Friday, March 5, 2010

LCR Change Timer Transitioning to Long-Cash with Thurs' Action

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It's 5 a.m. in Vegas, Friday morning, and the futures are higher in advance of the jobs report.  Everything is pointing upward according to the talking heads, partially because it seems that the jobs report is being discounted and that Greece is going to be safe, but I see another side.

I purchased hedge positions in DRV, FAZ, SRS, QID, and SDS near the close yesterday.  I have orders pending in MZZ and DXD, which may execute today if the market even appears to reverse and move lower.

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GGT Price inched up to close at $23.91, changing from $23.86.  If you believe in channel lines, we are 1% away from a top channel line and 7.6% away from the lower channel line.  This GGT Price is an all-time high, relative to when we started back in September 2008.  Rising prices is bullish.

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Volume continues to be strong, with Thursday's value at 1.96M shares on 50d MA volume of 1.78M shares.  This volume is 7% over Wednesday's value and this is within the daily "noise" of volume change.  Rising prices on steady volume typically indicates broad participation so the big boys are playing on a daily basis.  I take this volume ad price action to be bullish.


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Bull Strength is something that I don't write about every day, but it can give us insight.  It's a simple indicator -- the number of (New Longs + Affirmed Longs / New Cash + Affirmed Cash), e.g., the number of stocks that are strong to the number of stocks that are weak, relative to past optimized level.s  I'm seeing the bull strength indicator drop over the last two days, having peaked on Tuesday.  A dropping value means that the numerator (bulls) are weakening relative to a growing denominator (bears strengthening).  This value is not averaged so it is a very fast, raw indicator.  It is impossible to sustain a short-term rise in the markets with this indicator falling, so I see clouds on the horizon.

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The GGT Long-Cash Ratio, or LCR, barely increased on Thursday, from Wednesday's value of 1.914 to 1.923.  This increase in LCR continues to be bullish, but note that the rate of change of the 13d EMA on this is slowing (decelerating), as is the 21d and 34d.  While not cause for panic, slowing rises are a precursor to reversal, so I will continue to watch.  The take away here is that I would not be surprised at a reversal in the LCR absolute value within the next few days.

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Despite the LCR moving up, the amount of change was not enough to sustain a LONG call, and the LCR Change Timer has transitioned from "LONG" to "LONG CASH".  This means that if we see the advance/decline lines show 1:1 or 1:2 (more DEC than ADV), this timer will transition to CASH.  Conversely, if today is up with more ADV than DEC, the timer will revert back to LONG status.  The way I typically treat this indicator is to watch the markets between 10 am. and 11 am, and see what direction things are moving.   If the ADV/DEC line looks like it will fall today I will move my stops to yesterday's lows and protect my profits in my long positions.  If you hold contras, if you see them gain, you'll have another indicator of what the underlying markets are doing.

Despite this guidance, the LCR Change Timer is still LONG. It has been long for 16 trading days.   If the markets finish down near 4 pm, it would not be a bad move to protect yourself with hedge positions just before the close.

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GGT database strength continues to weaken, having hit a high of 0.947 (overbought) on 3/2/10.  It is now at 0.791 and is sinking.  We cannot sustain rising prices with a falling strength, so either:

1) prices will reverse to the down side
2) database strength will reverse and move up with rising prices.

Unfortunately, my crystal ball is as good as yours, and I have no idea what is going to happen today or Monday.  Given present strength levels and the upper channel of pricing, I'm inclined to say that we will reverse, but nobody knows for sure.

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The DJ30 index strength moved upward on Thursday by 9% to 0.68.  This is wishy-washy -- I like solid numbers near 0.8 or above or below 0.2 and we've not seen this in the DJ30 for some time.

The NDX100 fell another 8% on Thursday to 0.67, even though the index proper (IXIC) moved up 11 points.  This is a divergence -- prices moving up but strength dropping, so caution is advised in Technology.  QID could be a good play here.

The SP500 was virtually unchanged on Thursday and sits at 0.811, up barely from 0.810.  SDS could be a good play here.

The SP400 fell 6% on Thursday to 0.85.  MZZ could be a good play here.

The SP600 fell 5% on Thursday to 0.75.  SDD could be a good play here.

The Russell 2000 fell 6% on Thursday to 0.73.  TWM could be a good play here; it fell 0.76%.

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Enter on strength if so inclined, but like always, remember that you are responsible for your own trading decisions, not me.  Do your diligence.

Regards,

pgd