Wednesday, February 17, 2010

IsTuesday's action for real?

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Stocks rallied Tuesday, causing me to wonder if this is a head fake or if it's for real for a new sustained bull.  Obviously, either answer is equally possible, but let's look at the the tea leaves.

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Summary:

From a pricing perspective, price action is BULLISH.  Volume is average, which is NEUTRAL.  The Long-Cash ratio has been rising for the past 5 days and this is BULLISH.  The GGT LCR Change Timer is indicating that we should be LONG.  The GGT strength index is indicating that we are approaching overbought areas and that we should be conscious of locking in gains.

Opinion:
The indicators shown below have had their present state for several days, and the status of the strength index not withstanding, indicates we should be careful about entering long positions at this point.  Nevertheless, continued strength will be good on an intermediate basis, and I'm looking for a slight pullback to enter if the longer up-trend continues.

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GGT Price

GGT Price is constructed by taking 3313 stocks and perfoming a numerical average of the individual stocks.  These stocks are presently representing the three major exchanges and have volume in excess of 50K shares.  For Tuesday, February 16th, the GGT Price index hit $22.83, which is an all-time high since I started this index back in August/September 2008, taking out the high of 1/19.  This action is bullish.

GGT Price EMAs

I use the GGT Price EMAs, 13/21/34/55, to give me an idea of what the price has been doing relative to those time periods.  The deltas on these EMAs, e.g., what is their slope change on a day-to-day basis, is important because of the slope change is positive and the EMA slope is positive, then we are in an uptrend.  Conversely, the opposite is true.  When we look at the rate of change (ROC) in the slope change, we have an indicator of whether we are moving faster to the upside or downside.  The detlas on all these EMAs are positive, and have been since Tuesday, 2/9, which is bullish.

GGT Price EMA ROCs

The ROC of each of these EMA deltas is slowing, but are still all positive, which is bullish BUT indicates some weakness in this bull leg.  A 3-day smoothing EMA on these ROCs is showing that they are all positive day-over-day, which us bullish.

GGT Volume

GGT Volume is constructed the same way the GGT Price index is constructed.  The 50d MA of Volume is 1.65M shares, and we have had 28 days of sustained volume ABOVE the 50d average.  This indicates a strong and healthy market.  Yesterday's action was 1.87M shares, 13% above average, which is within the "noise" of a standard deviation and is unremarkable.  Upward prices on average volume is necessary, but not sufficient, for a sustained bull leg.  We'll color this green but the overall influence is more or less neutral.

GGT Long-Cash Ratio (LCR)

The GGT LCR continues to show strength at 0.569, indicating that there are 1201 stocks with a long recommendation and 2112 (Rush anyone?) stocks with a cash recommendation.  The indicator has rose continuously for the last 5 trading sessions, and this is a bullish sign.

GGT LCR EMAs

The GGT LCR EMAs are *just* showing signs of bullishness.  The 13d EMA of the change in LCR just turned positive, e.g., the slope of the 13d LCR EMA is now pointing upward.  This is bullish.  The longer EMAs -- 21/34/55/65 -- are still pointing downward but are decelerating in their negativity/becoming more positive, e.g., they are negative in absolute value, but if they continue this trend, they too will move positive.  The negative value of the LCR EMAs is BEARISH, but is negated by the deceleration, so I'll color this yellow -- bullish tendencies, but still bearish in indicator.

GGT LCR Change Timer

The LCR Change Timer, which is a timer that looks at the day-to-day change in the LCR and indicates which side of the market we should be on with respect to a short time frame, has been long since Wednesday, 2/10, and this is bullish.  If invested in the GGT index since inception in 9/08 using this timer you would have a total gain of 84%.  The performance of the timer has been relatively flat since 10/28, which would frustrate some of you.  Nevertheless, we should be LONG according to this timer.

GGT Strength Index

The GGT Strength Index is formed by looking at the individual strengths of each of the stocks, then averaging these, then normalizing these values between 0 and 1.  A 0 indicates very oversold, and a 1 indicates very overbought.  The strength index has moved up to 0.78, which historically, is in the territory for reversal (anything over about 0.6).  While there certainly is upside available, the probability of reversal, especially in horizontal trending markets, is greater when this has this value.

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Remember, you are responsible for your own trading decisions, not me.

Regards,

pgd