Sunday, November 1, 2009

October 30th Weekend Update

Bloody.  Simply bloody.

At a 50,000-ft view level, this week can best be remembered by breaking our upward-pointing channel support line on Tuesday, and except for the window-dressing on Thursday, we lost considerable ground.  Last Friday's GGT Price was $19.19; the 30th's price was $18.09, a drop of just over 5.7%.

Last weekend I indicated that we probably had further to drop (but to watch for a reversal) -- 
  • the GGT/Elder FI chart showed that we hadn't had a "significant" down day, 
  • the GGT Price chart showed we were still above the lower support channel, 
  • the GGT Bull Strength value was not low enough to say we had bottomed,
  • the GGT LCR was carving out a characteristic "W" pattern, with a lower right-side being probable if it mimicked recent history,
  • the GGT Change Timer was bouncing between 0 and -1, a horizontal market with a bias to the downside, and
  • the GGT strength was falling, supporting the down draft.
 So, we saw it coming, although it wasn't an in-your-face bear signal.

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As indicated above, the GGT Price index is at $18.09, down from $19.19 a week ago and $19.48 two weeks ago.  Volume Friday was 24% heavier than normal, which has some relevance because the 50d standard deviation on volume is 15%.  Falling prices on heavy volume is an indicator of participation by the big boys.

We had this same thing on Wednesday -- volume was 24% heavier that day too and the GGT fell -3%, signaling (what I thought) could be the underpinnings of an "everybody is throwing the towel in, and you should too" day...  I love those days -- decisive, clear, and actionable.

Go back to Wednesday's blog; this is the problem with not knowing what the right-hand side of chart will look like a week from now.  Nevertheless, THIS chart was saying "0" strength in many of the indexes, so looking at long positions was warranted.

As I indicated in yesterday's blog, I took the action on Thursday to be a turning sign, BUT, I was cautious.   Honestly, I do believe that although there is certainly an intermediate-term bias to the down side in the market, we certainly could have gone up again on Friday.  We didn't, I sold my 25% positions, and now I'm riding the contra horse.  The question is whether YOU should jump on this horse too.

Truth is, I don't know the real answer to this question.  My gut is telling me that if you are presently NOT in contras, then you should not be entering contras because short-term indicators are really, REALLY oversold.  My present contra positions are up between 2.7% and 8.6%, since 10/22, and I'm not sure whether the short term cycle is supportive of entry right now.

Let's see if we can figure THAT out, then we'll look at the longer-term.

The nice thing about the GGT price (as well as other parameters) is that it's a "pure" indicator -- it doesn't have visibility in the market.  This means that Fibonacci, support levels, resistance levels, etc., really don't apply, because the market is not driving to pin the behavior to these "visible" standards.  Before you buy into this though, realize that visibility in indicators and indexes is self-fulfilling, and as a result, pure indicators may break down because they tend to ignore market psychology.

GGT prices have fallen 8.1% since their peak on 10/19/09.  This is larger than the May-June decline of 6.9%, but is probably within reason.  Why would we reverse from here?  There isn't a compelling answer.  We've already taken out the artificial 1st support level established on 10/2 at $18.39.  The next level is somewhere around $17.50, which was established on 9/2.  This is another 3% lower than where we are today -- certainly within reach.  If we penetrate much below the $17.50 level "Katie, bar the door ...", because the next level would be around $16.63.  Here's a graphic of recent price and volume action for GGT:



























While we need more information, there is NOTHING on the previous price/volume chart that indicates we will reverse.

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This next chart is the GGT Price plotted with various price exponential moving averages (EMAs).



























A few things should jump off the page at you:
  1. The 13d EMA is below the 22d EMA.  This occurred with Thursday, October 29th's close, even though the day was a banner up day.  This is/was a clear sign not to enter long positions.  Unfortunately, this crossing occurred as of the CLOSE of Thursday, and I had already entered 25% positions in some long ETFs and 2 stocks.  A day late and literally, a dollar short.
  2. All 4 trend lines are trending down.  The only time that this has occurred since the March run up is the period July 7 - July 10th, and this down-trend of the 55d EMA was very, very slight, less than $0.01 per day.  As a contrast, during the past week we've seen two days where the change in the 55d EMA was (0.013) and (0.017) -- larger than anything since 3/2009.  Any acceleration of the 55d EMA to the downside will be good news for contras and bad news for the bulls.
  3. The May-July time frame saw the GGT price fall and close somewhere near the 65d EMA, which is what the WSJ uses as it's "proxy" for determining whether a market is healthy.  Friday's close of $18.09 is incredibly close to an 85d EMA, which is indicative of a not-so-healthy market.
  4. If you look closely, the 22d EMA crossed the 34d EMA from above, a very bearish sign, on 7/7, then cleared it on 7/16.  We are still a ways off of this occurring now (22d EMA = $18.95 and 34d EMA = 18.86), but we need to watch for this to occur this week.
 I would conclude that we clearly need to have a bearish bias due to the present locations of the 13/22d EMAs, and because all 4 trend lines are presently pointing downward.  Monday is not the time to go long in stocks.

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Elder's Force Index of the GGT system is shown next.



























I've highlighted with circles areas where the GGT Price "churns", relative to the Elder Force Index (FI).  This isn't a perfect indicator, but in the instances shown, the FI moved substantially, but the price remained fairly stationary, then took off, reversing the trend.  Correspondingly, we're looking for periods where this occurs to signal a change.

Again, while not 100%, it does show that this is NOT the situation with the most recent swings in FI, even though the recent levels are below -450K.  I'm looking for the price to stabilize for a day or two but see the FI simultaneously move aggressively upward.  This will be a reversal signal, if it occurs.



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This next graph is GGT Bull Strength, which is a ratio of (New Long + Affirmed Longs) : (New Cash + Affirmed Cash).  The log scale has no relevance, except to show some detail on the lower numbers.





























I've highlighted two areas on the graph -- the period leading up to the March 2009 reversal, and the present period.  A few things should be apparent when you look closely at this graph:
  1. We're spending time with very low bull-strength values, which indicates that the market is hammering the long positions, e.g., we're getting far more New Cash + Affirmed Cash values on a daily basis.  The market mood is decidedly bearish, and these levels indicate a bearishness at a level not seen since March.
  2. We've not spent any significant time down below <0.1 since before the big reversal, but here we are!.
  3. There clearly is a "center of mass" depending upon the primary trend.  This center of mass is >1 if the primary trend is up, and is clearly closer to 0.1 if the trend is lower. 
While there is nothing on this graph that indicates a change in market direction is eminent;  it does indicate that there has been a change in market sentiment and that we cannot be surprised if the market continues to remain weak.


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This next figure is our old friend the Price and LCR, or Long Cash Ratio.




























We're still forming the right side of the "W" pattern, as highlighted.  Of all our different ways to slice the market, I like this graph because it's been fairly robust over the recent market behavior.

What can we expect going forward?
  1. First, I think that we're getting pretty low in overall LCR levels.  The present level of 0.241 is the lowest level since 3/11.  Going lower from here, while possible (we were at 0.095 on 3/9) would take a slew of bad news this week.  I don't see it on the radar, except for a possible surprise in unemployment on Friday.
  2. Next, I think we're going to plod around here a bit this week -- LCR will remain low, with no major change in trend until after the FOMC or the other numbers (including unemployment) in the latter part of the week.  
  3. Finally, a drop from here simply sets the stage for an explosive run upwards ... we are at 8-month lows in the LCR ... there is greater likelihood in moving upward than there is downward.
I'm not using this as cause to move into long positions, but certainly, I'm not purchasing any more contras at this point.  I do believe that it is too late for entering new contra positions.

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The next graph is the LCR Change Timer Signal, plotted with GGT Price.  This has been a very reliable timer signal for short-term trading.  Yes, it does get you in somewhat early, which can be counter-intuitive, but take a look at the 1.0 and -1.0 areas -- it does call the short-term trend correctly.



























A recent optimization change within the GGT timer system has somewhat stabilized this timer, relative to the recent past, adding about 6% gain on the year compared to previous settings.   The chart shows we've been solidly locked on the contra-side of the equation, with a confirming signal on 10/16.  This would have tested you, as you can see that prices moved higher on the 19th, then have never looked back. The solid (-1) stance is telling us to maintain our contra-position bias, but looking back over recent history, you can see that we've not remained in cash this long, portending a possible move to 0 (CASH/LONG) or even a +1 call.  Keep you eye on this timer, and if you start using it and I don't comment on it, make sure you post something in the GGT Yahoo! forum.

If you would have moved into this timer on 9/11/08, playing both the long and contra sides,  you would have nearly 86% gain to date.  If there is interest I can send you the trading plan for this strategy; just drop a note in the GGT Yahoo! forum.


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This next graph shows the strength of some major indexes, from GGTs perspective.





Of note to us is that we are at extremely low levels.  We certainly could move to the shorter side, but we certainly could move upward from here too.  Get your long positions ready.

Which long positions?

I posted the GGT stocks and ETFs in the Yahoo forum on Saturday.  Go to the Dashboard view for each class of equities.  There are two schools of thought here: 
  1. Stocks and ETFs that are "New Longs" and "Affirmed Longs" are showing the best strength against market forces, and they hold up the best (less volatile)
  2. Stocks and ETFs that are "New Cash' and "Affirmed Cash" are getting hammered, probably more than what is realistic, and could spring back the fastest, showing the greatest appreciation.
You're going to have to decide which school you subscribe to  ...

Although in-no-way-comprehensive, here are some stocks to consider, from each camp:

Russell 2000 (been under performing as of late):
  • New/Affirmed Longs:


MIPS
STRS
EPIC
CEC
AACC
EXEL
FPO
  • New/Affirmed Cash 
EVC
ETM
MCGC
MEG
NVAX
OWW
FIRE
GPK
CLP
SHO

DJ 30
  • New/Affirmed Longs:
KFT
  • New/Affirmed Cash:

BAC
GE
AA
BA
HD
UTX
DIS
DD

MMM
JPM





NASDAQ-100
  • New/Affirmed Longs:
AKAM
  • New/Affirmed Cash: 
STX
FLEX
LINTA
LBTYA
MRVL
KLAC
INFY
RIMM
WYNN
NWSA
LOGI
FWLT
GRMN
EBAY
DELL
QCOM
DISH
SHLD
STLD
BBBY
MICC
JBHT
JNPR
CELG
NIHD
BRCM
PDCO
HSIC
ADBE
ADSK
CTAS

EXPE
SIAL

Obviously, there are far more New/Affirmed Cash than long positions, simply because everything is getting smacked around.

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This final graph shows the strength of various BRIC stocks.




Same story as previous; we're nearing (or have hit) really bearish levels, so draw your conclusions as you see fit.  Here are some stocks from each country:

Brazil

  • New/Affirmed Long
(there are no New/Affirmed Longs, these are pure Longs):


CBD
ABV
GOL
TAM
PBR
VIV
UGP
BBD
TNE
SDA
VALE
CIG
NETC
  • New/Affirmed Cash

GFA
SID
ARA
BTM
SBS
PDA
CPL
ELP
TSU
ERJ

Russia

There are only 5 stocks in the Russia universe, only two of these are Affirmed Cash:  WBD & MBT.  Neither look overly exciting.  There are two that are long:  MTL and ROS; both look interesting.

India
  • New/Affirmed Long 
PTI
RDY

  •  New/Affirmed Cash

TTM
IBN
WIT
WNS
SIFY
HDB
INFY
REDF
MTE

China
  • New/Affirmed Long

SPRD
SCR

  • New/Affirmed Cash

XIN
KONG
VIT
GRRF
PWRD
CEA
EJ
XSEL
HMIN
GU
SMI
ATAI
OIIM
LTON
ATV
CYOU
SSRX
ACTS
SNDA
DGW
SOL
VIMC
SHI
ZNH
LFT


CTRP
CMM
VISN

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Summary
  1. There is no visible support to keep the GGT price action from falling further.
  2. With all 4 major price EMAs trending downward, the market is decidedly bearish.
  3. We need to be vigilant for GGT price churning, while the Force Index makes a significant positive jump.
  4. Bull strength is at the lowest level since the March 2009 reversal.  This is either a sign of continued lack of support (see bullet #1), or is a coiled spring, ready to jump back.
  5. We are at the lowest Long-Cash Ratios since before the March 2009 reversal.  We can't move much lower from here (we are at 0.241, 0.095 is the lowest recorded level)
  6. The LCR Change Timer says to stay bearish, at least for Monday.
  7. The strength of major indexes and the BRICs are all indicating oversold, e.g., this is a good time to consider entry, especially if we see indications of a reversal.   Stocks from two camps were listed; I urge you to download the ZIP file in the Yahoo! group and explore for yourself.
I have no orders for Monday, except to place a email alerts under my contras to protect those gains.



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Happy hunting.  Remember, you are responsible for your own investing decisions.

Comments are always welcomed and appreciated.

Regards,

pgd