Friday, March 12, 2010

Indicators are showing that we are topping/pausing, so advise to tighen stops/protect profits

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There haven't been any significant changes this past week to the GGT system.  We have been showing very strong strength on good volume, contrary to the talking heads on CNBC and Bloomberg.  Yes, they are on the floors of the respective exchanges so you think they would know, but data doesn't lie -- pricing and volume have continued higher, with just a few chinks in the armor.

GGT Pricing

GGT Pricing Index has hit a new high every day since 2/26, and is now at $24.71 on above average volume of 2.1M shares (average = 1.9M).  While the rate of change on a daily basis is slowing, it is still very positive, and this is bullish.

New Longs

The daily number of New Long recommendations, 61, is the lowest since 2/10, and indicates that we are either pausing or topping. 

Long-Cash Ratio

The Long-Cash Ratio (LCR) has hit new local highs every day since 2/23, and is now at 3.625, indicating that there are 2501 stocks that have a LONG recommendation and 690 that have a CASH recommendation.  This is the 3rd highest LCR value recorded since September 2008, and a reversal has always been imminent at these levels.  I would advise to tighten stops and protect profits at this level -- there isn't much you can leave on the table at this point.  Remember, you can always re-enter the positions AFTER a slight pullback.

LCR Change Timer

The LCR Change Timer is still LONG (+1), and has been so for 19 consecutive trading days.  20 is certainly possible, but this timer is telling us to remain long.

GGT Strength

There is a divergence in GGT Strength with GGT Price.  GGT Strength fell Thursday to 0.85 from 0.92 by the largest amount since peaking at 1.0 on 3/5.  There are two ways to interpret:  either the market is taking a breather and will continue higher, or this is the start of a slight pullback.  Your crystal ball is as good as mine so again, I would protect profits and tighten stops so that you can re-enter with new cash if the market continues higher.

Index Strength

With the exception of the DJ30, every single index that I track is showing new weakness:

DJ30, up 0.42% in price, up 8% in strength
NDX-100, up 0.4% in price, down -9% in strength
SP500, up 0.4% in price, down -6% in strength
SP400, up 0.48% in price, down -8% in strength
SP600, up 0.3% in price, down -9% in strength
Russell 2000, up 0.34% in price, down -8% in strength

This should give us great pause and suggests that either the market is topping or taking a breather.  I personally do not see that there are enough stocks in a CASH status to move to LONG to power the next leg, so I think that there is better than a 50/50 chance that we will not continue upward from here but will consolidate over the next week. 

Your crystal ball is as good as mine.  Comments are welcomed.

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

Regards,

pgd