Tuesday, January 19, 2010

Addendum to the Jan 16th Weekend Post


I want to make you aware of something that came out of my weekend analysis but that I was having difficulty posting in the previous blog entry

The GGT LCR is a measure of the number of stocks in the GGT database that have a Long recommendation compared to those with a Cash recommendation.  Presently, the long-cash ratio is 1.727, down significantly from the peak on Monday, January 11th, 2010 of 3.203.  This divergence in price and LCR is significant -- a greater number of stocks in the database are falling below their optimized EMAs (moving them to a cash status), but the price of the GGT database continues to move higher and higher, at least through this past Thursday.

This behavior cannot be sustained.  Either the GGT price will fall, aligning itself with the LCR, or the LCR will reverse and climb, locking itself with the increasing prices.

Here's the chart:

I've colored the area above the LCR peak in pink so that you can correlate the price change with the peaking change of the LCR.  Obviously, we're seeing a significant change in LCR relative to GGT pricing, and this is a huge shot across our bow as a warning.