Wednesday, June 30, 2010

LCR Change Timer is Bearish, Elder is Bearish, All EMAs are Bearish

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Let's start with our usual GGT Status ...

























As most of you are aware, prices fell yesterday on the global sell off.  This is reflected in a -3.6% drop in GGT prices, finally ending us at $23.10.  This is a huge drop from our local high on 6/15 of $25.00, -7.6% to be exact.  As with all major drops in prices, the next day is often a "dead cat bounce", and if that is the case today (Wednesday), it could be time to add some Contra ETF positions.

Volume was up 12% over the 50d MA, indicating that the big boys were playing in the sell off.  I like to see their participation, but not on the downside.  Negative prices on higher volume is not a great situation for the bulls and is known as a "distribution day", which is as ominous as it sounds.

The Long-Cash Ratio (LCR) is back down at 0.282, indicating that 622 stocks have some form of long status and that 2209 stocks have some form of cash status.  Put another way, only 22% of the database is long right now -- a very bearish tone.  Guess I didn't kneed to tell you that though ....

The GGT Strength Index, which bounces between 0 and 1 like an oscillator, has dropped to 0.200, which is my less-than-scientific level for indicating oversold.  With an anticipated dead-cat bounce today, we'll see if it's the popular stocks that bounce, or the entire database.   I'm not bullish, so I expect this value to remain in this area +/- 0.05 with today's action.

LCR Change Timer

Of immediate importance is that the LCR Change Timer is sitting back at -1, which is CASH.  If you are aggressive you may want to consider contra ETFs.  My favorite with this timer are the standard index -2x contras:  TWM, SDD, QID, DXD, SDS, and MZZ.  YES, I should have held onto these positions rather than selling last Friday, but I was content to lock in my 4% gains over 3 days.  Of course, I would have been more content to lock in the gains from yesterday, but I had only a small position in TWM in play ....

So here's how I will probably play today.  With the LCR Change Time at -1, I'll most likely wait until after 3:30 or so before entering a position.  I want to ensure that the ADV/DEC line is bearish, e.g., more DEC than ADV.  I use http://www.finviz.com/ to determine this (see my blog a few days ago).  If we are more DEC today than ADV, I will look at the TWM, SDD ... list from the previous paragraph and look for those that have a bid/ask spread of $0.01 and are trading on higher volume than normal.  If we are bearish, and if these ETFs are participating, I'll enter my normal positions.

Contrasting, if the ADV/DEC line is up, with more ADV than DEC, then the signal is in trouble.  With this situation, the LCR Change Timer will transition back to CASH-LONG (0), and if tomorrow is up, would signal a move LONG.  Hence, today's action across the board is really important.  Note my caution from yesterday -- jumping into a trade mid-signal is NOT recommended, but I've not quantified it as it's hard to backtest.

I simply like the zones when we move from long to cash and visa versa.  These are more likely to work because market sentiment is changing and it takes a few days for everybody to catch up.

Elder

Here's HGSI's view of Elder:



































As with all my images, right-mouse click on it to open in another window.

Elder's 13d Force Index has moved back below 0, as indicated by the pink background in the ribbon bar.  IGNORE THE 2d FORCE INDEX BEING GREEN -- it is negated by the 13d FI being negative.

The slopes of the 13d and 34d EMAs on GGT price are now negative and are pointing downward:  "the car is going backwards and is accelerating backwards".  This is bearish.  Period.  End of Analysis.

"Danger Will Robinson"  (arms flailing, as spoken by Robot in Lost in Space)

For intermediate-term trades, when you look at the Contra ETF list above with the Elder screen above, you'll see that most of the Contra ETFs are positive in the 13d Force Index (bullish), but the 2d Force Index is positive (which is blocking entry).   Hence, we need the 2d FI to move negative so we can enter the trend at a more favorable position. 

Wait for it ... wait for it...

Here's what HGSI has to say for ETFs that have 50d MA Volume > 50K shares, are above $1, and have a 2d FI that is negative but a 13d FI that is positive:

























DGL looks compelling, less on on SHM, and SHV is impossible to make any money over the Elder time frames....

Look at the list using Velocity and Acceleration, as you can see emerging ETFs that meet the 2d / 13d FI criteria.  I'll leave that as an exercise for the reader .... :o)

Not a recommendation, just an example of how to use HGSI to find stocks/ETFs meeting a certain criteria.

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Trading Plan for Wednesday

As indicated above, I'll jump on a few contra ETFs tied to my short-term timer if the markets are tanking in the last 30 minutes of trading today.  I don't really care about the rest of the intra-day. 

DGL looks good for a longer-term holding, according to Elder's 13d FI/2d FI criteria.  It would have to rise above $44.37 to meet entry criteria.  Looking at the chart pattern, I'm not going to retire on it's performance alone...

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

Regards,

pgd