Sunday, December 6, 2009

December 4th Weekend Update

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.