Sunday, November 29, 2009

November 28th Weekend Update

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As always, let's start with the facts ...

GGT price fell from Wednesday's value of $19.38 to $19.21, a drop of nearly 0.9%, on extremely light volume of 692K shares.  Most of the trading floor/buyers/sellers were obviously with their families.  Friday-over-Friday the price of the GGT actually INCREASED $0.05, and because last Friday's reading was the same as the previous Friday's (11/13), we have a situation where we are actually horizontally trending...

If it weren't for the continually falling volume I would be very bullish here; two weeks in the same area on low volume points to a fairly stable environment from which to build.  Since we're not seeing high volume with falling prices we're not seeing dumping of equities -- just the opposite -- everybody is "sitting pat".  Here's the most recent GGT price and volume graph; click on the image for a larger view:



While I'd like to believe that we're all doom and gloom from this point forward, especially with the Dubai bow shot on Thursday, a chart of the GGT Price and EMAs is telling us a different story, at least from this weekend.  Click on the image below for a larger view:




The figure above is telling us that overall, even though we're seeing weakness in the GGT Price, that the four main Fibonacci EMAs (13-22-34-55) are all still "parallel" and pointing upward.  Folks, this is a bullish pattern, and until we get crossings of these from above, there is no other way to interpret this market.  Sure, the market could move lower, but on the time-frames that are indicated by these EMAs, we are still pointing upward.

This next chart is the balance to my statement above, and is probably the most telling of what the medium-to-longer term markets hold, at least from today's perspective.  Click on the chart to enlarge:




The meat of the chart above is shown in the top pane -- here, I plot the change in slope of the 65d EMA of price, viewed from two different perspectives.  The 65d EMA is a well-regarded metric used by the Wall Street Journal to determine the health of a given equity.  In this case, I've taken all of the GGT stocks that were in the database as of today, created an index on each of the stocks, then plotted their EMAs as well as the change in slope of the 65d EMAs

The top pane has two traces -- one is the value of a 5-day best fit of the change in slope of the 65d EMA on price, the other is a 34d best fit.  Obviously, one moves faster than the other, hence why the 5d seems more bumpy.  Use the 5d to get a view on the immediate behavior of the market -- over the last week, and use the 34d to get a better understanding of the longer-side of the market.  Since there are about 4800 stocks in this index, you're looking at a good slide of the tradeable marketplace.

The first thing that should be apparent to you is that since 10/21 or so, the market has been decelerating in terms of price appreciation as a whole.  I've drawn a downward-sloping line showing that this deceleration has been relatively linear, and I see no reason why this would reverse in the near term.  Hence, prices are undergoing significant slowing of price appreciation, and until we see this longer-term indicator (34d fit of the change in 65d price EMA) turn up, I think that the writing is on the intermediate-to-long-term wall.

The next thing that should be apparent is that the 5d fit of the 65d EMA line is struggling to make the highs it saw a month ago, let alone several months ago.  I'll show below that this is due to the disconnect between the performance of the large cap and small cap stocks -- around the middle of October, small-caps starting to underperform large caps, and hence why we are not seeing the price appreciation that we were seeing prior to mid October.  This lack of strength in the 5d-fit can only be interpreted as a precursor to weaker gains in prices, and we should be on the lookout accordingly to protecting our long investments.

One thing to look out for in the top pane is when the 5d-fit crosses the 0.00 line ... at this time, the database is losing ground in terms of price, and I'm convinced we should be aligned on the contra side.


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Thursday's events relating to Dubai rippled through the financial GGT database on Friday, causing the long-cash ratio (LCR), to drop from Wednesday's value of 0.832 to 0.626, indicating that 1822 stocks are on the long side of the recommendation list and 2912 stocks are on the cash side. 2193 stocks were long on Wednesday, and 2000 were long last Friday, so just like we're seeing price meander, we're seeing the database drift more-or-less horizontally.  The high over the last 5 days is the 2190 achieved Wednesday, and the 1822 achieved with Friday's close represents our low point.  Here's the chart regarding GGT Price and GGT LCR ...  click on it for a bigger view:



From a historical viewpoint, we are clearly on the oversold side of the LCR equation -- more stocks are below their optimized historical price and volume EMAs than not.  Despite this condition, we've certainly been lower since the March 2009 run-up; July saw us down around 0.299, and in early November we were at 0.226.  So, from our present value of 0.626, these values are possible within the current climate, especially with a potential Dubai default looming down the road in front of us.  We see that over the last few weeks prices stalled right around the GGT level of $19.60-$19.70, so we would need a significant up move and closure above these levels to see the next bull leg move. 

In order to move the LCR upward, we need increasing prices AND increasing volume across the database -- remember that the movement from CASH to LONG status requires higher prices on rising volume.  The decrease in volume over the last few weeks has not helped this situation, and correspondingly, the LCR has dropped because as prices drop, they slip down the one-way door into CASH status, only to fail to rise back into LONG status when there is no volume accompanying the appreciation in price.  Furthermore we're seeing lack of participation of the small-caps in any rally, and this is keeping many / most of the indicators on the bearish side of their values.  Hence, to really push the LCR upward, we need indicators like the R2K, the S&P400, and the S&P600 regain their leadership positions relative to the S&P100, DJ30, or NASDAQ100.

If you take your favorite software program, and plot the performance of both the IWC, which is an ETF that tracks microcap stocks, alongside IWB, which tracks largecap stocks, you'll see the following (click on the image for a larger view):



















Shown above is IWC (blue) and IWB (black) for a 3-month look-back; the same situation exists on a 1-month as well as the 6-month lookback periods.  The 1-week lookback is bad for both, with the microcap IWC getting hammered relative to the IWB with Friday's action.

My point to the above chart is that until we see leadership in the micro- and small-caps, we are not going to see huge runs to the long side with the LCR, because the large-caps are dominating, and in the equal-weighting of LCR calculations, there are fewer large caps than there are small and microcaps.  The bias is pretty clear.

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 We have an indicator which is pointing us higher from a short-term perspective.  It's called the GGT Bull-Strength indicator, and it is the ratio of (New Longs + Affirmed Longs) / (New Cash + Affirmed Cash).  The intent of this indicator is to see how many stocks meet the criteria for changing states, either from Cash to Long or Long to Cash.  When the number is large, we have an overbought condition, and when the number is small, we have an oversold condition.  Click on the image for a larger view:





Right now, according the GGT Bull-Strength indicator, we have an oversold condition:  the present value of the GGT Bull-Strength indicator is 0.0371....  To put this in perspective, we were at 0.039 on 10/28 with a GGT Price of $18.22, and the markets then moved up to $19.64 by 11/17, a total of 15 trading days later.  Folks, this was an appreciation of 7.7% in 3 weeks.  I'm not saying that this will happen again, but we need to be prepared for another move to the upside.

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Our GGT LCR Change Timer is having a hard time with life.  It moved from Long (+1) to a Long-Cash (0) state with Friday's action, and is signaling for us to get our CONTRA shopping lists ready.  It has been flipping back and forth since 11/19, simply because the markets have been going sideways.  Here's what the setup for Monday is:
  • IF the ADV/DEC lines on the major exchanges are up by 10:00 - 10:30, then there is a high likelihood that the day will be up as far as GGT is concerned.  This will cause the LCR Change Timer to stay at Long-Cash (0), effectively cocking the gun for Tuesday.  I am presently LONG, hence I will do nothing if this is the case on Monday.
  • Alternatively, if the ADV/DEC lines on the major exchanges are down by 10:00 - 10:30, then there is high likelihood that the day will be down.  This will signal us to move to cash or contras, and I will do so on MONDAY around this time frame.
Remember:  if I am long and the timer moves to Long-Cash (0) (like the present scenario), I will do NOTHING until the timer transitions to Cash (-1), which then is when I will close my longs. 

In my best Robot voice from "Lost in Space", all I can say is "Warning Will Robinson! Warning!" with my arms flailing.  Volume has been suspect, so if we have an up day, we need to see some serious movement in price AND volume, across multiple days, to signal a bull rally.  Average/stddev GGT volume is 1.39M +/- 235K shares, so let's see that or better on consecutive days to have some confidence of things moving higher.

Click on the image for a larger view; here is the GGT LCR Timer superimposed with the GGT Price.  The timer is right more than it is wrong, and is up 82% since inception in September 2008.




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The database strengths are entering over-sold territory on a global basis, and on an individual basis, it's pretty clear that we need to enter long positions.  Here's the support for this statement.



Click on the image above for a bigger view.

I haven't annotated the figure, but GGT strength is now at 0.289, and is very close to our less-than-exact-science level of 0.2 reversal area.  This is telling me that on a global view, we are positioned to reverse to the long side -- simply take a look at the levels where we have reversed in the past, and see what the LCR did at the same time.  I think this is the same situation.



The figure above compels me to enter long positions on the domestic indexes.  Friday's values slammed many of these to very low levels -- in some cases the lowest levels ever recorded since August, and as such, while we may spend a few days down here, they always rebound.

Correspondingly, here are the strengths of the major domestic indexes, and my long choices:

DJ30: fell from 0.655 to 0.3, entering a position in DDM if price is $0.05 above Friday's close.
NDX100: fell from 0.477 to 0.108, entering a position in QLD if (same)
S&P500:  fell from 0.627 to 0.108, entering a position in SSO if (same)
S&P400:  fell from 0.496 to 0.000, entering a position in MVV if (same)
S&P600:  fell from 0.439 to 0.000, entering a position in SAA if (same)
R2K: fell from 0.421 to 0.006, entering a position in UWM if (same)

I can't pass up bargains... I've always made money on this strategy, even if it was only a few points.  I'll set my stops to get me out if prices reverse after I enter.

If you are so inclined, here are my top 25 stock selections which could move into "New Long" status on Monday if the markets move higher.  Remember, you are responsible for your own investment decisions:


GENT
CXW
EVC
DRAD
LDIS
VNR
FFC
AMR
PHK
NJ
XRIT
XTEX
CFW
LDSH
SNR
STON
WHR
JHI
PFO
MDCA
NMY
CFK
BFK
GST
ASP


I'll not cover the BRICs this weekend; if you're interested, I'll include it in Monday's writeup -- simply leave me a note below.

Regards,

pgd

Wednesday, November 25, 2009

Notables from Tuesday, November 24th

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The LCR timer has moved to a LONG status (+1), indicating that we should be appropriately biased in our selections on a short-term basis.  The LCR value only changed by +3% from 0.775 to 0.796, which is not a large, decisive change.  With 2167 stocks LONG and 2722 stocks recommended in CASH, and volume in the toilet, I approach the signal with a combination of skepticism yet willingness to participate.

The GGT price index moved from $19.45 to $19.46, barely a change at all.  It did this on 1.14M shares of volume, which is -21% below the normal average volume of 1.44M shares.   Note that this is across 4900 stocks.

GGT strength fell from 0.613 to 0.568.  This is a notable change -- and the divergence with LCR moving upward gives us a reason to pause.

Here are the individual strengths of the various indexes I follow:

DJ30:  Dropped from 0.811 to 7.111
NDX100:  Dropped from 0.475 to 0.368
Brazil: Dropped from 0.534 to 0.529
Russia: Dropped from 0.722 to 0.389
India:  Dropped from 0.641 to 0.506
China: Dropped from 0.650 to 0.387
S&P500:  Dropped from 0.541 to 0.534
S&P400:  Dropped from 0.441 to 0.411
S&P600:  Dropped from 0.709 to 0.576
R2K:   Dropped from 0.666 to 0.564


Conclusions:  since GGT price is relatively unchanged, the LCR edging upward slightly causing the LCR Change Timer moving to the long side, yet with the underlying database strength decreasing, I think that we need to be careful and prudent about our alignment.  Note that the individual indexes above moved DOWN in strength, although the collective LCR moved upward only slightly.  We CANNOT sustain this divergence -- either strengths will reverse to support the increasing LCR, OR, LCR will reverse to support the falling strengths.  Falling strengths have more momentum, hence I think it smart to put a contra hedge on with a tight stop on the longs.

I will enter a hedge on my long positions that will be triggered by any weakness.  For example, for my UWM position, I will enter TWM (green body yesterday) if it moves above $28.50 (close + $0.05).  If it had a red body I would purchase if it moves $0.01 above the high for the day.   I have placed a sell stop at 98% of UWM's low yesterday ($24.94 * 0.98 = $24.44).

As always, leave a comment below if so desired.

Regards,

pgd

Tuesday, November 24, 2009

Notables from Monday, November 23rd

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As expected, my contras hit their lower stops and I tripped out.  I know that I've stated in the past that I typically do not use hard stops, but I'm trading this choppy market with a fast-entry, fast-exit methodology, so intra-day stops are warranted.  I'm also using the 2x and 3x leveraged funds, and because of their intrinsic volatility, I think I'd be foolish not to use intra-day stops compared to extrinsic, end-of-day stops.

My success at this latest in-out with contras was 100%, although the gains were not remarkable.  I need more trades to see if this strategy will work for me.

I moved into the long-side yesterday, mostly stacking on 3x leveraged funds.  Today's horizontal futures has me "concerned" that my realized contra gains may be vaporized, but it is what it is.  My stops are 0.98 * yesterday's low in each of my positions.

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The GGT price index jumped from $19.16 to $19.45, a 1.5% change to the upside, on low volume of 1.16M shares.  This is still 20% lower volume than the 50d MA of volume, which is pitiful.  This alone tells me this "rally" cannot be sustained, and more horizontal-trending is likely.

The GGT LCR moved from 0.685 to 0.775, and is now indicating that 2143 stocks are recommended as LONG and 2765 are recommended as CASH.  This is nearly the exact values of Thursday, which is simply a coincidence. 

The rise in the LCR has caused the LCR change timer to move from a CASH (-1) position to a CASH-LONG (0) position.  We will know if this is a whipsaw today -- if the markets are up as indicated by the ADV/DEC line by 10-10:30 the LCR will move to the long side as long as there is no reversal, and I will follow accordingly (but reluctantly ...). 

Our overall-gain tracker using the LCR has fallen from 88% gain on 11/18 to 86% on 11/20 (Fri) to 84% with Monday's close.  This is not unprecedented: on 7/23 we had a gain of 68%, and by 8/20 we had lost nearly 6% to a gain of 58%.   Have patience and be tolerant of some drawdown.

===========

As expected, the GGT strength index moved upward from 0.389 to 0.612, a significant jump.  This in turn has caused many of the indexes I follow to jump accordingly.  Here are the strengths of the various indexes:

  • DJ30:  major jump from 0.555 to 0.811, and now suggests a hedge position in DXD be considered if price moves above $29.82.  Will continue to hold DDM if market continues higher, but do have a SL set at 0.98 of yesterday's low.
  • NDX-100:  major jump from 0.141 to 0.475; QID contra was stopped out yesterday, and will continue to hold QLD if market continues higher.  SL set accordingly.
  • Brazil: jumped from 0.296 to 0.533; GFA and TSP are the strongest New Longs, TAM and TNE are the strongest Affirmed Longs.
  • Russia jumped from 0.16 to 0.72, but realize that there are only 5 stocks in the Russia index.  VIP, MBT, and WBD are all strong candidates here.
  • India jumped from 0.296 to 0.642; SLT and WNS appear strong, as does IBN.
  • China jumped from 0.301 to 0.650; ATAI, LTON, SDNA, WH and CHL are the New Longs, JOBS, CNTF, BIDU, VIMC, YZC, SSRX, CYOU, GRO, LDK, LFC, and JRJC are all Affirmed Longs, and CEDU, CHU, and SCR all appear very strong.
  • The S&P500 jumped from 0.292 to 0.541; the list of interesting stocks is very long so email or text me at 703-509-5332 if you want it.
  • The S&P400 jumped from 0.110 to 0.441; ditto above.
  • The S&P600 jumped from 0.266 to 0.709; ditto above.
  • The R2K moved from 0.283 to 0.666; ditto above.
Get ready to move long if the market moves that direction, as indicated by the ADV/DEC lines.

Leave a message below, if so inclined.

Regards,

pgd

Monday, November 23, 2009

Update to November 20th Weekend Post

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The futures this morning are looking incredibly strong, and coupled with the rapid downward trajectory the past few days of the markets, make me think it prudent to put on a hedge on my positions and to tighten my stops on my contras (no sense giving up too much paper gain).

Hence, I will put a long hedge on each of my contras based on the following rules:
  • If I own TWM, I will select UWM as the hedge
  • I will put a stop loss at 98% of Friday's low ($28.46) on TWM
  • If Friday's UWM bar was green, I will enter UWM @ the close price + $0.05 ($24.98) , else I will enter UWM at the high price + $0.01 ($25.11).
Let me know if you have any questions.  As always, leave a comment below.

Regards,

pgd

Sunday, November 22, 2009

November 20th Weekend Update

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As always, we'll start with the facts...

The GGT price index continued to fall on Friday, and ended the week at $19.16.  Coincidentally, this is the same level as one week ago, and is off Tuesday's high of $19.64.  Volume on Friday was very low:  1.1M shares, with normal 50d moving average of volume at 1.45M shares.  Falling prices on lower volume gives me pause at the longevity of the decline, so I'm looking for other signals that tell me that we're going to reverse to the upside.  Nevertheless, we're not seeing anything (yet) that points to a reversal, so the present stance in contra ETFs or the short side of the market is still the prudent one.  Further to this, since we did bounce off of the high this week, it does suggest that there is considerable room for a short-term decline.

Here's a chart of the price and volume numbers; judge for yourself.


 Remember, these two "indices" are not visible to the general market, so they do give us an unbiased view into behavior.

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The GGT/Elder Force Index is presently slightly negative at ~ -200K.  We typically do NOT see reversals to the upside until one or all of the following occurs:

1) the GGT FI spikes below -400K or lower
2) the GGT price index "churns" while the GGT FI reverses and moves higher

Since we're not seeing either of these, my belief, and in view of the Thanksgiving week of weakness, is that we're not going to see any reversals or major moves either way before the Thursday holiday.  We may see some form of rally on Friday if we believe that retail is healthy, but for this to happen we'll need to see some majorly good news this week, and I'm not aware of any possibilities.  Here's the GGT/Elder FI chart for your own edification; click on it to see a larger view.



























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The GGT Long-Cash Ratio, which is a ratio of the number of stocks in the database that have a LONG recommendation (2000) to a CASH recommendation (2920), is still struggling below 1.0, and has a value of 0.685.  It appeared that on Tues/Wed of this week we were in a great position to break above 1.0, hitting values of 0.95 and 0.96 respectively, but this is a failed attempt and the present value of 0.685 does not bode well for us moving aggressively higher in the short term.  When the GGT LCR is below 1.0 the bias of the database is downward.  From an overview basis, the number of stocks that are not above their optimized exponential moving averages (EMAs) and rate-of-change (ROCs) values is large, hence although we're seeing prices continue higher on a medium/long-term basis, and we need to play accordingly, this longer-term rally is very shallow / long-in-the tooth from a participatory point of view.

I wrote about the "W" patterns in the LCR, and was expecting such off of the 11/2 bottom in the LCR, but it really never materialized.  The dollar's decline drove most of the upward drive since 11/2, but this past week's decline in the dollar caused the reversal to the downside, breaking the "W".  What *has* materialized is that we're now trending downward in LCR from a short-term perspective, and I don't see any apparent support lines.  The result is that the "W" pattern is broken, we're trending downward in LCR on lower prices and volume, and there is no clear divergence going into the shortened Thanksgiving week.  Based on the data presented to date I expect that we're going to head a tad lower or trend horizontally over the next week.

Here's the LCR and price chart; click on it to expand it to full size ...



 
===============

The LCR Change timer transitioned over the past week from a long-bias to a cash-bias, with the final transition to cash (or contras) on Friday.  While not a perfect timer, it has been right far more than being wrong, and has been in use since September 2008, nearly 15 months running. As of Friday's close, if you had invested in the broad GGT index, or shorted it accordingly on the day that the signal transitioned from 0 to +/- 1, you would be up 86%.  Yes, theoretical, but indicative none-the-less.  Here is the latest chart; click on the image to see it in full-scale:


The GGT Change Timer is a fast timer -- based on the LCR -- and it requires that you have access to your PC around 10-10:30 on the days that there is a pending transition.  It requires that you observe the ADV/DEC line of the major indexes (c.f. http://finance.yahoo.com/advances ), and it requires that you have your trades lined up and ready to execute.  Many of you have praised this timer, and many of you are critical.  It's not for everybody. I do post how I am preparing to use this timer on a given day, and if nothing else, I ask that you trade it on paper, seeing if it works for you. 

The starting point of this timer is when it is sitting at a "0" value.  If we have transitioned from a +1 to 0, this is a LONG-CASH transition, and any follow-through to the downside will see you:
  • 1) closing your long positions
  • 2) entering (if you already haven't) contra ETF positions
Conversely, if you have transitioned from a -1 to a 0, this is a CASH-LONG transition, and any follow-through to the upside will see you:
  • 1) closing your contra/short positions
  • 2) entering (if you already haven't) long positions
I personally advocate using the leveraged ETFs with this timer, but of course, you must balance this with your tolerance of volatility.

Since we JUST entered the confirmed CASH (or contra) position, I suggest you wait to enter the long side of the next signal.

===============

Each stock in the GGT database is assigned a strength value between -5 (weak) and +5 (strong).  When all the strengths of the stocks are summed and normalized, we get a value between 0 (weak) and +1 (strong).  Right now the GGT strength of the database is at 0.383 and has been falling all week, but the transition between Thurs/Fri was weak, showing a possible bottom/reversal indicator could be near.

Here's the chart of the LCR and the GGT Strength Index plotted on the same graph -- click on the image for a larger view.  Note that strength index peaked on 11/16 and headed south, but the LCR didn't peak until 11/18, so the strength can be a good indicator for us to pay attention to for market turns, relative to other indicators.

As I always say ... need to watch for the divergences ...




==============

Just like the entire GGT database of 4900+ stocks has a strength, we can use the individual strengths to form the strengths of various indexes.  I do this, and I generally report on this in my daily blog.  Of interest is where we are sitting on the various indexes, and what our game plan should be for the upcoming week:  Here's the strength chart of the indexes:




The figure above shows various domestic indexes, plotted with the GGT Change Timer signal.  It is obvious that all the strengths are downward trending; what is not obvious is that most of the strengths are entering over-sold areas, usually below 0.3 or so.  Here are the actual strengths of the various indexes:

DJ30:  0.556 --> outlier; down only slightly from Thursday's value of 0.577, is the strongest of all
NDX-100:  0.141, is certainly in over-sold territory.  A hedge to the long-side is warranted
S&P500:  0.292, down from 0.344 on Thurs
S&P400:  0.110, is the lowest valued index and is begging for a hedge to be placed
S&P600:  0.266, down from 0.33 on Thurs
R2K: 0.283, down from 0.341 on Thurs

As most of you know, I'm holding -2x leveraged contra ETFs right now, and closed all my longs early Friday morning.

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This last chart is of the aggregated BRIC stocks, rolled up as strength indices for each country. 




Here are the strengths:

Brazil:  0.296, solid down trend all week
Russia: 0.166, solid down trend all week, begging for long-side entry ...
India: 0.296, solid down trend all week, but slowing from Thursday
China, 0.301, solid down trend all week

==============================

I've posted the dashboard file for these indexes in the GGT Yahoo! group files section; download the zip for Friday and review the dashboard.

There are two schools of thought on how to play these; here's the first school:
  • enter the contra positions in the individual index when the strength peaks above 0.8 or so (not an exact science).  Sell any long positions on the next day if they gap down, or if the GGT Change timer changes state.
  • enter long ETF positions in the individual index when the strength drops below 0.2 or so.  Sell any contra positions on the next day if they gap down, or if the GGT Change timer changes state.
The second school modifies which longs to play -- rather than play ETFs, play GGT stocks that are in the particular index.  Specifically, review the GGT stock dashboard and pick those stocks that have:

  • a recommendation of  New Long or Long, OR
  • a recommendation of Cash, but a long strength of +3
==========


Summary


All-in-all, I am not expecting a major move this week in either direction.  I think the lower prices on lower volume show lack of participation overall, and I expect prices to continue to drift downward or trend horizontally through Wednesday.  Friday is the wildcard; it depends on how far down we are whether we will move, as well how well black Friday is received...


Keep the bias to the downside for now; if you didn't enter this week, as I suggested, I think it may be a bit too late.  We'll see.

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As always, leave a comment below if so desired.

Regards,

pgd










Friday, November 20, 2009

Notables from Thursday, November 19th

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GGT price fell from $19.61 to $19.33, a change of -1.4%, on below-average volume of 1.32M shares.  Volume was up from Wednesday's value of 1.27M shares, but the 50d MA of volume is still at 1.45M, so we're trading lower prices on lower volume.  I get nervous at reading the tea leaves when this happens ... lack of volume shows lack of participation, and falling prices become discounted when there isn't a mass exodus to the door.  We'll have to see how expiration impacts this today (yes, it is November expiration day today).

The long-cash ratio (LCR) fell a large amount, from 0.963 to 0.775, and indicate that the database is weakening.  2142 stocks have a long recommendation, and 2763 have a cash recommendation.  The fact that we could not get this value above 1.0 is a tell that even though the bulls appear to be in control, the prices on the indexes are not supported across the entire market.

Because the LCR dropped, the LCR Change Timer moved from Long (+1) to Long-Cash (0).  Continued weakness in the markets today will cause this timer to move to the cash side, indicating a short-term bearish stance.  This timer is right more than it is wrong; since September 2008, if you would have traded the GGT on the long and short sides (yes, theoretical, I know, but it's a good index), you would have increased your investment pot 88%.

The way to trade this timer is simple:  if the market is down by 10-10:30, as measured by the ADV/DEC lines on all three indexes, then move to contra positions on the indexes.  If you are risk-tolerant, move into the -2x leveraged inverse contras, such as TWM, SDD, QID, DXD, SDS, MZZ, SMN, DUG, etc.  If you are REALLY tolerant of risk you can play the -3x leveraged inverse contras offered by Direxion, such as TMF, BGZ, MWN, TZA, ERY, FAZ, DRV, TYP, DPK, and EDZ.  Do you homework folks, do your homework.

If the markets are down at 10-10:30, and you enter the contras, the change timer will be indicating cashing your long positions in long equities.  I have already set my sell stops on all my equities, including my longs, and am ready to exit this bull leg.  Per my blogs the last two days, I now am fully loaded up to the contra side, and have gains ranging from 2.78% to 3.74% over the last 2 days.  If today is down these will increase proportionally.

GGT strength plummeted on Wednesday, dropping from 0.629 to 0.447.  This is a solid bear signal and indicates, along with the weakening in the LCR, that we are moving to a bearish phase.  While the markets could certainly reverse in view of the shortened Thanksgiving week next week, I'm not seeing anything that points towards a major bull at this point.  Today will tell.

The NASDAQ got slammed yesterday in strength, falling to 0.260 from 0.556.  The R2K dropped a huge amount, from 0.626 to 0.341.  The S&P400, which are the mid-caps, fell from 0.628 to 0.268.  Overall, anytime we fall below 0.3 (or so, this isn't an exact science), we see a setup for a reversal.  Remember, on MONDAY of this week we were at 0.95 levels, so we've knee-jerked FAST to the downside; this, above anything else, gives me pause on the longevity of this bear leg.

At this point I think that we have no option but to play the downside of this market, as driven by the LCR and strength indexes, but understand that we've moved far and fast and that we could reverse, especially in view of Thanksgiving week, which is typically an up week.  Keep your mental/actual stops tight.

As always, your comments below are welcomed and appreciated.

Regards,

pgd

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.

Regards,

pgd

Wednesday, November 18, 2009

GGT Notables from Tuesday, November 17th

Sorry for the hiatus in posting.  Preparation for and the actual trip last week to Abu Dhabi has put me well behind in my routines; I'm now just beginning to catch up.

The squirrel is still spinning in the cage concerning stock updates so I can't give you exact details on the market behavior for Tuesday, at least from the GGT perspective.  What I can state though is the following in terms of observations:

1) GGT price finished MONDAY (11/16) at $19.61, only $0.09 short of the all-time high established on October 19th.  If we close above $19.70 in the near future the only way to interpret this is as long- and intermediate-term bullish.  Failure to close above this amount will move my portfolios to the short/contra side of the market.

2) GGT volume has been fairly consistent at about 1.49M shares, but has been dropping off the last few days.  Rising prices on decreasing volume gives me pause in the short-term; this could be an indicator that the bulls are tiring and that supply is drying up.

3) The Long-Cash Ratio (LCR) bottomed on 11/2 at 0.226 and has been increasing (more or less) ever since that date, finishing on MONDAY's close at 0.898.  During this time the GGT price has changed from $18.17 to $19.61, or an appreciation of nearly 8%.

4) The LCR Change Timer signaled LONG on 11/3 and confirmed the move on 11/4.  During this time the GGT price has changed from $18.25 to $19.61, or an appreciation of 7.2%.  It pays to follow this timer.

5) The DJ30 strength index hit a high on MONDAY, signaling a entry into the contra side of this trade.  I am entering DXD if it moves above $30.19 on Wednesday.

6) While the indexes are indicating solid strength, I am showing that we have entered over-bought territories.  I plan to hold my long positions, but I am entering contra positions if the market weakens on the long side.  I will enter the following ETFs if they move $0.01 above yesterday's high in the range:

TWM: $28.18
SDD:  $29.70
QID: $20.63
DXD: $30.19
SDS:  $36.30
MZZ: $23.73
SMN: $8.98
SKF: $24.31
DUG: $12.28
SRS:  $8.82

Take a look at EPI, which in one of the India ETFs.  India is strong and this just signaled New Long.  It has good volume (1.4M shares) on a $21.85 price, so should be very liquid.

Obviously gold (IAU, GDX, GLD) continues to be solid in recommendation and strength.

Leave a comment below if desired.

Regards,

pgd

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.

===========

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.

-------------

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.

-------------

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.



-------------

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.


-------------

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.

 -------------

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.


 -------------

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.

-----------------

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

-----------------------

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.



-----------------------

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

Comments are always welcomed and appreciated.

Regards,

pgd