Tuesday, May 4, 2010

Elder's 13d Force Index has Moved Negative

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This is more than a warning shot -- it is terminal as far as this bull leg is concerned. 

The Elder Force Index is one of the most basic yet powerful indicators in your toolbox.  It is created by taking the daily change in price and multiplying it by the daily volume.  When you apply a moving average to this, you smooth the daily noise and get a very powerful indicator.

When the FI(13) is positive, the market is generally in an uptrend.  I say "generally" because this indicator is typically a leading indicator compared to other metrics.  As volume explodes off bottoms, the FI(13) moves positive, and as volume dries up off tops, the FI(13) moves negative.

As we saw yesterday, we had a 140-pt gain in the Dow, a 37-pt gain in the NASDAQ, and a 15-point gain in the SP500, all above 1% for each.  Our very own GGT Price Index moved up 1.45%, slightly on par with each of the individual index gains.  Conversely, the GGT volume yesterday was terrible -- only 3% over the 50d moving average, and all last week we were consistently higher:  19%, 49%, 31%, 31%, 29% was the run for M-Fr of last week.  So even though the GGT Price index moved up, it has been range-bound, and combined with weak volume from today, it has moved negative with respect to the Elder FI(13).  Here's the chart:


The actual transition was Friday of last week, but I wanted a 2-day confirmation (take a look back around 8/25/09) to ensure the trend is intact.

As I write this, futures are down:  -0.55% for the Dow, -0.65% for the SP500, and -0.65% for the NASDAQ.  I have no qualms about lightening up on my positions -- keep the gains, sell the weakness, so a 1% TSL off last night's close is my typically method to accomplish this.

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Contra ETFs still appear to be too early....

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

Regards,

pgd