Thursday, June 17, 2010

Bulls are in Control, Houston, We Have a Divergence...

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The daily snapshot of GGT status:

























As with all my images, right-click on it to open in another tab and see the details.

Price fell -0.3% on Wednesday, locking in the gains of the previous few days.  Volume still is in the toilet, recording another -17%-below-average day.  We have a divergence:  the Long-Cash Ratio (LCR) moved upward from 0.553 to 0.659, indicating that 19% of the stocks in the database moved into Long status.

[ Sidenote: For the new readers, there is only one door into a long status, and that is through the "New Long" assignment.  To unlock this door, the stock has to have BOTH volume and price appreciation for the given day -- price appreciation is not enough.  The falling GGT prices of the database (-0.3% on Wed) were offset by a large number of stocks that surged on volume AND price, causing the LCR to move upward 19%.]

The bulls are in control.

Continuing the divergence observation, GGT strength fell (6th column) from 0.86 to 0.77, which is squarely in overbought territory.  These values suggest that there is a higher probability of a drop, but as we saw in the March/April 2010 run-up, we can play above 0.7 for weeks at a time if the bulls really want to dance around.

[Sidenote:  GGT Strength is derived from numerous conditions:  the present price relative to the past, the present volume relative to the past, and the rates of changes of both price and volume, relative to the past.  The greater the differentials of today compared to the past, the higher the strength.  A falling strength simply means that price OR volume OR rates of change are ebbing to the other direction, and reversals off a peak usually portends a short-term reversal in prices.]

The GGT LCR Change Timer (fast) is solidly indicating LONG, and my index ETFs that I trade in conjunction with this side are cooperating nicely.  On the long side I normally trade UWM, SAA, QLD, DDM, SSO, and MVV with this timer, and all are up nicely since the morning of 6/14 (I did not purchase the evening of 6/11, which would have been a better entry).

A private question came to me in email (please use the comments field on the blog or the Yahoo! group to ask  questions) about whether "... it is too late to jump on this [LCR Change Timer] signal?"  My advise, and note that you are responsible for your own decisions, not me, is that you should simply wait for the next state change.  We are in overbought territory -- the time to have purchased would have been when the timer transitioned from CASH to LONG AND the strengths of the ETFs were much lower than they are today.  If nothing else, wait for a pullback in the markets to enter this signal, but be advised, this is very risky.  If you see the timer status indicator moving to "0" with a YELLOW background you have a place to enter, but only do so if you understand that it will most likely fail.

Elder's 13d Force Index is positive, which is bullish overall.  The 2d Force Index is positive, which means there is too much risk to enter the broad market at the present time.  A better entry is when the 13d is positive and the 2d is negative.  Both the 13d and 34d MAs are trending upwards, which is bullish.  Note that the 13d MA < 34d MA, which means entry into this market is at much higher risk.  I intend to wait until the 2d pulls back to enter long positions.

This next chart is interesting to me:






































Note that I've removed dates 3-16-10 to 5-16-10 to collapse this into one view.

Look back at period 2/12/10-2/16/10, specifically at how the patterns then are being replicated with the most current data.  Of particular interest is how the different LCR EMA slopes are starting to come in line (bullish) with every day-over-day advance of the market.  This is significant, and while the past is not a predictor of the future, patterns do repeat, and if this one continues on the path it is on, we will see the development of a new bull.

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My trading plan for today is to sit pat, happy to hold onto my long index ETFs.  End-of-day actions are not required, simply because the LCR Change Timer is a solid long (+1).  Elder is too overbought, so I'm not entering any long positions.

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

Regards,

pgd