Thursday, May 6, 2010

GGT LCR Change Timer Continues to Indicate CASH

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The fast LCR Change Timer is still indicating a CASH position.  In fact, it reaffirmed it today with two consecutive down days on significant loss of long-recommended stocks.  Caution is certainly advised.

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For the past two days the GGT Price Index has fallen -2.896% and -1.356%, landing Wednesday evening at $25.47.  This is the lowest level of the GGT Price Index since 4/1/10, when it closed at $25.45. 

We have now fallen -5.6% since the peak on 4/23/10.

Volume is very high, with traded volume at 3.3M shares on 50d average volume of 2.4M shares.  We've had a number of distribution days and you should be paying heed:

4/27/10: -2.49% on volume 49% above average
4/30/10: -1.982% on volume 29% above average
5/4/10: -2.896% on volume 34% above average
5/5/10: -1.356 on volume 35% above average

Note that on 5/3/10 we had +1.45% GAIN ON 3% above average volume --> failed rally attempt (retail investor?). 


Conclusion:  from price and volume action alone we've been saying be cautious -- 4 distribution out of 7 trading days is a clear indicator.


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With the close Wednesday, the GGT price is is below the 21d EMA, as well as the 34d EMA.  Here is the chart:


Take a look back to January as well as October 2009.  We are clearly in the same condition as these two dates, and may continue further south.

In terms of loss of momentum, the 13d, 21d, and 34d EMAs are now in a downward slope, e.g., they are losing money over those time frames.  The 34d is particularly key to me -- it's in my sweet spot of time frame, and this one indicator is certainly telling me that no matter how strong the different long strategies that I use, that they are very risky from a holistic-market point of view.  Here's the rate-of-change graph, note that the 13/21/34 are all below $0.00/day:



With respect to the above graph, pay particular attention to the level (rate of change) of the different slope values -- these are seriously pointing downward.  I would not be at all surprised if we:
  1. Reversed and moved to the upside, or 
  2. Relaxed the rate of decline, but still continued to stay in the pink area.
Finally, take a look at the next graph:



This chart shows us that the slope of a 65d EMA is dropping almost -$0.004/day.  Note that this rate of change is hugely negative, which typically cannot be sustained.  Again, I would not be surprised at a reversal from this level, or at least, continued pink area, but not as fast as -$0.004/day.

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The Long-Cash Ratio (LCR) has now dropped to 0.693, the lowest level since 2/16/10.  1209 stocks are indicated as some form of "long", and 1744 stocks are indcated as some form of "cash".  Remember, these are stocks that:
  1. Are on all three major exchanges
  2. Are all greater than $1
  3. Trade at above 50K 50d moving average volume
Of greater importance is the less-than-unity value of longs to cash.  Historically, when we've dropped below 1.0, we've entered a good bear leg:




You can test these dates for yourself.  A "1" means go long at the next trading day.  Yes, there are whipsaws that would have frustrated you, but you would have been on the right side of the market every time and would have caught every bull or bear leg.

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Elder's Force Index (13d) on the GGT Price/Volume series is still well below 0.  This is telling us to avoid long positions.

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The graphic above shows that we are nearing points where we have rallied in the past.  The strength index is calculated based upon the number of stocks that are showing price, volume, and ROC appreciation; as you can see we've been falling like a rock for the past few trading sessions.  Although the 0.2 level is less than scientific, we need to be aware of a possible rally within the next week.  Look closely at the GGT strength index (purple) ... it doesn't generally hang around here too long.

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Caution is advised.  Although we could rally from here, we're dropping.  I've been playing contra ETFs, and you should be considering these too.

Please do your own homework folks -- you are responsible for your trading decisions, not me. 

We have a NoVA VectorVest meeting this weekend -- I hope to see many of you there.

Regards,

pgd