Thursday, December 10, 2009

Notables from Wednesday, December 9th

.
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