Friday, May 28, 2010

Change in Timer State -- Recommended LONG

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With the close of the markets on Thursday, May 27th, the GGT LCR Change Timer (fast) has signaled a move to the LONG side of the market.  I will close my index contra ETFs this morning with a 1% TSL and open positions in long index ETFs at the open.  This is a FAST TIMER, e.g., holding period is on the order of a couple of days.  It has no relevance on longer holding periods or other signals, and certainly does not negate other contra positions that I am holding.

(I abhor purchasing longs when the market spikes so dramatically to the long side but I follow the timer and it is right more often than it is wrong.)

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Unlike the GGT ETFs, which contain ETFs that represent markets/currencies from around the globe, the GGT Stock System only contains stocks that are:

  1. above $1
  2. have greater than 70K shares 50d MA volume
  3. are on the three primary exchanges
The number of stocks meeting this criteria ebbs and flows around 3,000, and is presently at 3,045.

Although ADRs are part of the stock universe, so there is some foreign company influence, the number is less than 350 so the influence is less than 11% on the overall GGT stock system.

With the close of Thursday's markets, the GGT system is showing an increase of 3.9% in the price index, finally closing at $24.04, up from Thursday's value of $23.14.  This certainly is bullish on a day-over-day timeframe.  Volume was weaker though, with GGT volume at 2.5M shares, -8% below the 50d MA volume of 2.7M shares.  While in the statistical noise of a normal distribution (+/- 530K shares), it is weaker, most likely due to the pending Memorial Day weekend.  A huge spike in price on weaker volume does not instill a large degree of confidence in the positive move.  

The slopes of the GGT Price EMAs are negative but are trending higher.  In Ken Phillips' parlance, the car is moving backwards but is slowing, almost ready to drive forward.  Specifically, here are the states of these EMAs:
  • 13d EMA: $24.10, negative slope, change in slope is positive (bullish) since Tuesday
  • 21d EMA: $24.50, negative slope, change in slope is positive (bullish) since Tuesday
  • 34d EMA: $24.78, negative slope, change in slope is positive (bullish) since Tuesday
  • 55d EMA: $24.70, negative slope, change in slope is positive (bullish) since Tuesday
Based on these indicators alone, a negative slope tells us that we are still losing ground in the EMAs, which is bearish.  The change in slope being positive across the board is a bullish situation and is necessary for the bleeding to stop and for the markets to begin/sustain an upward movement.  Note that the price sequence is still far below the EMAs, which is bearish, so we are very early in any bull move upward.

Elder's 13d MA Force Index on the GGT price series, while moving somewhat more positive earlier this week (IT IS STILL NEGATIVE), actually turned more negative over the last few days.  This downward movement (more negative) in the Elder Force Index is the wrong direction and points us to a more cautionary stance.  This is NOT the time to pile into long positions.

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The GGT Long-Cash Ratio (LCR), which separates stocks into two major buckets and ratios the number within each bucket, bottomed this past Tuesday @ 0.089 and has been increasing daily.  It closed Thursday at 0.154, and is now indicating that 407 stocks are long and 2638 stocks are in cash.  Of significance here is the status of the EMAs -- they too are trending more positive.  Here are the states:
  • 13d EMA: 0.333, negative slope, change in slope is positive (bullish) since Friday, 5/21
  • 21d EMA: 0.636, negative slope, change in slope is positive (bullish) since Friday, 5/21
  • 34d EMA: 1.026, negative slope, change in slope is positive (bullish) since Friday, 5/21
Based on these indicators alone, the negative slope tells us that we are weak in the number of stocks that have a long recommendation, which is bearish.  The change in slope being positive for these three EMAs is a bullish situation and shows us that the markets are rallying, and although we bottomed in the LCR on Tuesday, we have been "bottoming" as far as the number of stocks are concerned all week and are trending upward.  The fact that we are not losing ground in the number of stocks with a Long/Cash recommendation is bullish and could be a strong indication of the local bottom being in place.

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My GGT trades going into the day are as follows:
  1. Closing my index contra ETFs, based on the GGT LCR Change Timer Signal, with a 1% TSL
  2. Purchasing long index ETFs, based on the GGT LCR Change Timer Signal, with limit orders
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Remember, you are responsible for your own trading decisions, not me.  Please do your own work and arrive at your conclusions based upon your own research.

Regards,

pgd