Thursday, November 19, 2009

Notables from Wednesday, November 18th

Let's start with the facts:

The GGT Price Index hit $19.61 on Wednesday, down $0.03 from Tuesday and is tied with Monday's reading.  Volume was 13% lower than the 50d MA at 1.27M shares, with 1.46M being average.  If prices continue higher on weaker volume then I think we have a crack in the armor; if prices hover on weaker volume we may be okay, and if prices fall significantly on weaker volume we'll probably see another push to the upside.

The Long-Cash Ratio (LCR), which measures the number of stocks in the database that are above their optimized EMAs/ROCs to the number that are below, has shown considerable strength since 11/2 and appears to be stalling at 0.963.  Tuesday's close was 0.950, so the database is showing internal rotation and weakening. 

Yesterday I mentioned that I would go long on contra ETFs if certain levels were attained, as a hedge on the apparent overbought conditions on various indexes.  They WERE attained around 10:05, then they pulled back throughout the day.  Although all of my contra positions are underwater, none are under more than -2.24%.  I will continue to hold my long positions until the LCR change timer indicates a reversal in the database strength (to the downside).

The LCR change timer is still showing a value of +1 (Long), but if today is down with respect to the database LCR, we will see a transition to Long-Cash (0).  This will further prepare us for a move to the contras and locking in of our long gains.  DO NOT sell your long positions unless you are barely above water.

The GGT strength index continues to weaken, falling from 0.69 to 0.629.  The local high was attained on Monday at 0.790, and continued weakness in the indicators, coupled with a weakening of the LCR, tells us that we could move to the downside on a short-term basis.  A divergence between these two, e.g., the LCR resuming an upward climb but the strength continuing to weaken would be bearish.  Conversely, a weakening of the LCR but a climb in strength would be bullish. 

Right now, given the overbought areas that we are presently in, coupled with the slowing of the LCR value, and the weakening of the GGT strength index, indicate a high probability to the downside for the next couple of days.

Of the indexes that I track, ONLY the DJ30 showed an incremental jump in strength.  Here are the indexes, their strengths, and their relative trends.  Note that these are all on a 0 --> 1 scale, with 1 equivalent to "overbought":

DJ30:  0.855, up from 0.827 but down from Monday's peak of 1.0
NDX-100: 0.556, down from 0.703 and downtrending for 2 days
Brazil: 0.665. down from 0.78 and downtrending for 2 days
Russia: 0.833, down from 0.888 and downtrending for 1 day
India: 0.456, down heavily from 0.753 and downtrending for 2 days
China: 0.714, down from 0.770 and downtrending for 2 days
S&P500:  0.644, down from 0.763 and downtrending for 2 days
S&P400:  0.628, down from 0.793 and downtrending for 2 days
S&P600:  0.648, down from 0.765 and downtrending for 2 days
Russell 2000: 0.626, down from 0.740 and downtrending for 2 days

IF TODAY IS A DOWN DAY, as measured by ADV/DEC around 10-10:30, on significant volume, I would seriously consider hedge positions in contras on the above indexes.  The relative strengths of these of ~0.65 indicates that while the indexes could move downward, they could also resume an upward march, e.g., relative to past performance, they have upside room. Churning GGT prices on lower GGT volume IS NOT A SELL-SIDE CONFIRMATION!!!!  We need to see continued weakness in the GGT database (as measured by the LCR and strength indexes) to sell our long positions and protect those gains.

Please leave a comment below if so desired.