Thursday, October 29, 2009

GGT Notables from Wednesday, October 28th

I know that I'm a few days remiss on this.  Yahoo! has not been cooperating with the GGT updates, and random stock symbols are stalling during the overnight run, causing the entire process to crash to its knees.  I'm caught up now, and here's what the tea leaves are telling us:

The GGT price index closed at $18.22, down 7.5% from the peak of $19.70 which was attained on 10/19.  Volume has been increasing (slightly), and yesterday's volume was 1.85M shares, where normal 50-d volume has typically been 1.49M shares.  When we see a large downward spike on higher volume we can take this to mean that we're seeing institutionals play the market accordingly.

We broke through our lower channel line on Tuesday, and are now 4% below the lower channel and 10.8% from the upper channel.  Of some concern to me is that we closed below the 65d EMA on the NASDAQ Composite Index (IXIC), which historically has been a great support level.  The .DJI and the .SPX are still well above the 65d, so we're ok for the short term, but keep your eyes peeled on these levels.

Telling here will be the slope of the GGT Price 55d EMA.  With the exception of the July drawdown in the markets, it's been trending steadily upward since 4/2/09. On July 8th it went horizontal, dropped a bit by July 13th, and from July 14th onward it resumed it's upward trend.  Drawing the parallel to now, on October 26th this trend line went horiztonal, dropped a penny yesterday, and we need to see it trend higher to have confidence in the next sustained up leg.

I spoke of the GGT / Elder Force Index in my blog over the weekend.  Key here is that the 2d EMA of the FI dropped to -790K, indicating the possible start of a new up leg.  Here's the chart:



The GGT Long-Cash Ratio (LCR), which is a measure of the number of long recommendations (1244) to cash recommendations (3808), is at an extremely low level of 0.327.  It has not been this low since 7/9, and is indicating that the markets are becoming over sold.  We want to see some churning at the bottom here, not a sharp reversal, so today (Thursday) will be an interesting day.  If we hold this LCR value and the markets move upward, I would expect that we will begin the new up leg.  If LCR falls a significant amount but the markets move upward, I think we could move much lower.  If LCR jumps upward a significant amount in a reversal, on higher market prices, I think the leg upward will be short-lived -- gains possible, but short lived.  We'll see.

This next chart is telling about what we can expect in the near short term:



Look at the right side of the graph ... most of the indexes that I follow using GGT are at or well below 0.2.  Granted, this is a new indicator, and the back-testing history is nearly impossible to attain, but this is a tell on what I am going to do today:

1) Purchase 25% positions in my LONG ETFs, such as UWM, SAA, QLD, DDM, SSO, and MVV.
2) HOLD my 100% positions in my contra ETFs, which are FXP, TWM, MZZ, SDD, QID, SDS, and DXD.

If we get a move upward today in the long ETFs, followed by another long move tomorrow, I will sell my contras and add another 25% to my long ETF positions, provided that we're moving above the previous day's trading range (e.g., buying on strength).

Here are the raw strength numbers of the indexes that I'm following:

DJ30:  0.176, down from 0.182 (bottoming?)
NDX100: 0.051, down from 0.172 (near bottom)
Brazil: 0.165, down from 0.194
Russia:  0.111, down from 0.388
India:  0.00, down from 0.024 (buy buy buy buy)
China: 0.102, down from 0.204
S&P500:  0.030, down from 0.161
S&P400: 0.013, down from 0.142
S&P600:  0.042, down from 0.143
Russell 2K:  0.00, down from 0.100 (buy buy buy buy)

In case you're wondering, here are the strongest Russell 2K stocks, according to GGT:


INSU
FISI
UBSI
IRC
EHTH
ASEI
RSYS
OESX
SUSQ
BFIN
TRMK
PCBK




The strongest DJ30 component is VZ.

The NASDAQ-100 is bloody, but the two that appear strong are:


CEPH
SRCL

I recommended PTI over the weekend in India, and it is still holding up well.

China is looking bloody too, but here are the strongest:


SPRD
CTRP
HRAY
JOBS
YZC
WX
LONG
CMM
TSL
NPD
ACH
VISN
TCM
PTR
NCTY
LFC
SNP


On the S&P500, Here are the strongest:


TSN
VZ
HRS
CVH
WLP
CEPH
XOM
SRCL


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

Regards,

pgd