Friday, February 5, 2010

Notables from Thursday, February 4th

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I'm back in NoVA now after an abbreviated vacation in Orlando.  We came back early due to the pending storm....

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I watched with angst yesterday as the markets tanked and as each of my stop losses triggered.  I took a pretty significant hit across each of my portfolios, with only my wife's TSP account in "protection" mode.  Despite the hits we must continue to search for entries, as *this* is the time to buy rising industries and stocks.  Before I go there, let's take a look at the GGT stats.

GGT Price - Bearish

The GGT Price Index is at $21.40, which is down significantly from Wednesday's close of $22.17 and represents the lowest value attained since January 5th, when it was $21.35.  This was a -3.47% change from Wednesday, and is the 11th largest drop out of 273 trading days that I reviewed.  We have to go back to 6/22/09 to see a larger drop, and as many of you know, we did not start that leg of the bull until mid-July, nearly 3 trading weeks later.  While the past is no predictor of the future, when we have encounted such deep cuts in the past, the bleeding continued for a bit.

GGT Pricing EMAs -- Short-term Bearish, Intermediate-term Indecisive

The shorter term GGT Pricing EMAs (13/21/34) are both with a negative slope, e.g., they are falling.  The 55d EMA and the 65d EMA are still positive in value but are slowing.  Of particular relevance to me is the slope of the 65d of price, smoothed with another 21d EMA.  This has been falling since the 20th of January, and it crossed into negative territory on the 22nd and hasn't transitioned positive since.  Note though that this same 65d EMA of slope of the price is positive when smoothed with a 34d EMA, so we're in a transition place.  If the 55d and 65d slopes move negative, and if this 34d EMA of the slope of the price moves negative, then we know that the bears are out of hibernation. 

GGT Volume -- Bearish w/ Decreasing Prices

The GGT Volume Index continues to show incredible participation -- we had 2.5M shares trade yesterday, when normal 50d average GGT volume is 1.52M shares, which is 64% higher.  This is different than the 6/22/09 drop, which showed a large drop in prices on -9% lower GGT volume, relative to the average volume at the time.  I typically don't get worried when we have large changes in price on lower volume, but when we see large changes in prices on higher volume, we have to take notice.  This is a very bearish sign.

GGT LCR -- Trying to Move Upward from Oversold Levels

The GGT LCR moved lower on Thursday and is now at 0.302, indicating that 793 stocks in the database are LONG and 2627 stocks are CASH.  This is a whipsaw from Tues/Wed, when we saw Tuesday jump up to 0.469 from Monday, and Wed move barely higher to 0.479.  Two sustained days of the LCR moving upward triggered our LCR change timer to LONG, and if we had followed the rules, we would have entered stocks / ETFs yesterday if they had higher prices (use Elder!).  Obviously, Thursday's action was downward, and we would not have purchased any long stocks / ETFs.  If prices are higher today (Friday) we should enter short-term long positions to take advantage of a rally, but I would do so with very tight stops to protect any apparent profits.

GGT Strength Index -- Bullish

The GGT Strength Index is at the lowest levels since November 2008 (yes, 2008), and indicates incredibly oversold conditions.  If you have the kahonas, enter long positions if today's prices move above yesterday's high values.  In terms of ETFs, look seriously at the Direxion ETFs, which are 3x leveraged ETFs, and look at stocks that have been attractive but have been hammered more than normal as of late.  If you purchase long positions on higher prices than yesterday, set stops tight to protect any profits -- this could be a rocky ride!

Intermediate Term Trend Indicator -- BEARISH

We are below our GGT prices of 2 weeks ago --> bearish.  The GGT LCR value is below 1.0, e.g., more stocks in the database have a CASH recommendation than LONG -->  bearish.   Use caution on the long side, as the indicators are all showing continued weakness.

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Various Strengths of Indexes I Track

I track the constituent stocks in various indexes to see the relative GGT strength of each.  As you might expect, we were hammered yesterday.  The values after the index are normalized between 0 and 1, with 0 indicating completely oversold/new low and 1 indicating completely overbough/new high.  I have listed 1x and 2x long positions for the ETFs that move with these indexes.

DJ30:  0.22, fell 57% in strength from Wednesday (review DIA and DDM)
NDX100:  0.06, fell 82%, INCREDIBLY OVERSOLD (review QQQQ and QLD)
Brazil: 0.13, fell 52%
Russia: 0.19, fell 36%
India: 0.17, fell 56%
China: 0.23, fell 49%
SP500: 0.06, fell 84%, INCREDIBLY OVERSOLD (review SPY and SSO)
SP400: 0.08, fell 78%, INCREDIBLY OVERSOLD (review IJH and MVV)
SP600: 0.12, fell 57% (review IJR and SAA)
Russell 2K:  0.16, fell 50% (review IWM and UWM)

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

Regards,

pgd