in at 1.34 M shares, with a 19% (252K) standard deviation.  Volume Monday was 37% below average at 840K shares.  Possibly contrary to your expectations, the standard deviation has been broadening, meaning there are less high-volume stocks and more general-volume stocks, so the big boys are on holiday and the general database marches onward and upward.  Note that I am very, very wary of higher prices on lower and lower volume ... but since we bank prices and not volume it pays to follow the trend.  I'm very cautious of the trend though, and the week of January 4th will be important in terms of how we set the tone for January and beyond.

GGT Long-Cash Ratio (LCR)

The GGT LCR hit 1.82 on Monday, up from 1.521 on 12/24 and is now at it's highest level (and slope) since 9/10/09.  It certainly could go higher.  For now, it is indicating that 2814 stocks in the database have a long-call and 1546 stocks have a cash call.  All primary EMAs (13/21/34/55) are in an uptrend, and the long-term slope of the 65d EMA continues to march upward, as it has been doing so since 11/11/09.  Everything about the LCR is bullish.

GGT LCR Change Timer

The LCR Change Timer continues to indicate a +1 (Long) call, and has done so since the primary transition from Cash-Long to Long on 12/14/09.  Since this time the GGT index has increased just under +4.9%, and since September 2008 the timer/GGT index pair is up 84.7%.  There is nothing indicating that this timer will change with Tuesday's action.

GGT Long Strength Oscillator


The GGT Long-Strength oscillator has hit a high of 1.0, indicating that the database is overbought.  While it certainly can move higher from here in terms of raw strength, this strength is indicating that we need to seriously consider contra ETFs and/or consider locking in our profits.  I intend to do both.

Various Index Strengths and Trends

DJ30:  0.711, up from 0.544 and the 3d trend is upward
NDX100: 0.648, up from 0.524 and the 3d trend is upward
Brazil: 0.514, up from 0.368, and up from the low on 12/18.  Brazil seems to be recovering.
Russia:  0.333, unchanged.  Russia is struggling
India: 0.702, up from 0.488 and up from the low of 12/21.  India is recovering
China:  0.734, up from the low on 12/17.  China is showing strength
SP500: 0.816, up from 0.74 and has been marching upward steadily since 12/21
SP400: 0.959, up from 0.882, and is looking very overboughtConsider MYY and MZZ as a contra
SP600:  0.970, up from 0.96, and is looking very overbought.  Consider SBB and SDD as a contra
R2K: 0.920, up from 0.865, and is looking overbought.  Consider RWM and TWM as a contra


Remember, you are responsible for your own investment/trading decisions, not me.  Follow me at your peril!

Regards,

pgd

Thursday, December 24, 2009

Notables from Wednesday, December 23rd

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Our GGT Price index has made an all-time high of $20.71 on Wednesday, on volume that was 30% below average at 960K shares.  All price EMAs are pointing upward, but with such low volume, I think we have to discount the relative strength that we're seeing.  The rate of change (ROC) of the EMAs is incredibly high -- we're seeing levels approaching the peaking around January 2nd-5th 2009, and we all know what happened on January 6th, 2009.  Nevertheless, as I always say, trade the market we have, not the one we want, so from all pricing indications you should still be on the long side.  Note that I've been slowly taking money off the table over the past week.

The GGT Long-Cash Ratio (LCR) is at the highest value it has hit since October 19th -- 1.517 -- and indicates that 2717 stocks have a Long recommendation and 1791 stocks have a Cash recommendation.  The trend for the LCR is up on all accounts, again supporting that we are on the long side of the market.  The ROC of the EMAs is not unbelievably fast, so we may still have some life in this bull, we'll see.

The LCR Change Timer is indicating "LONG" and has been here or at "LONG-CASH" since 12/14.  Since that time the GGT price index has gone up about 3%, so the call is solid.

The Cash-Strength oscillator is at a very high level of 0.87 and the Long Strength oscillator is at a somewhat weaker level of 0.78.  Every instance since September 2008 of the Cash-Strength oscillator closing above 0.9 was followed by a decline within 2 days that lasted on average just over 3 days; we still have a bit to go with respect to the Long Strength oscillator telling us the same thing.  I consider this a divergence, so just be aware.

LargeCaps, as indicated by the DJ30, are not participating in this rally.  The strength of the various indexes I track is as follows:

  • DJ30:  0.477, down from 0.533.  The down has not been above 0.6 since 12/2.
  • NDX100:  0.745, up from 0.691.  The trend is a gradual up for the NASDAQ-100, and I'd give close consideration to a hedge position in QID.  Use Elder's methods to enter.
  • Brazil bottomed on 12/18 and is now at 0.378, with a gradual up trend.  I own a position in ERJ, a Brazilian stock, that is presently underwater by 2%.  Elder's methods do not always work.
  • Russia bottomed on 12/23 at 0 and to say it is in an uptrend is a misnomer.  Avoid.
  • India bottomed on 12/22 at 0.214 and is now at 0.559.  Very volatile.
  • China bottomed on 12/17 and has been showing strength since, with a strength of 0.599.  The trend is upward; watch FXI and FXP if you do not want to choose individual stocks.  My position in BIDU is down 3% since entry.
  • The S&P 500 is chunking higher, with a strength of 0.722.  The trend is upward.  Watch SDS (-2x leveraged) or SH (-1x) if the strength continues; we should hit a local top and reverse if the trend continues.
  • The S&P 600 is near an all-time high of 0.9964 and a contra position is warranted.  Contra for the S&P600 is SDD (-2x leverage) or SBB (-1x).
  • The Russell 2000 is at a value of 0.923 and a contra position is warranted.  Contra for the Russell 2000 is TWM (-2x leverage) or RWM (-1x).
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A full summary will occur over the holiday weekend.  Enjoy time with family, friends, and loved ones.  Thanks for following along.

Remember, you're responsible for your own investment decisions.

Regards,

pgd

Tuesday, December 22, 2009

Notables from December 18th Weekend

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The Dollar

As discussed at our weekend meeting on the 12th, UUP, an ETF that tracks the U.S. Dollar Index, had signaled entry conditions and was ripe for a core position. I trust that many of you took a look at this and hopefully paid heed; if you had used Elder's methods to get into this equity you would not have done so until the open on the 15th, simply because the action on the 14th was lower than the close on the 11th. If you would have purchased at the open on the 15th @ $22.76, with Friday's close you would be sitting at $23.01, or a gain of $0.25 per share, just over 1%. A few of you who know Elder to the letter would have seen that the FI(2) was positive, blocking entry. This is true, so either you're sitting with a 1% gain or no gain in the account, depending upon your view of how to enter. Here's the graph:

























Is the run over in UUP?  No.  Here's Why:


While the use of exponential moving averages (EMAs) is a trend-following system, application of intermediate-term moving averages to VectorVest's Relative Timing (RT) value can give us some insight as to what the longer-termed trends are doing.  If you don't have VectorVest, then simply plot the 65 DEMA of price and smooth it using a 2 DEMA.


The RT of an equity is related to the 65 DEMA of the slope of the curve formed by price action of that particular equity. 65 days is 13-weeks worth of price information, and when presented as slope information, allows us to see whether the equity is in an uptrend or not. When this "slope" curve is smoothed, using another EMA, the slope of THAT line tells us the rate of change for the price action we are observing. Hence, application of a 21 DEMA to the RT line for a particular equity will tell us, relative to the past month, how fast the long-term slope of the price is changing.

In the case of UUP, we can plot three EMAs of RT on the graph simultaneously. When we do so, we get the graph below:






















What the graph above shows us is that we've plotted 3 DEMAs on the RT signal: 13, 21, and 34. First, note how they are all pointing upward. This tells us that they are accelerating to the upside, even though the individual trends may still be downward.  This is necessary for price action to turn to the upside -- you want some indicator of slowing losses, which is what you have, starting back in late October.   When the RT or any of the DEMAs on the RT cross 1.0 that particular trend line of price has moved from trending downward to trending horizontally. The fact that the 13DEMA  has broken above 1.0 and continues to point upward indicates that the slope of the 13-day trend is clearly upward, e.g., prices are appreciating at a faster rate, day over day. The next EMA, the 21, is just clearing the 1.0 threshold, indicating that slope of price action for the last 21 days, weighted heavier the closer to present we are, is just beginning to turn up. When this 21 DEMA clears 1.0 we know that we are in an early-intermediate term uptrend for the particular equity. Finally, observe the 34 DEMA of RT as indicated above. Note that it is still below 1.0. This is telling us that on a longer-term basis the equity is still in a down trend, but because of the upward pointing direction of the 34 DEMA of RT, it is moving more positive with each day. All three of these indicators are bullish for UUP, and I'm a buyer of UUP the next time Elder's Force Index resets below 0 and then moves upward.


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GGT Price Action

GGT Price Action has continued to new, all-time highs, closing yesterday (Monday, December 21st) at $20.30, down from the quadruple-witching Friday value of $20.41.  Volume increased all last week -- whether due to the 4W-Friday or just good demand is unknown -- but at the end of the week we had experienced the highest volume since the beginning of the month. Note that overall volume is very poor relative to the last 6 months.  The "so what" about this is that this isn't a normal market -- lackluster volume usually would put the brakes on anything substantial in the market, but it obviously keeps chugging higher. 
Note that I don't expect high volume from here on out for the remainder of 2009.    Here's the chart:


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GGT Price EMAs

I've been getting asked by several what I think is going to happen in the next few weeks, and all I can say is that from GGT's perspective, which is a trend-following system, everything is looking very good.  One way to judge this is to look at the underlying strength of the EMAs that comprise the GGT price, and they're all pointing up.  Here's the chart:



Note how the 13 DEMA, 21 DEMA, 34 DEMA, and 55 DEMA are all parallel and pointing upward.  Just like in the UUP discussion above, when we see this type of behavior, we MUST be on the long side of the market, or else we're going to give up gains.  While we certainly can change on a dime, take a look at the following graph, which plots (are you ready for this) the change in slope of the 65 DEMA of GGT Price:



Notice on the graph above how the line is pointing upward.  The database, as a whole, is appreciating in value.  We're still in a bull market, according to the change in slope of the 65 DEMA.

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Elder's Force Index of the GGT Price/Volume

One thing that is giving me pause is Elder's Force Index when applied to the GGT.  Take a look at the graph below:



Note that over the latter part of the summer, whenever we had a spike downward in the FI(2), we had a launch to the upside.  This is indicative of being in a bull market, smart money sitting on the sidelines, seeing the major pull-back, then jumping onto the bandwagon.  Clearly, had you watched this indicator and had you jumped onto a broad-market index, selling when the FI(2) spiked over 300K or so, you would be up nearly 21%.  Nice indicator, eh?  Too bad it's not working now.

Note that Friday's action, largely due to the quadruple-witching (4W) date, caused the spike in the FI(2) to approach 400K. We've always had a pull-back within a few days of this occurring in the past, at least with respect to the market as we know it since July.  If anything, it may be time to take some profits off the table and simply be happy with what we have locked in.  If you don't take profits, at least adjust your stops upward (mental or actual) so that you know when you're going to get out.


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GGT Long-Cash Ratio (LCR)

Of particular interest is that with Monday's close (December 21st), the GGT Long-Cash Ratio is unchanged to three (3) decimal places.  What negates a call of churning is that GGT volume was -17% below the average value, so if we were churning, we're not doing it with respect to the big boys being indecisive.  While I'm coloring this as a "pause" color, we're clearly in the middle of many traders being on vacation and simply not participating with their portfolios -- why mess with bonuses and other benefits before year's end?

Here's the LCR graph, plotted with GGT Price:



With respect to the graph above, note the upward march in LCR with respect to the period from mid-October.   The trend is certainly upward; looking for an inflection point in the LCR at this time simply is impossible, especially with poor volume.  Hence, I think that we simply need to watch the LCR value, and keep track on the direction it marches with respect to time.

LCR Change Timer

If I put any doubt in your mind above concerning the actual LCR value, let it more or less vaporize when you look at the next graph.



We know we've been range bound for almost 6 weeks, and the graph above suggests that behavior.  What you're looking at is the GGT LCR Change timer superimposed with the LCR.  We haven't been on the negative side of this timer too much since early November, which indicates that overall the timer has been calling the trend in a fairly reliable manner.  Furthermore, the bouncing between +1 and 0 is simply indicative the choppiness that we've been experiencing -- the best time to enter the market long is when this timer is transitioning from a 0 to +1, as it did again with this past Monday's (12/21) action.  Note that due to the choppiness of the market, if you followed this timer, you'd actually be down in equity since it peaked in October 2009 and would be quite frustrated with me ... hence the problem with any trend-following indicator.  All I can say is stay the course ... if you invested in the GGT index (I know, impossible, so use the VTI) the timer is up 80.1% since the beginning of September 2008.

If you would like to start using this timer let me know and I'll make a special effort to post the daily readings of the timer.

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GGT Strength

GGT Strength has been strong, well above our less-than-scientific threshold of 0.6, indicating that somehow, somewhere, this database is still very strong.  Given this, I'm still a believer that since we're still range bound, it pays to buy when this indicator is in the low part of the range and think of contra positions when we enter the high part of the range.  Note though that every one of my contra positions has not done overly well as a whole since mid-October....  Here's the graph of the LCR with the Strength Index.





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Ever Get that Sinking Feeling?  No?  Then Take a Look at the BRICs

The BRIC stocks -- Brazil, Russia, India, and China -- are getting hammered.  Just because they're low in strength is not a compelling reason to enter.  Take a look at the following graph:



What should be obvious is the lower highs and lower lows in terms of strength of the individual stocks -- they're getting tired.  The fact that they cannot make it up above their previous peak gives me pause, and the fact that they're hitting bottom (e.g., look just prior to 12/13 marker) shows that people are bailing.  While I do think it possible to ride these upward if they rebound, my gut is telling me (as well as my position in ERJ, a Brazilian stock) that now is not the time to play these stocks.  By far China is the strongest, but over the last week the contra side has been doing very well.  You can confirm this quickly by looking at the relative performance of FXI / FXP, which are the 1x Long/ -2x Contra ETFs for China Xinhua 25.  Here's the graph of FXI/FXP:


Note that FXP, the -2x Contra ETF, is outperforming.  Click on the graph for a larger view.

Hence, my original assertion continues:  I'm staying away from the BRICs.

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GGT ETF Overview

I promise I’ll get better about loading the ETFs on the Yahoo! site on a nightly basis.  Life simply has been busy, and I’ve been spending a considerable amount of time on the west coast.  If you’re not a member of the GGT Yahoo! group then you need to send a note to:

NoVAVectorVest-subscribe@yahoogroups.com

It is the only location to download GGT files.

I always start with the dashboard view of the GGT ETF or stock file.  Here I list numerous pairs of ETFs, and if you’re interested in playing the pairs, it should be your one-stop shopping location.

ERX/ERY is the 3x Energy pair from Direxion.  ERX, the bull side of Energy, is holding firm with a cash recommendation but a strength of +3 – all it needs is volume, and ERY just signaled New Cash.  The lack of a simultaneous New Long from ERX simply means that volume is not there.  Keep an eye on ERX, as any further strength in Energy could move this into the green side.

MWJ/MWN is the 3x MidCap pair from Direxion.  MWJ just signaled New Long, showing that MidCaps are now trading above their historic optimum thresholds.  Of particular interest with this pair is that MWN, the bear side of this pair, is-and-has-been in cash for some time, so for MWJ to finally indicate the New Long is a positive sign for MidCaps.  Also note the following: 
  • VectorVest’s RT / 65 DEMA slope just finished above 1.0 for the 2nd day straight as of December 21st.  I take this as a bullish sign.
  • All three DEMAs (13/21/34) of VectorVest’s RT (or 65 DEMA slope) just turned positive.  This means that the slope of the 65 DEMA of MWJ’s price just inflected to the upside, which is bullish.
Gold, as measured by the DGL / UGL / DGP ETFs, is getting hammered on the long side.  On the flip side, GLL, the -2x contra of gold, and DZZ, a -1x contra of gold with more volume than it’s brother DGZ, are doing quite well.  Things to note: 
  • DGZ traded Monday (12/21) just shy of 100K shares and has signaled a New Long.  This is obviously bullish.
  • DGZ’s 13 DEMA is just crossing the 21 DEMA from below, a bullish sign.  If you enter DGZ, I would only do it with a 25% position until the 21 DEMA crosses the 34 DEMA from below (all in at this point).
  • DGZ’s VectorVest RT is still less than 1.0, so caution is advised.
  • DGZ’s DEMAs (13/21/34) on the VectorVest RT signal have turned to a positive slope, although all the DEMA values are less than 1.0, indicating that they are still in a downtrend.  The fact that they have a positive slope is important to note:  they are losing money less fast.  If the trend holds they will continue upward, and finally, price will reverse and trend upward.  Watchlist DGZ if it doesn’t meet your volume requirements, else this one is looking interesting.
  • GLL traded 12/21 just over 824K shares and signaled a New Long on Friday, 12/18.
  • GLL’s 13 DEMA is just crossing the 21 DEMA from below, a bullish sign.  .  If you enter GLL, I would only do it with a 25% position until the 21 DEMA crosses the 34 DEMA from below (all in at this point).
  • GLL’s VectorVest RT is still less than 1.0 at 0.86, but is in an uptrend, and if it crosses 1.0, we’ll be in a full uptrend.  Until then, caution is advised.
  • GLL’s DEMAs (13/21/34) on the VectorVest RT signal have turned to a positive slope, although all the DEMA values are less than 1.0, indicating that they are still in a downtrend. 
  • DZZ traded 12/21 just over 590K shares and has been long for over 2 weeks.
  • DZZ’s 13 DEMA may just cross the 21 DEMA from below on Tuesday, Decemeber 22nd.  This will be a bullish sign.  As above, if this crossing occurs, I would only commit 25% of the position, waiting for the 13x34 from below (another 25%), and finally, the 21x34 from below (100% all in).
  • DZZ’s DEMAs (13/21/34) on the VectorVest RT signal have turned to a positive slope, although all are less than 1.0.  It could be early to enter, especially without the > 1.0 confirmation.
Contra Gold looks very interesting.

If you download the GGT ETFs from the Yahoo! site, you may have noticed that EWT, which is the Taiwanese ETF, has just signaled “New Long”.  From a pricing perspective this has been in a longer-term uptrend, as indicated by the VectorVest RT value > 1.0 (it closed at 1.09 on 12/21).  While this is good, a plot of the RT DEMAs (13/21/34) show that each is falling, indicating that EWT is decelerating, not accelerating, and hence, we should pass.

I’ll leave whether SLX ,another higher-volume GGT ETF,  is a candidate for entry or not to you.  Ditto IGE.
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Remember, you are responsible for your own investment decisions.

Leave a comment below if you desire.

Wednesday, December 16, 2009

Notables from Tuesday, December 15th

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... and the beat goes on ....

Do NOT let the appearance of yesterday's indexes fool you -- although they were down, the underlying database of stocks continues to march upward, which is bullish (let alone amazing).  Here's the rundown:

The GGT Price index has made another new high of $20.10 on volume that was 13% above average at 1.54M shares.  This is a strong signal, and I'm impressed.  ALL price EMAs (13/22/34/55) continue to march upward, and even the rate of change of the 55 DEMA (the slowest of the ones I track) is at an amazing level of $0.035/day.  Even though this is a trend-following system, it's pointed upward on all pricing indicators, with no apparent slowing even though the indexes were down, so I'm staying long.

The GGT Long-Cash Ratio *is* slowing, but still eeked out another gain yesterday, moving from 1.325 to 1.364, and thus indicating that 2648 stocks are LONG and 1942 stocks are in CASH.  While all LCR EMAs are pointing upward, there is a bit of deceleration in the 13 and 22 DEMAs, simply indicating a pause in the upward march.  If the *change*  in the LCR DEMAs turn down I'll become a tad more bearish, especially if prices continue upward.  As long as the LCR and pricing DEMAs are pointing upward I am short/intermediate-term bullish.

The GGT LCR change timer continues to indicate a LONG stance.  No surprises there.

The GGT database strength FELL on Tuesday, from 0.79 to 0.69.  This of itself is not too worrisome, but we'll have to watch it over the next few days to see if it continues to decline.  A continued decline from increasing prices cannot be sustained and the divergence would signal action on our part.

I did not discuss it over the weekend or yesterday but with Friday's action the GGT database is intermediate-term LONG, as measured by the LCR being above 1.00 and prices continuing to march higher.  I like to see this be "sticky", especially in sideways markets, and so with last night's close we have 3 consecutive days of being LONG.  For those of you familiar with VectorVest this is roughly equivalent to the Confirmed Up signal that is often issued on the VectorVest Composite index.  Note that VectorVest issued a Confirmed Down signal on 12/3, whereas our CASH signal was issued way back on 10/23.  The two signals are very different...

Large Caps, as measured by the DJ30, did not participate yesterday in the underlying increase of the LCR, falling in strength from 0.64 to 0.54.  The primary index was down, and since this strength is derived from the stocks of the primary index, there are no surprises here.  I'd like to see a bigger pullback before entering anything here.

The NASDAQ 100 dropped from 0.73 to 0.59.  Again, the primary index was down, and since this strength is derived from the stocks of the primary index, there are no surprises here.

Brazil was hammered on Tuesday, dropping from 0.60 to 0.427.  My position in ERJ is underwater.

Russia is showing strength off of their all-time low last week, closing Tuesday at 0.47.  I did NOT play the RSX for a reason, but obviously, it's been gaining ground on a short-term (3-day) basis.  My vote is to stay away from Russia for now.

India continues to slide, finishing at 0.166, down from 0.226.

The S&P 500 fell from 0.823 to 0.691.  The primary index was down, and since this strength is derived from the stocks of the primary index, there are no surprises here.

The S&P 400 is impressive.  It barely fell yesterday, finishing at 0.898.  Midcaps are certainly showing strength.  Correspondingly, my watch of MZZ yesterday DID NOT TRIGGER.

The S&P 600 fell from 0.97 to 0.86, and is showing strength like it's mid-cap brother.   My watch of SDD DID NOT TRIGGER.

Finally, the Russell 2K moved down from 0.885 to 0.770, and my watch of TWM DID NOT TRIGGER.

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It's early, but futures are pointing higher, so we appear to be in sync.  I'm holding my long positions, and may even add new positions as my research indicates.

Stay tuned.

Remember (in my best Smoky-the-Bear voice), only YOU are responsible for ... your investment decisions.

Regards,

pgd

Tuesday, December 15, 2009

Notables from Monday, December 14th

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In running the numbers, a few things stand out at me this morning:
  1. The GGT Price Index is hitting an all-time high of $20.03 on average volume of 1.4M shares.  All major price EMAs are pointing upward.  These two things are short and intermediate-term bullish.
  2. The GGT Long-Cash Ratio (LCR) has hit a local high of 1.325, indicating that 2627 stocks in the database are LONG in recommendation and 1982 are CASH recommendation. All LCR EMAs are pointing upward.  These two things are short and intermediate-term bullish.
  3. After bouncing around back and forth, the the LCR Change Timer has moved to a LONG (+1) value with yesterday's action.  This is short-term bullish.
  4. GGT database strength is now at 0.79 and is indicating that we are approaching over-bought territory.  If you are a short-term trader, protecting gains would be prudent.
  5. The NASDAQ-100 jumped in strength from 0.525 to 0.733.  This is short-term bullish for tech stocks.
Converse to the LONG indicators above, we have some weakness:

  • The DJ30 strength FELL yesterday, from 0.68 to 0.64.  In other words, large caps stocks did not participate.
  • Brazil did not change in strength, remaining at 0.60.  It has had a great run, so a pause here is not a major cause of concern, but is noteworthy.
  • India continues to get beaten, falling from 0.297 to 0.226.  Stay away from India until the trend reverses.
  • China jumped from 0.494 to 0.709, although the FXI sold-off mid day and gave up it's intra-day gains.  I like China, but it's struggling.
  • The S&P400 is now at 0.95, up from 0.76.  Give particular attention to MYY (1x contra) and MZZ (2x contra), as these will benefit from a short-term reset in the mid-caps.
  • The Russell 2000 has moved to a value of 0.88, up from 0.68.  Give attention to the relative changes of RWM and TWM, which are the 1x and 2x contras of the R2K.
Clearly, small and mid caps are rotating back into the equation. 

IWC, the Russell MicroCap, has appeared on a series of early scans and is looking very good.  Continued weakness in large caps will cause this to rise -- watch it's acceleration relative to the small and mid-cap indexes (IWM, IWR).

Remember, you're responsible for your own investment decisions.

Regards,

pgd

Friday, December 11, 2009

Notables from Thursday, December 10th

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Yahoo is up to their old tricks and the GGT process did not update in full last night, so this will be greatly abbreviated.  They may be tired of me hitting them 5000 times a night for updates ....

Several of my contra positions fired yesterday around 1:20 pm, causing me to commit to this market.  You may be sitting there smiling that I'm going to get taken to the cleaners this morning -- futures are up, so it looks like these positions will be underwater at the open.  If the markets move aggressively to the upside, say a >2x ADV/DEC ratio or better, I'll lick my wounds and close the contras, else I'm sitting pat for today.

We have a VectorVest/GGT meeting tomorrow in Lorton -- about 60 people have responded that they will come.  Hope that you can make it too.  Check back later today/tonight for yesterday's update.

Regards,

pgd

Thursday, December 10, 2009

Notables from Wednesday, December 9th

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With Wednesday night's close, the GGT LCR Change Timer has moved to CASH (-1).  I have sold all of my long positions and am now going to move more aggressively to contra ETFs.  Yes, the futures are up today.  Yes, we can still oscillate here.  But the fact that we had higher prices yesterday but more stocks have fallen away from a LONG recommendation tells us that we have a major divergence.  Simply put, either we need another rally on volume to move stocks to the LONG side, or we're going to see prices reverse, adding to the down side.  I do not see a sustained rally in the near term.

GGT price has been hitting resistance in the $19.60-$19.76 range since 12/1.  Volume has been decreasing.  You cannot maintain higher prices on decreasing volume--for every buyer, there has to be a seller, and buyers seem to be drying up (no large institutional movements).  Average volume is now 1.38M shares, down from 1.47M shares one month ago.  Prices are well above 1-month ago values of $18.98.  I'm having a hard time justifying being on the long side here, although all of the price EMAs (13, 22, 34, 55) are still pointing upward, which is a bullish sign.

The LCR continues to fall from Monday's peak of 1.234, and is now at 1.058.  The 55d EMA of the LCR is topping out, and another down day will change the slope of this EMA to negative.  That is a bearish stance.  The shorter EMAs on the LCR are still pointing upward, which is bullish.  They are slowing though, and continued downward pressure in the markets will pull stocks down, causing the LCR to drop.  Of course, the converse is true too .. the LCR is a LAGGING indicator-- remember that.

GGT Bull Strength -- the ratio of stocks that would qualify as new longs to the number that would qualify as new cashes, continues to drop from last Friday's peak of 1.4356 and is now at 0.4247.  The trend is decidedly downward, so the bears have been winning.

I actually track two GGT strength indexes -- one that uses volume, and one that does not use volume.  Rarely do we see that the non-volume strength indicator diverge from the one that uses volume, but yesterday's action sees that overall, non-volume strength is appreciating.  This is a bubble -- and it can only resolve itself two ways:
  1. investors see that they are missing gains and swam to the market, driving volume upward, causing the present bearish stance to reverse
  2. investors continue to show lack of confidence in the market and we continue to see lack of volume, and eventually, lack of price appreciation
I'm putting my money on bucket #2 -- I may be wrong!

==========

The strengths of the various indexes are supportive of the bearish stance, if not a bit late.  Although several rose a bit yesterday, most are in a downtrend, especially when viewed from Friday's peaks.  Here's the rundown:

DJ30:  Up to 0.444 from 0.3 on Wed, but down from 0.7 last Friday
NDX100:  Up to 0.440 from 0.427, but down from 0.7 last Friday -- note the slight change; little participation
Brazil:  Up to 0.441 from 0.402, but down from 0.611 last Friday
Russia:  all time low of 0.00.  Russia looks terrible.  Keep your eye on the RSX to see if it rebounds.
India:  Up to 0.25 from an all-time low yesterday of 0.00.. Watch for a rebound here too.
China:  continues to slip and is now down to 0.355 from a recent high of 0.65
S&P500:  Up to 0.407 from 0.376, but down from 0.732 last Friday
S&P400:  Down to 0.435 from 0.546 -- the slipping of mid-caps worries me.
S&P600: Down to 0.566 from 0.657 -- the slipping of small-caps is not good for the market overall
R2K:  Down to 0.5722 from 0.618, not a huge drop, but down significantly from last Friday of 0.904.

===========

Strategy:  Bearish stance.  With the sell of my longs (I actually got out mid-day yesterday to protect gains) I think that my bears (contras) are going to steal the show for the next few days, but my primary goal will be to protect whatever gains that I have today.  I'll sell any position that looks like it could drop under water -- we're in a horizontal-trending market, with a 2-3 day period, so we're not going to see huge movements one way or the other.

My contras on the indexes are doing quite well.  I hope that you all followed me Monday.

Remember, you are responsible for your own investment decisions.

Regards,

pgd

Monday, December 7, 2009

Monday Morning Addendum ...

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When I posted last night I had not given any real attention to the HSI software -- there are a few golden nuggets to watch for in the next few days.

First of all, for all the contra ETFs, it's just a matter of time before we see the reversal of the market.  I say this because of the chart below; click on the image for a larger view.
 




The top pane of the above graphic is something you've probably never seen or paid that much attention to in standard analysis packages ... it's the slope of the 65d EMA of price.  The faster curve (the one that moves more -- red) is fitted with a 5-day fit (corresponding to a week), meaning it looks at the change in the 65d EMA over the last 5 days, the blue curve is fitted to a 21d fit (corresponding to a month) and the slower one (orange) looks at the change in the EMA over the last 34 days (corresponding to ~7 weeks).  The selection of 5/21/34 is somewhat arbitrary.  The image shows an index that I've constructed of all the ProShares 2x Contra ETFs -- the ones that go down when the market goes up and visa versa.

The middle pane shows the price action super-imposed with the 65d EMA (purple), 34d EMA (orange), 21d EMA (blue), and 13d EMA (green).  Note that for the most part these are all trending down.

The two thin strips across the viewing window are Elder's 13d Force Index and 2d Force Index.  We like it when we see a simultaneous change of red to green in both of these.

What you're seeing is the following:
  1. The change in slope of the 65d EMA, measured across the last 34 days (orange curve), is in an up trend.  The scale on the right in the top pane is somewhat arbitrary but note that it is negative (-); this upward trending slope means that the change in 65d EMA is becoming less negative. So while the overall 65d EMA is still pointing downward, it is getting closer to an inflection point where it will flatten out, then turn up.  When it turns up the change in slope indicators will be positive, and we'd better be in contras for the longer-term.
  2. The 5d and 21d change in slopes of the 65d EMA typically stay above the 34d EMA.  While these move around a bit more, they oscillate as the markets move, and they too are oscillating higher between the lower 34d fitted boundary and some less-negative value.  This too means that they are in an up trend, even though the respective EMAs are still pointing downward.
  3. The 2d FI and 13d FI of this index have are still sitting in RED, which is bearish for contras on Monday.  Note that this is a lagging indicator ... the best-case scenario is to catch this on the day when it transitions from simultaneous red to green.
Hence, my read on the market over the short/intermediate (week/month) is this:  it's still too early to become fully invested in Contra positions.  Until we see evidence of these change in slope values crossing into the positive region, we're fighting an up-stream current, and need to be surgical.  Over the long-term (month/quarter), it's simply a matter of time if the change in slope of the 65d EMA continues to move in a less-negative/positive direction.

========


Take a look at SMN, which is the Proshares UltraShort Basic Materials ETF.  Elder just moved green on both the 2d and 13d Fore Index.  The aforementioned change in slopes of the 65d EMA are all pointing upward, so this may be a good entry.

SCO is the UltraShort Crude Oil ETF and has been bouncing around in terms of price.  It is very close to moving positive on the 65d change-in-slope metric. with the 5/21/34 @ -0.03/-0.05/-0.07 respectively.  Note that Elder is green on both FI indicators -- it may be a bit late to get into this.


DUG is the UltraShort Oil & Gas ETF and it appears to have cleared a resistance at $13 on Friday.  All of the 65d change in slope lines are upward, which is bullish for this ETF.  The specific numbers are -0.03/-0.05/-0.05 for the 5/21/34 fits.  Again, Elder is green on both FI indicators, so it may be a bit late.

SDS is the UltraShort S&P500 and it appears to have had a big day on Friday.  Again, all of the 65d change in slope lines are now recently trending upward, again bullish.  Specific numbers are -0.12/-0.14/-0.13, so while more negative than the others, they are pointing in the right direction.  Elder is RED on both indicators, so may be a candidate if the markets weaken.

EEV is the UltraShort Emerging Markets ETF and finished at all-time lows on Friday.  Two of the three 65d change in slope lines are moving upward, with the 5d pointing downward.  All numbers are -0.07; Elder is red on both indicators, so give this one a watch.

MZZ, the MidCap UltraShort, is nearing support and had a Doji on Friday.  The chart looks the same as EEV above, so give this one a watch too.

FXP, the UltraShort China, looks the same as EEV and MZZ, so give it a watch.

Good luck today.  Remember, you are responsible for your own trading decisions.
Regards,

pgd

Sunday, December 6, 2009

December 4th Weekend Update

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This is a hard week for me for commentary; GGT is conflicted in the indicators so let's see if we can break this down and get some direction for the next few days.  I'm not doing inline graphics tonight -- they take too long to edit and I'm on a very small laptop PC, making it that much harder.

GGT Price/Volume Action:  Bearish with Friday's Performance

Starting with GGT Price, we spent the last week bouncing between $19.32 (Mon) and $19.77 (Wed), finishing the week at $19.68 on Friday's volume of 1.76M shares, over 28% above normal of 1.38M shares.  Note that we saw all the evidence of "churning" with Friday's action:  tremendously higher volume (we've not seen this level above average since September 18th) but only a 0.36% jump in pricing.  This is a shot across the bow.  We want to see significantly higher prices on higher volume, indicating that we have institutional participation on the upside.  It's not there folks, at least not from what I can see.

Adding to my overall bearishness observation of price is the fact that we only spent one day above our old high of $19.70 (10/19), finishing Wednesday at $19.77 on average volume.  I would be a believer in an up leg if we could have closed higher than $19.77 on Friday with as much volume as we had -- again, I call this churning.


GGT Price EMAs:  Bullish across the Board
With respect to the GGT Price EMAs (13, 22, 34, 55), we're trending higher on all EMAs.  This means that the change for the week, as well for the day, is pointing upward across all four, which is bullish. Friday's close caused a major acceleration upward in the EMA changes (slope), hence there is no other way to interpret this.

GGT Long-Cash Ratio (LCR):  Bullish with Friday's and the Week's Performance
The LCR moved from 0.626 a week ago to 1.200 on Friday, indicating that we have 2591 stocks with a Long recommendation and 2160 stocks with a Cash recommendation.  Friday's jump in LCR from 0.996 to 1.200 is a large, 20% jump for the database, and shows that both price and volume were significant enough on enough "Cash-rated" stocks to cause them to move to the long side.  As an example of this, we had 313 New Long stocks on Friday, with the 50d average amount usually around 151 stocks.




Bull Strength:  Bullish with Friday's close and Week's Performance
Last week Friday saw the Dubai issue in the market, causing the Bull Strength (BS) (no jokes please :o) ) to achieve a bottom of 0.0371, the lowest value since 10/28 when it hit 0.0391.  We saw a significant run from 10/28 to 11/16, when it finished at a value of 2.003, and we could have expected the same over this past week.  The BS indicator rose for the week, finishing at 1.4356, indicating that we had 1114 stocks which were either New Longs or Affirmed Longs, and 776 stocks that were Affirmed Cash or New Cash.  We could continue upward in the incoming week -- I see nothing in the BS indicator indicating otherwise, but with a 50d average of 0.652 we're well above average, and we could have seen the "capitulation" value in Friday's action.  I'll color this bullish, but be advised we're well above averages.


New Long Spike Behavior:  Potentially Bearish
This isn't a new indicator, but because there are six states to a GGT stock or ETF, I can look at the number of the individual recommendations and compare / infer what this means in the bigger picture. Aside from this week which saw 360 New Longs on Wednesday, we've seen a price pullback within a few days of this New Long spike occurring.  Specifically:
  • 11/16/09, $19.61, 506 New Longs (NL), price fell to $19.16 by 11/20 (4 days)
  • 11/9/09, $19.05, 428 NL, price fell to $18.82 by 11/12 (3 days)
  • 10/14/09, $19.68, 338 NL, price fell to $18.09 by 10/30 (12 days)
Correspondingly, given the churning that we saw Friday, the lack of closing above $19.77, and the extreme high number of New Longs on both Wednesday and Friday, I'm growing more convinced of this churning mechanism.

GGT LCR EMA Behavior:  Bullish for the Week
All of the LCR EMAs (13, 22, 34, 55) are in an upward trend and all are accelerating (gaining value faster).  This is decidedly bullish.


GGT LCR Change Timer:  Having a Hard Time Making up it's Mind
The GGT LCR Change Timer has had a difficult time since 11/23 when it signaled a move to LONG, and although the bias is certainly upwards, we've seen some significant down days (witness last Friday) and correspondingly, we haven't gained a tremendous amount of gain.  The GGT Price on 11/23 was $19.45 and as indicated above, the price on Friday was $19.68.  We're clearly struggling, and this timer, which moves quickly, has bounced between Long (+1) and Long-Cash (0) three times since 11/23.  In this time we've seen our trades get smacked -- we went into 11/17 with an all-time-high equity gain of 88.51%, but have seen that trade back to 82.10% with Friday's close.  We need to stay the course and stay long, but this horizontal market is tough to time.  I'm going to color this "in the middle".

GGT Strength: Bullish, but Entering Overbought Territory
The GGT Strength Index has been bouncing between 0.54 (Monday) and 0.756 (Friday), and while it is showing strength, is at a value that suggests a reversal is close.  Typically, values above 0.7-ish (not an exact science) tend to indicate a reversal is imminent, but we've spent considerable time above this value in the past before a reversal and could certainly do so next week.  By itself this oscillator does not tell us much except that we have 25% upside potential and 75% downside potential.

Domestic and BRIC Stock Strengths:  Mixed Bag
Here are the strengths, trends, and short comments for the various indexes that I track:
  • DJ30: 0.7, up from 0.483.  Spent the week bouncing between 0.48 and 0.855. Trendless
  • NDX100: 0.7, up from 0.494.  Spent the week bouncing from 0.367 and 0.767.  Trendless
  • Brazil: 0.611, down from 0.645 and has been falling from Wed peak of 0.810.  Avoid Brazil for now
  • Russia: 0.388, down from 0.5 and has been bouncing from 0.222 to 0.666.  Avoid Russia for now
  • India: 0.592, up from 0.444, but had down trend from 0.716 (Tu) thru Thurs.  Given other BRICs, avoid for now
  • China: 0.653, up from 0.589, but has been bouncing around between 0.497 and 0.729.  Trendless
  • S&P500: 0.732, up from 0.463, but has been bouncing between 0.0.479 and 0.732.  Trendless
  • S&P400:  0.808, up from 0.454 and appears to be in an up trend.
  • S&P600:  0.919, up from 0.439 and appears to be in an up trend.
  • Russell 2K:  0.904, up from 0.441 and appears to be in an up trend.

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

So what to do ....

Starting with the S&P400, S&P600, and the Russell 2K, these are all approaching or are in overbought territory.  Placing a contra position (MZZ, SDD, and TWM respectively) on each of these is high on my list.  I will enter these positions Monday if they move higher than $0.05 above their Friday close.

My long positions were closed out on Friday, and I already entered contra positions on the DJ30 (entered DXD) and NDX100 (entered QID).  We'll see if these pan out.  I did this because of the apparent resistances shown on DDM and QLD, which are the opposing ETF pairs for these two contras.  If you look at DDM and QLD you will see that they have hit a resistance over the last 3 or 4 trading days, hence I felt compelled to move into the respective contra.  QLD started strong on Friday but simply fell apart, further adding to my conviction that I want to be on the contra side.

Hence, all the indicators are pointing upward, but I see some cracks in the ice.  This goes against my normal saying of "Trade the market that we have, not the one you want."  The difference here is that we do have some indexes that are overbought, and if we see strength on Monday, I'll enter.

Remember, you're responsible for your own trading decisions.

Regards,

pgd

Thursday, December 3, 2009

Notables from Wednesday, December 3rd

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I'm traveling, so keeping this comment brief...

GGT pricing has now moved above it's highest previous value of $19.70, closing Wednesday at $19.77.  It has done so on volume of 1.28M shares, about 6% below average.  This is a bullish sign.

Bull strength appears to be slowing, although it is still increasing.  This deceleration points to a possible consolidation and profit taking, so locking in some gains is on my immediate horizon.

The GGT LCR has moved above 1.0 for the first time since 10/22, and is now indicating that 2365 stocks have a long recommendation and 2325 stocks are recommended as cash.  This is a bullish sign.

Correspondingly, because the LCR has moved up so aggressively, all the major EMAs on the LCR are now trending upward, which is also a bullish sign.

The LCR Change timer remains long with a value of +1.  You should be on the long side, but with the slowing of the bull strength indicator, a contra hedge could be a good strategy.

GGT strength continues to increase, and is now at 0.7236.  It slowed dramatically from Tuesday's value, and indicates a potential capturing of profits at the present time.  This too is suggesting that a contra hedge be placed.

DJ30 strength FELL from 0.855 to 0.711.  This is a warning shot over the bow.
NDX100 strength FELL from 0.767 to 0.702.  This too is a warning shot over the bow.
Brazil continues to strengthen at 0.810
Russia FELL from 0.666 to 0.444. 
India FELL from 0.716 to 0.614
China FELL from 0.792 to 0.650
S&P500 FELL from 0.779 to 0.732
S&P400 ROSE from 0.629 to 0.688
S&P600 ROSE from 0.617 to 0.717
R2K ROSE from 0.628 to 0.709

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

Currents are changing, although we have many bullish signs.  On the shortest time frames, contra positions against the gains we've captured this week are likely a good strategy.  I will continue to hold my long positions but will add contras if the prices move higher for contras than they were yesterday.

As always, leave a note below if so inclined.  I'll be back in NoVA later Friday evening.

Regards,

pgd

Tuesday, December 1, 2009

Notables from Monday, November 30th

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The GGT Price index rose Monday from $19.21 to $19.32 on volume that was -4% below average at 1.33M shares.  This volume value is in line with expectations for the Monday after Thanksgiving, although I would have liked to see more as well as a more definitive price movement -- we had a double hump in prices, one around 10:00, the other near the end of the day.

The major EMAs on the prices -- 13,22,34,55 -- are now in an uptrend, relative to Friday's action.  This is a local bullish sign, and indicates that we have some underlying strength in the movers in the database.

To answer my friend Ray's question, the long-cash ratio (LCR) moved up from 0.626 to 0.659.  Week-over-week this value is lower, but the local trend is now upward, so if today (Tuesday) is an up day the LCR Change Timer will transition from Long-Cash (0) to Long (+1).

The EMAs on the LCRs paint a different story.  ALL are in a down-trend, which is contra to the prices.  This divergence with prices cannot be sustained, and either 1) the LCRs must trend upward to match the increase in prices, or 2) the price EMAs will reverse and head south with their LCR brothers.  The important thing to realize is that the long side of the LCR equation requires volume, and until we see it across the database as a whole, LCR will continue its weakness. See my weekend post for more on the rationale behind this.

As I indicated above and in my weekend post, the LCR change timer is sitting at a value of Long-Cash (0), and if today is up (futures are up), I can expect that the timer will move long, which will keep us there at least until Thursday morning.

GGT strength moved from 0.38 to 0.46, indicating that the entire database appreciating in underlying strength.  On an individual basis all of the individual indexes that I follow were up on Monday, which is bullish.  Here are the underlying indexes and strengths:

DJ30:  moved from 0.3 to 0.566.  A position in DDM was established yesterday.  On an intermediate term the Dow is slowing, but on a longer-term basis the Dow is gaining price momentum.  I like the following stocks in the DOW on a long-term basis:

AXP (Affirmed Long)
T (Affirmed Long)
BA (Affirmed Long)
KO (Long)
DIS (Long)
XOM (Long)
JNJ (Long)
MCD (Long)
MRK (Long)
MSFT (Long)
PG (Long)
UTX (Affirmed Cash)
WMT (Affirmed Long)

NDX100: moved from 0.108 to 0.367.  A position in QLD was established yesterday.  On both an intermediate term and long-term basis the NASDAQ is losing price momentum, but is still very positive.

Brazil:  moved from 0.330 to 0.567.   On both an intermediate term and long-term basis the stocks in the Brazillian index are losing price momentum, but overall are still appreciating.

Russia: moved from 0.055 to 0.222.  On both an intermediate term and long-term basis the stocks in the Russian index are losing price momentum, but overall are still appreciating.

India:  moved from 0.98 to 0.493.  On an intermediate term basis the stocks in this index are losing price momentum, but on a longer-term, there is price acceleration.  Because of this Indian stocks look attractive. 

China:  moved from 0.234 to 0.497  On an intermediate term basis the stocks in the China index are losing price momentum, but on a longer-term, they are just starting to turn up.    I like these China stocks on both an intermediate and long-term basis:

WX
TSL
CTRP
YGE

S&P500:  moved from 0.108 to 0.479.  On both an intermediate term and long-term basis the stocks in the S&P500 index are losing price momentum, but overall are still appreciating.

S&P400:  moved from 0.00 to 0.399.   On both an intermediate term and long-term basis the stocks in the S&P400 index are losing price momentum, but overall are still appreciating.

S&P600:  moved from 0.00 to 0.435.  On both an intermediate term and long-term basis the stocks in the S&P600 index are losing price momentum, and on an intermediate-term basis, the database is losing price value, which is is a big warning flag.

Russell 2000 moved from 0.006 to 0.454.  The intermediate term basis is losing price momentum, but surprisingly to me, the long-term is looking stronger.  There could be some bargains here...

Take a look at:

NTRI
WSII
SNIC
INCY
EWBC


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

Overall, there are some opportunities, but the markets are weak on an intermediate to long-term basis.  Do your diligence wisely.

Remember, you are responsible for your own investment decisions.  Leave a comment below if desired.

Regards,

pgd

Sunday, November 29, 2009

November 28th Weekend Update

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As always, let's start with the facts ...

GGT price fell from Wednesday's value of $19.38 to $19.21, a drop of nearly 0.9%, on extremely light volume of 692K shares.  Most of the trading floor/buyers/sellers were obviously with their families.  Friday-over-Friday the price of the GGT actually INCREASED $0.05, and because last Friday's reading was the same as the previous Friday's (11/13), we have a situation where we are actually horizontally trending...

If it weren't for the continually falling volume I would be very bullish here; two weeks in the same area on low volume points to a fairly stable environment from which to build.  Since we're not seeing high volume with falling prices we're not seeing dumping of equities -- just the opposite -- everybody is "sitting pat".  Here's the most recent GGT price and volume graph; click on the image for a larger view:



While I'd like to believe that we're all doom and gloom from this point forward, especially with the Dubai bow shot on Thursday, a chart of the GGT Price and EMAs is telling us a different story, at least from this weekend.  Click on the image below for a larger view:




The figure above is telling us that overall, even though we're seeing weakness in the GGT Price, that the four main Fibonacci EMAs (13-22-34-55) are all still "parallel" and pointing upward.  Folks, this is a bullish pattern, and until we get crossings of these from above, there is no other way to interpret this market.  Sure, the market could move lower, but on the time-frames that are indicated by these EMAs, we are still pointing upward.

This next chart is the balance to my statement above, and is probably the most telling of what the medium-to-longer term markets hold, at least from today's perspective.  Click on the chart to enlarge:




The meat of the chart above is shown in the top pane -- here, I plot the change in slope of the 65d EMA of price, viewed from two different perspectives.  The 65d EMA is a well-regarded metric used by the Wall Street Journal to determine the health of a given equity.  In this case, I've taken all of the GGT stocks that were in the database as of today, created an index on each of the stocks, then plotted their EMAs as well as the change in slope of the 65d EMAs

The top pane has two traces -- one is the value of a 5-day best fit of the change in slope of the 65d EMA on price, the other is a 34d best fit.  Obviously, one moves faster than the other, hence why the 5d seems more bumpy.  Use the 5d to get a view on the immediate behavior of the market -- over the last week, and use the 34d to get a better understanding of the longer-side of the market.  Since there are about 4800 stocks in this index, you're looking at a good slide of the tradeable marketplace.

The first thing that should be apparent to you is that since 10/21 or so, the market has been decelerating in terms of price appreciation as a whole.  I've drawn a downward-sloping line showing that this deceleration has been relatively linear, and I see no reason why this would reverse in the near term.  Hence, prices are undergoing significant slowing of price appreciation, and until we see this longer-term indicator (34d fit of the change in 65d price EMA) turn up, I think that the writing is on the intermediate-to-long-term wall.

The next thing that should be apparent is that the 5d fit of the 65d EMA line is struggling to make the highs it saw a month ago, let alone several months ago.  I'll show below that this is due to the disconnect between the performance of the large cap and small cap stocks -- around the middle of October, small-caps starting to underperform large caps, and hence why we are not seeing the price appreciation that we were seeing prior to mid October.  This lack of strength in the 5d-fit can only be interpreted as a precursor to weaker gains in prices, and we should be on the lookout accordingly to protecting our long investments.

One thing to look out for in the top pane is when the 5d-fit crosses the 0.00 line ... at this time, the database is losing ground in terms of price, and I'm convinced we should be aligned on the contra side.


==========

Thursday's events relating to Dubai rippled through the financial GGT database on Friday, causing the long-cash ratio (LCR), to drop from Wednesday's value of 0.832 to 0.626, indicating that 1822 stocks are on the long side of the recommendation list and 2912 stocks are on the cash side. 2193 stocks were long on Wednesday, and 2000 were long last Friday, so just like we're seeing price meander, we're seeing the database drift more-or-less horizontally.  The high over the last 5 days is the 2190 achieved Wednesday, and the 1822 achieved with Friday's close represents our low point.  Here's the chart regarding GGT Price and GGT LCR ...  click on it for a bigger view:



From a historical viewpoint, we are clearly on the oversold side of the LCR equation -- more stocks are below their optimized historical price and volume EMAs than not.  Despite this condition, we've certainly been lower since the March 2009 run-up; July saw us down around 0.299, and in early November we were at 0.226.  So, from our present value of 0.626, these values are possible within the current climate, especially with a potential Dubai default looming down the road in front of us.  We see that over the last few weeks prices stalled right around the GGT level of $19.60-$19.70, so we would need a significant up move and closure above these levels to see the next bull leg move. 

In order to move the LCR upward, we need increasing prices AND increasing volume across the database -- remember that the movement from CASH to LONG status requires higher prices on rising volume.  The decrease in volume over the last few weeks has not helped this situation, and correspondingly, the LCR has dropped because as prices drop, they slip down the one-way door into CASH status, only to fail to rise back into LONG status when there is no volume accompanying the appreciation in price.  Furthermore we're seeing lack of participation of the small-caps in any rally, and this is keeping many / most of the indicators on the bearish side of their values.  Hence, to really push the LCR upward, we need indicators like the R2K, the S&P400, and the S&P600 regain their leadership positions relative to the S&P100, DJ30, or NASDAQ100.

If you take your favorite software program, and plot the performance of both the IWC, which is an ETF that tracks microcap stocks, alongside IWB, which tracks largecap stocks, you'll see the following (click on the image for a larger view):



















Shown above is IWC (blue) and IWB (black) for a 3-month look-back; the same situation exists on a 1-month as well as the 6-month lookback periods.  The 1-week lookback is bad for both, with the microcap IWC getting hammered relative to the IWB with Friday's action.

My point to the above chart is that until we see leadership in the micro- and small-caps, we are not going to see huge runs to the long side with the LCR, because the large-caps are dominating, and in the equal-weighting of LCR calculations, there are fewer large caps than there are small and microcaps.  The bias is pretty clear.

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 We have an indicator which is pointing us higher from a short-term perspective.  It's called the GGT Bull-Strength indicator, and it is the ratio of (New Longs + Affirmed Longs) / (New Cash + Affirmed Cash).  The intent of this indicator is to see how many stocks meet the criteria for changing states, either from Cash to Long or Long to Cash.  When the number is large, we have an overbought condition, and when the number is small, we have an oversold condition.  Click on the image for a larger view:





Right now, according the GGT Bull-Strength indicator, we have an oversold condition:  the present value of the GGT Bull-Strength indicator is 0.0371....  To put this in perspective, we were at 0.039 on 10/28 with a GGT Price of $18.22, and the markets then moved up to $19.64 by 11/17, a total of 15 trading days later.  Folks, this was an appreciation of 7.7% in 3 weeks.  I'm not saying that this will happen again, but we need to be prepared for another move to the upside.

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Our GGT LCR Change Timer is having a hard time with life.  It moved from Long (+1) to a Long-Cash (0) state with Friday's action, and is signaling for us to get our CONTRA shopping lists ready.  It has been flipping back and forth since 11/19, simply because the markets have been going sideways.  Here's what the setup for Monday is:
  • IF the ADV/DEC lines on the major exchanges are up by 10:00 - 10:30, then there is a high likelihood that the day will be up as far as GGT is concerned.  This will cause the LCR Change Timer to stay at Long-Cash (0), effectively cocking the gun for Tuesday.  I am presently LONG, hence I will do nothing if this is the case on Monday.
  • Alternatively, if the ADV/DEC lines on the major exchanges are down by 10:00 - 10:30, then there is high likelihood that the day will be down.  This will signal us to move to cash or contras, and I will do so on MONDAY around this time frame.
Remember:  if I am long and the timer moves to Long-Cash (0) (like the present scenario), I will do NOTHING until the timer transitions to Cash (-1), which then is when I will close my longs. 

In my best Robot voice from "Lost in Space", all I can say is "Warning Will Robinson! Warning!" with my arms flailing.  Volume has been suspect, so if we have an up day, we need to see some serious movement in price AND volume, across multiple days, to signal a bull rally.  Average/stddev GGT volume is 1.39M +/- 235K shares, so let's see that or better on consecutive days to have some confidence of things moving higher.

Click on the image for a larger view; here is the GGT LCR Timer superimposed with the GGT Price.  The timer is right more than it is wrong, and is up 82% since inception in September 2008.




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The database strengths are entering over-sold territory on a global basis, and on an individual basis, it's pretty clear that we need to enter long positions.  Here's the support for this statement.



Click on the image above for a bigger view.

I haven't annotated the figure, but GGT strength is now at 0.289, and is very close to our less-than-exact-science level of 0.2 reversal area.  This is telling me that on a global view, we are positioned to reverse to the long side -- simply take a look at the levels where we have reversed in the past, and see what the LCR did at the same time.  I think this is the same situation.



The figure above compels me to enter long positions on the domestic indexes.  Friday's values slammed many of these to very low levels -- in some cases the lowest levels ever recorded since August, and as such, while we may spend a few days down here, they always rebound.

Correspondingly, here are the strengths of the major domestic indexes, and my long choices:

DJ30: fell from 0.655 to 0.3, entering a position in DDM if price is $0.05 above Friday's close.
NDX100: fell from 0.477 to 0.108, entering a position in QLD if (same)
S&P500:  fell from 0.627 to 0.108, entering a position in SSO if (same)
S&P400:  fell from 0.496 to 0.000, entering a position in MVV if (same)
S&P600:  fell from 0.439 to 0.000, entering a position in SAA if (same)
R2K: fell from 0.421 to 0.006, entering a position in UWM if (same)

I can't pass up bargains... I've always made money on this strategy, even if it was only a few points.  I'll set my stops to get me out if prices reverse after I enter.

If you are so inclined, here are my top 25 stock selections which could move into "New Long" status on Monday if the markets move higher.  Remember, you are responsible for your own investment decisions:


GENT
CXW
EVC
DRAD
LDIS
VNR
FFC
AMR
PHK
NJ
XRIT
XTEX
CFW
LDSH
SNR
STON
WHR
JHI
PFO
MDCA
NMY
CFK
BFK
GST
ASP


I'll not cover the BRICs this weekend; if you're interested, I'll include it in Monday's writeup -- simply leave me a note below.

Regards,

pgd

Wednesday, November 25, 2009

Notables from Tuesday, November 24th

.
The LCR timer has moved to a LONG status (+1), indicating that we should be appropriately biased in our selections on a short-term basis.  The LCR value only changed by +3% from 0.775 to 0.796, which is not a large, decisive change.  With 2167 stocks LONG and 2722 stocks recommended in CASH, and volume in the toilet, I approach the signal with a combination of skepticism yet willingness to participate.

The GGT price index moved from $19.45 to $19.46, barely a change at all.  It did this on 1.14M shares of volume, which is -21% below the normal average volume of 1.44M shares.   Note that this is across 4900 stocks.

GGT strength fell from 0.613 to 0.568.  This is a notable change -- and the divergence with LCR moving upward gives us a reason to pause.

Here are the individual strengths of the various indexes I follow:

DJ30:  Dropped from 0.811 to 7.111
NDX100:  Dropped from 0.475 to 0.368
Brazil: Dropped from 0.534 to 0.529
Russia: Dropped from 0.722 to 0.389
India:  Dropped from 0.641 to 0.506
China: Dropped from 0.650 to 0.387
S&P500:  Dropped from 0.541 to 0.534
S&P400:  Dropped from 0.441 to 0.411
S&P600:  Dropped from 0.709 to 0.576
R2K:   Dropped from 0.666 to 0.564


Conclusions:  since GGT price is relatively unchanged, the LCR edging upward slightly causing the LCR Change Timer moving to the long side, yet with the underlying database strength decreasing, I think that we need to be careful and prudent about our alignment.  Note that the individual indexes above moved DOWN in strength, although the collective LCR moved upward only slightly.  We CANNOT sustain this divergence -- either strengths will reverse to support the increasing LCR, OR, LCR will reverse to support the falling strengths.  Falling strengths have more momentum, hence I think it smart to put a contra hedge on with a tight stop on the longs.

I will enter a hedge on my long positions that will be triggered by any weakness.  For example, for my UWM position, I will enter TWM (green body yesterday) if it moves above $28.50 (close + $0.05).  If it had a red body I would purchase if it moves $0.01 above the high for the day.   I have placed a sell stop at 98% of UWM's low yesterday ($24.94 * 0.98 = $24.44).

As always, leave a comment below if so desired.

Regards,

pgd