Sunday, July 11, 2010

LCR Change Timer Long, Some Blocked Roads for Intermediate-Term Long Holdings

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Let's start the review with my Elder screen of the GGT universe, updated through the close of Friday, July 9th:


  • We're seeing some positive movement in Bull Power and corresponding decrease in Bear Power, which is short-term bullish.
  • The 13d MA of the Force Index is PINK, which means that it is still below 0 and is intermediate-term bearish.  Overall, this precludes longer-term movement into long positions.
  • The 13d/34d EMA slopes of the price index are pointing upward, which is short-term bullish.
  • The 13d EMA of the slope has just moved above 0, which is short-term bullish.
  • We have had a crossing of the 34d EMA slope by the 13d EMA slope from below, which is short-term bullish.
Hence, from Elder's perspective, we have a number of indicators that are bullish or moving bullish on a short-term basis, but overall, until the 13d Force Index moves above 0, we have to be intermediate-term bearish.

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The figure above will take some studying to interpret.  The upper pane contains EMAs of SLOPE of 65d EMA of price -- do not go any further until you understand that.  Take a price sequence (lower pane), take the 65d EMA of that price sequence (65d = 1 trading quarter of time), then determine the slope of that 65d EMA, then smooth with another EMA, varying from 2d (red) to 34d (purple).  Depending upon your investment horizon these slope EMAs can really help you understand where you are jumping into the cycle, and more importantly, if momentum is waning.  So let's look at the details in the upper pane:
  • Without exception, every slope EMA is below zero.  This means that in every time frame, 2d through 34d, that the slopes of the 65d pricing EMAs have been or are falling.  In Ken Phillips' parlance "the car has been driving backwards".  Using a broad-brush, this is to be considered BEARISH.
  • The 2d slope EMA (red) is moving upward, and has been for several days.  It is sitting at a value of -0.111.  Hence, on a short-term (day-over-day) basis, the pricing EMA is bullish because it is pointing upward:  "the car is driving backwards but is slowing almost to 0, ready to go forward".  The fact that it is poised to break positive is a good sign, and is necessary for us to move into a bullish market.
  • The 8d slope EMA (blue) just reversed and is now pointing upward, which is short-term bullish.  It is the most negative of the slope EMAs, and correspondingly, has a distance to go before it moves positive.  This is telling us that on a rolling, 8-day basis, the intermediate-term slope of price is still falling, and I see this as a huge barrier to intermediate-term entry on long positions.  I want to see this move positive for sustained up leg, so we are early.
  • The 13d slope EMA (green) is pointing downward, but it looks like it could be bottoming and possibly starting an upward move.  Hence, the intermediate-term price EMA is still losing ground on a 2-3 week basis, and this is a huge warning sign.  We MUST have this pointing upward (even if it is negative) for us to enter intermediate-term long positions.
  • The 21d slope EMA (black) has just started to point downward.  Yuck.  Another brick wall for intermediate-term long positions.
  • The 34d slope EMA (purple) continues to point upward, which is WONDERFUL.  If we can get the 13d and 21d slope EMAs to work their way pointing positive we'll have a good setup for intermediate-term entry of positions.
Remember, EMAs are LAGGING indicators.  Think of driving forward while only looking in a rear-view mirror -- this will give you my perspective of this approach.

Look at the image above again.  In the lower pane I've added a 150d EMA on the pricing sequence ... note that many people use the slope of the 150d to give an indicator of the long-term trend.  Note that the slope is horizontal/downward, so there is a slight bias to the ugly side if you use this indicator.

Conclusions?  While there may be some short-term opportunities available to us, until we see the 13d and 21d starting to point upward, the intermediate-term prospects for long positions are very risky.

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LCR Change Timer Status

I can't plot the Long-Cash Ratio (LCR) in HGSI, so all I can do is describe it here. 

The LCR jumped on Friday on terrible volume, so I'm suspect at the legs in this bull.  Nevertheless, the LCR Change Timer, which is a very short timer (2d to 11d average) continues to indicate that we should be long on a short-term basis.  I continue to hold my 2 long positions -- UWM and QLD, which are up 5.6% and 2.6% respectively since my purchase on this last week's signal.  The earliest we could see a change in this timer would be the close on Tuesday, and for this to occur, we need both Monday and Tuesday to be down.

I note with interest that Friday's action saw 149 New Highs and 50 New Lows, the first time we've had more NH than NL in some time.

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Trading Plan for Monday, July 12th

In short, no changes to my existing plans.  I intend to continue to hold UWM and QLD, and will sell them before Tuesday if they show signs of moving negative.  I only hold a position in AAPL, and will continue to hold this independent of of the larger picture (I evaluate AAPL individually based on the approach above).

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

Regards,

pgd