Friday, March 26, 2010

Bullish Divergence in GGT Price+Volume Strength

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GGT Price fell another -0.5% on Thursday, giving us 2 consecutive down days in price on above average volume of 2.5M shares (2.083M shares is the 50d MA Volume).  This is a 23% difference above average and is significant -- down prices on above average volume means larger selling, which is bearish

GGT Bull/Bear Strength continues to fall, indicating that the bears are gaining foothold.  There are more bears than bulls over the last two trading days and this could be pre-evidence of a sea change.  Correspondingly, I am very cautious at this time.

The GGT Long-Cash Ratio has fallen two consecutive days and now indicates that 67.9% of the database is LONG, e.g., 2162 stocks have a long recommendation and 1022 have a CASH recommendation.  The slope of the 65d EMA on the LCR has fallen now the last 6 consecutive days and shows that the database is not appreciating in price as fast as previous.  This latter point is cautionary -- we want consecutive up days, not down days of this indicator, so continued caution is advised.

The GGT LCR Change Timer (slow) continues to indicate CASH (-1).  On the day of the original down signal the historical return using this timer was 89.4%; 7 trading days later we are still at 89.9%, so we have not see a huge move either way.  A few of you have sent me a note asking "what's up?" -- all I can say is that with the underlying numbers of stocks in the database increasing in the number of CASH recommendations and contributing to a falling LCR, it is prudent to protect profits.  You should be watching contra ETFs for an early breakout, or watching long stocks for continued consolidation/sideways movement then a breakout to the upside.  We have neither right now.

[ Please note and remember that you're in this for the long haul.  Not all signals will exactly time the top, and not all will exactly time the bottom.  This has been a very good system over the long haul. If you have a better system I'm willing to listen...  :o) ]

GGT database (Price + Volume) strength INCREASED on Thursday, which is a BULLISH divergence.  What this means is that the strength of stocks falling in price was X, but the strength of stocks rising in price + volume was Y, where Y > X.  This means that for the stocks that did rise, they did so on higher volume, which points to institutionals playing with the bigger names.  We need to keep an eye on this situation for a potential new bull leg.

The DJ30 increased it's strength on Thursday over Wednesday's value, but is still considered overbought by my standards.  While there is upside available in the DJ30, I think that there is a greater likelihood of a downdraft.

The NASDAQ 100 fell in strength on Thursday, and is now at it's lowest level (58.5%) since 2/23.  When we get to this level we could go either direction.  I would prefer to see a reset below 40%, but it may not happen.  Remember, the 40% indicator is not an exact science.

Brazil continues to get the heck beat out of it.  It has fallen to it's lowest level since 2/24 (25.3%), so looking at EWZ or other long positions in Brazil may be warranted.

Russia gained on Thursday and has now just crossed the 40% threashold from below, a bullish sign.  Watch the RSX or the individual Russian stocks for continued strength if the markets move higher.

India followed Russia and is now at 49%.  Watch India for continued strength.

China continues to weaken and has been floating around 43% all week. There is very little direction here, so caution is advised.

The SP400 MidCaps fell another 11% and are now at 60.9% strength.  THIS IS THE LOWEST LEVEL SINCE 2/11

The SP500 strength fell to 64%, now the lowest level since 2/26.  Certainly, reversal is possible from here, but with GGT LCR falling, I think we'll continue to see a drift down while LCR drifts downward.

The SP600 has fallen to 48.8%, and is now at the lowest level since 2/10.  These are the small caps, and as I indicated at last weeks meeting, we've seen a gradual rotation from small caps to large caps.  This is further evidence of that rotation.  A reset below 40% would certainly put us in place for upside movement.

Finally, the Russell 2000 Small Cap index has fallen to 53% strength, which is just above the 2/10 level.  Same comment as above for the SP600.

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We've had 7 days of boucing back and forth, not really gaining overall.  The LCR has been drifting downward.  Small caps have been drifting downward in strength to their 2/10 and 2/26 levels.  We have a divergence in Price+Volume strength, hence I think it's very plausible that we could go either way.  The indicators are telling us to be biased to the bearish side, and until the LCR Change Timer moves long, I will continue my "where are the contras" mantra.  Note though that I am still selectivly purchasing long stocks from my VectorVest Gorilla Trades strategy, as well as some of the Larry Conners ETF strategies, so we'll see how things progress.

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Remember, you are responsible for your own trading decisions.  Please do your homework.

Regards,

pgd