Friday, July 16, 2010

Definition of Short-Term and Intermediate-Term Timers...

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Sorry for the delay in posting this morning.  Returned from my trip this week to find no AC in the house, much to my family's chagrin, so I've been dealing with that this morning.

Let's start with the dashboard:


The GGT Price Index is bouncing against resistance at $24.89 (Thurs), $24.92 (Wed), and $24.94 (Tues).   The volume index has been within the normal distribution at around 2.6M shares, which is right in line with the 50d MA.  Hence we're churning -- there is buying and selling at healthy levels, and price is holding steady.  This is neither bearish nor bullish -- it simply indicates that there is some participation in the markets by the big boys.

Of particular note is that GGT price is losing ground ever-so-slightly, yet the GGT Long-Cash Ratio continues to build.  In fact, it is nearly in balance, finishing Thursday at 0.991.  This indicates that 1296 stocks are in some form of long status and 1308 stocks in some form of cash status.  Of greater importance is that bull markets see this tip in favor of more longs, so we MAY be moving from our correction period to a period of new growth -- only time will tell.  The importance of the absolute value of the LCR is not nearly important on a short time frame as it is on the longer time frames -- historically, when this value has been below 1.0, we are in a period of consolidation.  We're moving higher, so let your common sense guide you from here.  I'm cautiously optimistic.

I can't plot LCR indicators in HGSI, so here is my own window:


What is important to view above is that we've certainly FAILED once we reach the LCR greater than 1.0 level (just look to the past since inception of the GGT system), so don't bet the farm long just yet...

Another item that draws my attention is the slight decrease in GGT price over the last few days, but the incredible strength of the GGT LCR.  Here are the LCRs for the week:
  • Monday: 0.409
  • Tuesday: 0.827
  • Wednesday: 0.922
  • Thursday: 0.991
This divergence CANNOT be sustained.  The reason is that the LCR is comprised of several variables:  price movement, volume movement, and rate-of-change movement.  Price movement is just that -- price movement.  The fact that LCR is showing a tremendous amount of strength indicates that there is more occuring within the database than just price movement -- volume is improving, and prices, relative to their recent past, are moving dramatically upward.  The strength of the LCR is good, as it transcends simple price movement. 

Here's my tea-leaves prediction:  a pullback in LCR, but higher lows will signal a wonderful entry into longer-term positions.  Remember, not to be taken as gospel, as my tea-leaves are only as good as yours.

[Kevin B:  I saw your request for clarification on what "intermediate-term long positions" mean, and I'll address that shortly].

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LCR Change Timer

The LCR Change Timer continues to indicate that we should be LONG, and has been in this status without any form of a pullback since the close of 7/7/10.  This is a 7 consecutive day run, and certainly is pushing our luck with this streak.  NOBODY WOULD FAULT YOU TO LOCK IN PROFITS AT THIS POINT, especially going into the weekend.  I'm seriously considering taking my profits in UWM and QLD.

The LCR Change Timer is a SHORT-TERM TIMER.  What is short term?  For this timer, AND THIS TIMER ONLY, we can gleen the following statistics since inception in August 2008:
  • Average Signal Length (both LONG and CASH):  9.7d +/- 6.9 days
  • Average Signal Length (ONLY LONG):  9.1d +/- 6.4 days
  • Average Signal Length (ONLY CASH):  10.3d +/- 7.5 days
Unfortunately, the data is not bell-curve shaped, so normal statistics do not directly apply.  Here's the historgram for the long signal:




So, even though the data says that we have an average duration of 9.1 days with a standard deviation of 6.4 days, your eye can tell that signals lasting 2 days have the most occurances, followed by 5-6 days, followed by 7-8 days.  This tells me that the present LONG signal is getting old (it's 7 days old) and don't worry about what others would say if you started protecting profits.

When we are LONG, like right now, we can expect the average long signal to last 9-10 days.  We are at day 7 with the close on Thursday.  As I bang this out the markets are down, so we'll move from LONG to CASH-LONG with today's action, if the FinViz ADV/DEC line is favoring declines at the close of today.  This means that IF TODAY IS DOWN, we will be at day 8 in this signal.  A continued down day on Monday would be the day of transition to CASH, and hence, this signal would be counted as 8 days in length.

Here's the view of the CASH signal, again since inception:



The normal stastistics tell us that the average signal length for the CASH signal is 10.3d +/- 7.5 days.  We can see in the figure above that 7-8 days has the greatest number of occurances, followed by 1-2 days, then a tie on 5-6 and 11-12.  So although the average is 10 days, our eye clearly jumps on the 7-8 day bin as being more of the "center".

The conclusion of this is that this timer has a "feel" of being LESS THAN 20 days on the LONG side and LESS THAN 20 days on the CASH side.  Ask questions of the data above if you do not understand what you are seeing.

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Elder Timer

The Elder Timer is a longer-term timer.  The question is out there about "what is intermediate duration?"

The Elder system uses a 13d moving average on the Force Index, as well as movement of a 13d EMA and a 34d EMA.  If we just consider the 13d MA on the Force Index as our gate to be "long" or "not long", we get the following duration of LONG signals since inception of the GGT system:



Simply by using the 13d Force Index, we have whipsaws, which is evidenced by 7 occurances under 5 days in duration, 1 occurance 6-10 days, etc.    Note though that when this signal DOES move positive, we can be long as much as 71-75 days.  THIS is an intermediate-term timer signal.  The 13d FI > 0 is a primary gate for us on whether we should be long in stocks.

Let's look at the CASH side of the 13d Force Index:


As you can see, by using the pure 13d Force Index < 0 as a primary gate, we have whipsaws in the timer, as this has happened 9 times from 1-5 days in duration.   The important number is the 45d value -- we have seen this timer keep us in cash as long as 41-45 days, again, representing an INTERMEDIATE-TERM timer.

THIS IS NOT HOW MY ELDER TIMER IS CONSTRUCTED ... BUT BECAUSE IT IS THE PRIMARY GATE, THIS IS THE EXPECTED BEHAVIOR OF MY ELDER TIMER.

Remember, I combine the SLOPE OF THE 13d and 34d PRICE EMAs, as well as whether the 13d > 34d in value, in determining whether we should move INTO a long position.  I'll cover more of this in an upcoming blog.  Make sure you understand the colors in the status table below for the ELDER section:


What we see above for 7/15/10 is that:
  1. The Elder 13d Force Index Gate signal is LONG (green), and it has been since Tuesday.
  2. The 13d Force Index SLOPE is pointing downward, which should give us pause.  We want this moving upward.
  3. We have a NEGATIVE (green) 2d Force Index.  This means that IF I HAD MY LONG SHOPPING LIST READY (I don't because I've been traveling), that stocks that are showing strength TODAY (FRIDAY) would be good candidates for entry, despite warning in bullet #2.
  4. The 13 and 34d slopes of the PRICING EMAs are pointing UPWARD.  THIS IS BULLISH and triggered an entry IF YOU ARE AGGRESSIVE.
  5. The 13d has just crossed above the 34d EMA with Thursday's close, which is VERY BULLISH.  THIS is telling us that from a conservative point of view, Elder's methods are telling us that we can enter the market, ON STOCKS THAT HAVE STRENGTH.
Note that we could fail here.  We've had a long bull run (7 days), are due for a pull back, but as long as the 13d Force Index stays gated long, entering stocks that are showing new strength after having a 2-day FI pullback (and meet the 13/34d criteria) could be good candidates for entry.

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Trading Plan for Friday

I'm watching my UWM and QLD positions get the heck beat out of them.  I plan to NOT LET THEM GO NEGATIVE in ROI, so I will sell them if they get down to 1-2% positive gain over the last 7 days.

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

Regards,

pgd