Saturday, January 16, 2010

GGT Weekend Update for January 16th, 2010


A crack in the ice?

A number of key ETFs and stocks are changing state, and it's important to take note of the sea change.  It's too early to call the bull dead, by any means, but certainly, caution is advised.  There appears to be an opportunity in longer-term bond ETFs, so we need to watch them.  Emerging Market ETFs, while appearing to reset in the recent pullbacks, are a bit early for re-entry.  Contra ETFs for this space look ready for purchase if the slide continues.

The GGT price index looks significantly overbought.  Caution is advised, as it suggests a fall of -7% would not be unexpected, relative to what happened in 2009.

Note that I like using the 3x-leveraged family of funds from Direxion for analysis because they highlight changes that are not immediately visible in the 1x ETFs.  Folks, these ETFs are dangerous and if you want to rank their volatility on a scale of 1-5, with a 5 being the most risky, they are a 6.  I am not advocating that anybody invest in the Direxion ETFs, or any other of my notes below -- remember, YOU are responsible for your own investment decisions.

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I  presently have a position in TBT, the ProShares Ultra Short (-2x) leveraged 20-year bond fund. I entered earlier this week and the position is underwater by -3.84% as of Friday's close, which obviously is the wrong way to go.  Note that GGT has signaled "New Cash" for TBT as of the close Friday, so we're seeing my position  behave like GGT indicates.  Let's take a look to see if we could have seen this coming; like all my charts, click on it for a bigger image:

There is a considerable amount of information in this chart, but I draw your eye to the window just above the pricing window, the one entitled "65D EMAs of SLOPE (...)".  Here, we're looking at the slope of the 65D EMA of price,  but with three different EMAs applied:  an 8-day, a 13-day, and a 21-day.  When these values are below 0.00, the slope of the 65D EMA of price is falling, and when these values are above 0.00, the slope of the 65D EMA of price is rising.  When these 8/13/21d EMAs are pointing upward we have price momentum to the upside, and when they top out and fall, we are losing price momentum.  We want stocks where these are breaking out to the upside.

With respect to the 8d and 13d EMAs in the 65d EMA of slope window, we see that these are falling from a positive value.  The positive value means that the 65D EMA is still rising (slopes above 1 mean rising), but is doing so at a slower rate (e.g., less positive).  The 21d is still pointing upward, so price is still in a long-term uptrend, although on shorter time scales it's apparent that it is under pressure.  We see that the 8d and 13d started flattening around the 11th of this week, right when I was purchasing.  Had I paid attention to this graph, I would have realized that we were in a bit of pressure here and probably would not have entered.

If you take a close look at the pricing graph, you'll see that the blue line is below the red line.  The blue line is the 50d EMA, and the red is the 200d EMA.  Further, you'll see that Friday's action was completely between these two, e.g., this gives evidence why GGT has signaled "New Cash".

Given the "New Cash" recommendation for TBT, coupled with the peaking/falling values of the 8d/13d EMAs of the slope of the 65d EMA of price, I will be selling my position in TBT on Monday.  I will do this by placing a 1% Trailing Stop Loss (TSL) that will be in place at the open.  Note that I still believe that the longer-term contra bond funds will do well in the future, especially as the FED raises rates, but right now the tide is changing.


If TBT, the contra 20-year bond ETF is falling apart and is worthy of a sell, is there a corresponding buy?

TLT is the non-leveraged, +1x ETF that represents the 20+ year bonds.  Here's the chart:

We're seeing some interesting action on this chart:
  • The 3rd ribbon from the top is the Accumulation/Distribution line for TLT.  It is rising from poor Accumulation, a positive sign.
  • The %B, which is the price in relation to the Bollinger band boundary and Bollinger bandwidth of TLT is significantly increasing.  In fact, the present reading of 68% indicates we may have missed the move in TLT.
  • Although the 65d EMA slopes are all below 0, indicating that this has a long-term downward price movement, the short term 8d and 13d EMAs of the slope have reversed and are pointing upward.  This is a shift in momentum.  We need to see the 21d EMA reverse also, so by this indicator, it is too early to get into TLT.
  • Price gapped up on Friday, but we have a Doji -- indecision.  We need to wait and see what is going to happen over the next few days.

    Conclusion:  it is too early to get on the TLT bandwagon, but continue to watch.

    TYD, the 10-year +3x leveraged ETF from Direxion, has signaled "New Long".  This is a thinly-traded ETF, but we can glean some trending info from the price action of this family of ETFs.  Here's the chart:

    Now you know how to read this chart above.  Note specifically at the crossing of the 65d EMA slope lines, specifically the 8 and 13, which crossed on the 6th.  Even though these are still negative values, they certainly are indicative of a change in momentum on this ETF, hence we need to watch closer.

    Note that we want a pullback in TYD to enter, as well as more volume, but this one is interesting as an indicator of what long bonds are doing.


    The Emerging Markets ETFs interest me for a number of reasons, but mainly that I think we need to keep some money reserved for those overseas opportunities.

    The Direxion 3x funds for the EAFE can give us some insight as to what is going on in the emerging markets aggregate:

    The top one, DZK, is the +3x bull, which means that it goes up 3% for every 1% increase in the underlying, and the bottom one is DPK, which is the -3x bear.  Click on the image above.  When you scan the GGT dashboard, you see that the bull is "Long", and if you look at the right-most column, you'll see that the strength is a "1", which is about midscale.  Conversely, the bear is showing "Cash" and a strength of 3.  What?  The bear is showing a strength greater than the bull yet the recommendations are Bull/Long and Bear/Cash?  Yes, and this indicates the following:
    • The bull ETF DZK is in a long-term uptrend and its PRICE AND VOLUME are higher than it's historical optimized EMAs.  This is long-term bullish.
    • The bear ETF DPK is in a long-term downtrend and it's price is lower than it's historical optimized EMAs.  This is long-term bearish.
    • The bull ETF DZK is experiencing a pull-back causing the decrease in strength, which is a short-term indicator, to fall towards negative numbers.  The range is +5 to -5, and when it hits -3, it will recommend a "New Cash" status.
    • The bear ETF DPK is experiencing a short-term trend reversal, causing its strength to go more positive.  A value of +5 would cause this to change to a recommendation of "New Long".
    Here's the chart for DZK:

    • The dark green in the third ribbon indicates that this equity has been under significant accumulation, which is long-term bullish.  
    • The 4th and 5th ribbons are Elder's Force Index, both on a 2d and 13d view.  Right now they are showing that the 13d is above 0 -- volume and prices are increasing, which is bullish -- yet the 2d is below 0, possibly signaling an entry for Monday. 
    • Bollinger Bandwith and %B follow in the next window, with the bandwidth at 0.22 and the price at 72% of the band width.  We want to make entries into an equity when this is lower, say below 50% or so, hence we'd like to see a bit more correction but maintain our "Long" recommendation.
    • The 65d EMA window, where I plot EMAs against the slope of the 65d EMA of the price, is showing interesting behavior.  First, all slope EMAs are in an uptrend, which shows upward momentum and is heavily desired.  Two of these EMAs, the 8 and the 13, are above 1.0, indicating that the 65d EMA slope has transitioned from falling to rising, also a bullish sign.  If you look upward into the ribbons, you'll see that the 8 and 13 started their upward march about the same time the stock started serious accumulation as well as the Bongo daily changing to green. The 21d is still below 1.0, indicating that we don't have an all-in condition, but that in the longer-term time frames, we are gaining upward momentum. Also note that when you look at the 21d and it is falling, you can see that historically, this could have hurt you.  Hence the 21d EMA of the 65d EMA of price is a good overall gate for us to review.
    Nothing really stands out in the Emerging Markets ETFs overall as a Monday trading opportunity.  Here's what GGT says (click on the image for a larger view):

    and here is how HGS ranks the same set in terms of relative strength (apples to oranges, but we get an idea):

    The first thing to realize is that both rank 4 of the top 5 in the top 5, here they are with GGT listed first and HGS listed second:
    1. EWX (1/3)
    2. DGS (2/5)
    3. GML (3/1)
    4. GMF (4/10)
    5. PIE (5/4)
    GUR is listed as #2 in HGSI and is listed as #10 in GGT.  Despite the differences, picking long-rated GGT equities is highly correlated to picking high relative-strength equities in HGSI, and visa versa.  For those of you using HGSI, I used the Ian Slow RS criteria.

    GML looks interesting as the #1 pick in HGSI and #3 in GGT, provided it can maintain it's GGT "Long" recommendation.  Here's the graph:

    • Distribution has been occurring, as evidenced by the yellow ribbon on the 3rd line.  This isn't good.
    • The Elder FI(13) has moved to red, indicating a down trend (4th ribbon).  This is problematic.
    • Elder FI(2) is red (5th ribbon), but we expected that with Friday's action ...  This most likely will block me from entering this equity.
    • %B is falling, so we have upside room to grow, a good thing.
    • The purple magenta line in the 65d EMA window is the real-time slope change of the 65d EMA of price.  Almost every single EMA is pointing south -- this is also problematic.
    • Overall, pricing EMAs around 75d (not shown), 65d (black dotted line), and the 50d (solid blue line) have held in the past.  If we see a reversal in the next week, we know where to set our (mental) stops :)

    If we can look at the long Emerging Market ETFs through these lens, then we certainly can look through the contra-ETF side.  EUM and EEV comprise the non-leveraged (-1x) and leveraged (-2x) of the Emerging Markets ETFs.  Here is EEV, since it's leverage will amplify trends:

    • Notice that we're starting accumulation, relative to where we were last week, on EEV.  This is bullish.
    • Both the Elder screens for Force Index are now green.  Certainly we want a red FI(2) for entry with a green FI(13), but having these as green is a bullish sign.
    • Bollinger readings look good.  Obviously the transition on the 1/11 and 1/12 would have been a better entry, but this looks very appealing if we have a light pullback.
    • All of the 65d EMA slope EMAs are below 0, which means we are in a long-term decline on EEV.  Nevertheless, we are pointing upward in the 8 and 13d EMAs, and although the 21 is just turning back downward (a warning sign), continued upside movement will cause all of these to point upward.  This would be very bullish on EEV.
    • The price of EEV has just crossed over the 8D EMA -- we need continued closing above this to have a strong bull sign, so watch for it.

    The GGT strength of  EUM and EEV are both +3 -- any further volume into either of these ETFs will cause them to move to a "New Long".    This too will be bullish.
      Emerging Markets Conclusion:  while we need to be ready to move into a long position in the Emerging Market ETFs, especially watchful of a false failure to the short side, there is no question that the contra ETFs on Emerging Markets could continue to present a significant opportunity.  Be vigilant.


      One thing that my work with GGT allows me to do is easily look for rotation in industry groups.  Banking-North East wins in this category; GGT is tracking 25 stocks in this group.  Here's the list and ranking of each of the stocks:

      The right-most column is the GGT strength of the individual stock, as of Friday's close.  I've highlighted it in yellow.  The 4th column from the right is the average Gain-Per-Buy signal for the GGT stock, and it shows that on average, when a stock has signaled "New Long", that it has appreciated that amount per long call.  This helps me to select those stocks that typically have been movers in the past.  I have highlighted the stocks with the highest GPB value in green.

      Let's see how the overall group is doing using HGSI charting:

      There's a LOT of green on the ribbons; this group has been doing well for some time, and is again showing considerable strength.

      • The 3rd ribbon from the top is Accumulation/Distribution; the group has been receiving increased accumulation for some time (dark green), which is bullish (in demand) but also bearish (at the highest ratings);
      • The FI(13) is green (4th ribbon), so the group is in a longer-term uptrend (bullish).
      • The FI(2) is red (5th ribbon), so we have potential entry points into the group (bullish)
      • %B and the Bollinger Band is very high, suggesting that the group does not have much running room before a pull-back.  This is bearish.
      • All the primary 65d EMA slope values (8d/13d/21d) are in an up-trend.  This means that the group is in a sustained uptrend, and momentum is with the group.  This is very bullish.
      • The 50d EMA of price (solid blue) is crossing the 200d EMA of price (solid red) from below.  This too is very bullish.

      So now what?  The key here is to use the GGT dashboard to see if we can find gems in the pile of Banking-NE stocks.

      Look at the 4th column from the right in the GGT industry view above, the one where I highlighted different columns.  BPFH, Boston Private Financial Holdings, has a GPB value of 28.2%.  It is flashing an "Affirmed Long" signal, meaning it showed strength on Friday, even though it was down in price.  It has been long since 12/1/09; here is the GGT chart, which shows the Long/Cash calls compared to the price action:

      The stock has run up 32.9% since 12/1 initial buy signal, which is higher than it's average per long call of 28.2%, and while it certainly could continue higher, it is a bit overextended relative to the GPB signal as well as recent history.  Because of this, I'm going to pass on BPFH and look at other high-GPB values:
      • WL, @ 29.8%
      • TBBK, @ 26.1%
      • MTB, @ 22.6%
      • INDB, @ 18.4%

      Let's start with WL.

      • WL signaled New Long on 1/5/10.  If purchased on the open on 1/6, it is up 10.6%
      • The GPB value for WL is 29.8%, suggesting that there is another 19% or so upside left in the stock.  This is bullish.

      Let's take a look at HGSI charting for WL:

      • 3rd ribbon from the top:  the stock is experiencing significant accumulation, as evidenced by the dark-green ribbon color.  This is bullish.
      • Both Force Indexes (13 and 2) are green.  This is bullish.  Note we want the FI(2) to be less than 0 then rise above the previous day's high for entry.
      • All three 65d EMAs of the slope (8d/13d/21d) are in an uptrend, although the 21d is still less than 0 (what does this mean?  Hint:  the answer is above).  This uptrend of all three EMAs of the slope signifies momentum and is bullish.
      • %B and the Bollinger width is indicating very high levels, suggesting a greater likelihood of pull-back.  Given that the stock has been playing here for the last couple of weeks, this is neutral, but some caution is advised.
      • Price is trading well above the 17d EMA (green line), which is bullish.
      • Price is trading well above the 8d EMA (purple line), which is a riskier trade.  I would wait until it kissed the 8d to enter.
      • The 50d EMA is in an uptrend (blue line), which is bullish.

      Here is the GGT chart for TBBK, which has been long since 11/17/09:

      • TBBK has risen 32.2% since it went long on 11/17/09, which is higher than it's average GPB value of 26.1%.  While it certainly can move higher, the risk is higher.  
      Here is the HGSI chart for TBBK; I'll allow you to draw your own conclusions:

      Here is the GGT chart for MTB:

      • MTB signaled "New Long" on 12/18/09.  Since this time it has appreciated 12.4%, which is below the GPB value of 22.6%.  This suggests that it could rise another 10%, if the past is any predictor of the future (which we all know it is NOT).
      Here is the HGSI chart for MTB; I'll allow you to draw your own conclusions.

      Here is the GGT chart for INDB, which signaled new long on 12/28/09:

      • Since the "New Long " on 12/28, INDB has appreciated 1.3%.  This is much lower than the GPB value of 18.4% and suggests considerable upside to INDB, if the past is any indicator of the future (yes, yes, yes, we know, we know).
      Here is the HGSI chart for INDB; again, I'll allow you to draw your own conclusions:


      Conclusions: if the market continues to rally, there are some stocks within the Banking (North East) industry group which could be attractive.  I intend to watch these if the market continues higher.


      GGT Price and Volume Action

      GGT Price hit an all-time high of $22.52 on volume of 1.6M shares this past Thursday.  Friday saw higher volume (2M shares) on a lower price of $22.32, the volume rise most likely due to Friday expiration.

      We keep hearing that Friday was the death of the bull... I'm not so sure.  Let's look at pricing EMAs to get a glimpse what has been happening.

      Friday's action was a big negative blow -- the GGT price fell nearly -0.9% from Thursday's high, but prior to this time we've see a tremendous run up with little pause in prices.  EMA prices give us a view of how smooth the road has been, and as many of you know, I believe that the differential of these prices, and the slopes of these differentials tell us a considerable amount about changes in the market.

      The figure above is the GGT Price since 4/09, plotted with the EMAs of the Rates of Change (ROCs) on Price.  ROC (13) is the 13d EMA of the daily changes in GGT price.  Read this graph as follows:

      • the EMAs of the ROCs are all above 1.0.  This means that the slopes of the respective pricing EMAs are all pointing upward, but are slowing (e.g., losing momentum). 
      • When these EMAs of the ROCs close below 1.0 (the pink zone) we'll certainly be losing money.

      I pay great attention to the above chart as an indicator of the overall market.  This is the 65d EMA change in slope, plotted with GGT price.  As a raw value, it is choppy, but you get an idea of how it responds as price changes.

      • The first thing to realize is that as long as this value is above $0.00, we're okay:  prices are still going upward, albeit slower. 

      • The second thing to realize is that when this value crosses into the pink zone, much like the previous graph, it's time to protect profits. 

      • The final thing to realize is that if we're in the pink zone and the change in slope line reverses, then we best be seriously thinking of going long in the market.  Failure to do so makes us miss a considerable amount of gains.

      Can we fuel a bull on decreasing volume?  Don't ever let anybody tell you differently; review the next chart:

      The chart above is from early January 2009 and shows that certainly, volume helps in the early stages to get things moving, but the lesson learned here is that decreasing volume can still fuel the markets.  If you have a rational explanation for this please post in the comments section.  Another take away from the chart above is that average volume is reversing; whether we get back to the levels of April 2009 or even September 2009 is to be seen.  A fellow colleague, Paul Sutton, has suggested that the increase in volume early in the bull phase was simply a tremenous amount of sideline money hitting the market, and after the gains had been made, then the smart money started entering, fueling things higher.  Note that the chart is trading volume on a day-for-day basis, so once new money hit the equities, it stayed there, with lower and lower new money entering the market.

      Perhaps what we have seen over the past year is indicative of all bull stages?  I don't know -- GGT only goes back to Sepetember 2008.

      As a final indicator of GGT Pricing, take a look at the following:

      I'm not a big support/resistance/channel-guy, but the behavior shown above it too compelling for me to ignore it.  What we see is that we are about 7.6% above the bottom line and 0.6% over the top, parallel line.  What is different about this chart is that you can certainly see that if nothing else, compared to historical moves, we are in the upper portion of a channel and reversion to the middle of the channel would not be unexpected.  This is roughly a 7% wide channel -- others have suggested using 8% -- but since two points make a line this was easily constructed.  If nothing else, caution is advised.

      GGT Price and Volume Action Conclusion:  From all indications, while we still have positive rates of changes on many of the pricing ROCs, they are in a down trend.  These are rear-view mirror indicators -- they only tell us where we've been, but since I trend-follow, it makes sense to give serious consideration when many of the indicators are changing direction.  Of all my pricing and volume indicators, the last chart presented suggests that we are severely overbought, and I would not be surprised at all to a correction that would take us at least to the middle of the channel, if not lower.