Thursday, June 17, 2010

Pt 1: Establishing an "Edge" using HGSI and the GGT System

When I take the 2800+ stocks that comprise the GGT universe, and when I separate them into their overall recommendations (New Longs, Affirmed Longs, Longs, Cash, Affirmed Cash, New Cash), and then I import these into HGSI, we can do some interesting things.  Let's start on that path:

[Sidebar: note that this stock information is available in the weekend posting of the GGT universe at the Yahoo! GGT web site, generally in the format GGT_stks_ByRecommendation_YYMMMDD.html]

This view is of the Ranking Window; within the GGT-10JUN16 folder I have 6 sub folders containing all of the stocks that comprise their specific recommendation.  Here, we see the recommendations of each group, based upon the index performance.

When you sort this list Relative Strength descending to the most current date, you see that the Affirmed Long group has the highest RS with respect to a lookback in time.  This is to be expected, because Affirmed Longs are those stocks that have both price and volume appreciation on the day of the recommendation.  Affirmed Longs were already ranked long (New Long, Affirmed Long, or Long), hence they are simply reaffirming that they are moving up.  As a group this is the strongest group, and has been for a good period in the past.

The next group is the Long Index group, and these are stocks that have been ranked some form of Long for some period in the past.  These stocks, while above their historic optimized price, volume, and ROC EMA values, are not rockets.  They may be plodding up, or they may be trending sideways.  We simply don't know from this view, but as you can see, with an aggregate RS of 85, they are still good candidates.

The next group is the "New Long" Index group, and this group has previously been in some form of "Cash" recommendation prior to today (New Cash, Affirmed Cash, Cash), and the action (in this case) on June 16th pushed it above the historic optimized price, volume, and ROC EMA values.  This is why this group has a RS of 71 -- these are new, emergent stocks, and they are ones we should be keying into.  Furthermore, take a look at the historical RS of this group 71 --> 57 --> 57 --> 29 ... etc.  As a group, these stocks were having the heck beat out of them in prior weeks, so it makes sense that stocks with this recommendation would have an improvement in RS as we move through time.

The 4th line down in the image is simply the entire GGT stock universe, and this represents the median of the database.  Use it as a point of reference.

The 5th line down in the image represents those stocks that have a "Cash" recommendation.  A stock has a "Cash" recommendation when it has appreciated in price but fails the volume test (e.g., moves from "New Cash" or "Aff Cash" to Cash).  This category is the "feed" category for New Longs, meaning that it generally is the primary source of New Longs, when they occur.  As a group there are numerous candidates worthy of our consideration, as many of Jeffrey's pull-back candidates reside here.

The 6th line down in the image represents stocks that have an "Affirmed Cash" recommendation.  These stocks are dangerous -- they are losing price appreciation, and generally, they are doing it on higher volume.   I rarely consider any stock with an "Aff. Cash" recommendation.

The 7th and final line down in the image represents stocks that were previously in some form of "Long" status (New Long, Affirmed Long, Long) and due to price, volume, or ROC values falling below historical optimized EMA levels, these stocks have dropped to their knees with a "New Cash" recommendation.  These are the stocks that tend to get hit the hardest in a given day, because they could have been peaking for some time, then the selling begins.  ANY stock with a "New Cash" recommendation should be considered for selling to lock in prices.  Note that often, by the time a stock gets this recommendation, it has given up a significant amount of gains.  There are other methods to look at whether we should sell the stock that are faster than this recommendation.


Previously shown was the Relative Strength View, here is the Velocity View, which compares the change in RS:

"Ian Slow RS" is shown as the method of calculating Velocity -- I tend to prefer "Ian Fast RS" for both Velocity as well as Acceleration views.

The analysis here is the same as previous; we see that looking back over time, Affirmed Longs have the greatest change in RS using the shown method (they are the same results for "Ian Fast RS"), hence we know that if we pick from the Affirmed Long recommendation list, that these stocks are already moving upward quite nicely.

Longs perform well too -- in this case outperforming 85% of the database.  Both of these areas should be good pools for us to pick sustained winners.

New Longs are weaker in Velocity, as you might surmise.  These have been in some form of Cash, hence their RS has been relatively low.  As new emergents, they have not demonstrated "staying power" relative to Longs and Affirmed Longs.  You might also surmise that they would have the highest Acceleration values, so let's see:


I like acceleration -- this is the change in velocity.  Stocks that are moving up with higher acceleration tend to be in 1) reversal mode off a bottom, or 2) move in the indicated direction until profit taking sets in.  Here's the view, using "Ian Fast RS":

Here, New Longs outperformed 99% of the database in change in Velocity, which we know from above is Change in RS.  Hence, Acceleration is the Change of Change in Relative Strength.  This makes sense -- New Longs had some form of Cash recommendation prior to today, so they have exploded in both price and volume, giving them this classification.   This is why Acceleration rankings are very good ranking indicators for newly emerging groups.


This is just the first part of how to use HGSI and GGT; I'll dive into using the Ranking tools as well as the Warehouse and Filters to start zeroing in on what I think are interesting candidates, all with the intent of establishing an edge in our trading.


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