Monday, July 19, 2010

LCR Change Timer - Poss Transition, but Maybe Not...

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Let's start with our GGT status figure.  As with all my images, right-click on the picture to open in a separate window.



As we all know, the markets took a major hit on Friday.  GGT indicated this, with a drop in the price index of -1.77% on volume that was +14% above the 50d MA of volume.  We are now sitting at a price of $24.45 and 50d MA volume of 2.69M shares.  Typically, a big down-draft in prices on higher volume should be cause for pause, but this volume number is well within average standard deviation, so actually, we can consider it "normal".  Given too that this was expiration day, I'm not overly concerned, despite the talking heads about "failed breakout", etc.  It simply is too early to tell if this is a failed breakout.

The Long-Cash Ratio (LCR), which is just what it's name indicates, fell a huge amount on Friday, indicating that we had a huge downward shift in the database.  It is now at a value of 0.608 and indicates that 964 stocks have some form of long status and 1585 stocks have some form of cash status.  We saw a number of days last week where the LCR was moving upward but the price was drifting down, and as I'm fond of saying, there is no way that that type of divergence can be sustained.  Correspondingly, the world is whole since these two are in agreement, and given the sustained run of this mini-bull (see my blog from Friday morning), I think a pull-back over the next few days would not be very surprising.

THIS BEING SAID, the 6th column from the left shows GGT Strength, and this value acutally states that we are more likely to move upward than we are to drop.  A value of 0.37 on a scale of 0 to 1 means that the underlying database is more oversold than overbought, although I like to see values below 0.2 before I call a next run up.  I'm not convinced that we're starting down here, as we've moved down a good chunk this past week (in terms of strength).  Make sure you look at the numbers and see the trend yourself.

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LCR Change Timer

Because the LCR dropped a big amount, we expect the LCR Change Timer to signal a possible state change to CASH *** IF MONDAY IS A DOWN DAY ***.  The transition caused by the downdraft on Friday is a head's up signal to be cautious; continued weakness on Monday will tell us to close our LONG positions and enter CONTRA positions.  The best way to evaluate this is to watch the home page at http://www.finviz.com/, and in the upper left corner of the land screen, you'll see an ADV/DEC bar:






























You can see that on Friday we had 892 ADV and 5326 DEC.  Hence, if we see more DEC than ADV on Monday, there is a high probability that the GGT LCR Change Timer will confirm the move to CASH, and hence, I will close my longs (I did keep them over the weekend).

IF Monday is an up day, then we're going to bounce around as far as the LCR Change Timer is concerned.  Stay the course on the long side, as we could certainly move up from here.

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Elder Timer

Elder's intermediate timer is LONG for entry into long positions:
  1. The 13d Force Index is greater than 0, telling us that entry into long positions is "safer"
  2. NOTE THAT THE SLOPE OF THE 13d FORCE INDEX IS NEGATIVE, which is a warning sign.
  3. The 2d Force Index is LESS than 0, telling us that we are experiencing a shorter-term pullback and that we can get better prices right now
  4. The 13d and 34d EMA PRICE slopes are POSITIVE, which is bullish
  5. The 13d > 34d EMAs are aligned properly, telling us we are in an uptrend
Here's a view of candidate Elder stocks that have an HGSI ERG above 240, sorted by Relative Strength descending:



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Trading Plan for Monday

Intermediate-term holdings:  I intend to open positions in the strongest RS stocks above if they begin to move above Friday's high.  For example, IDT's high was $15.77.  If we move significantly above $15.77 today (say above $15.82 or so) then I'll open an initial position with a fairly tight end-of-day-stop loss of $15.05.

Short-term holdings:  I intend to keep my long ETFs (UWM and QLD) if the markets continue higher.  I will sell them if they look like they are going to give up their gains, and if the markets are down significantly by 3:30, I will enter the index contra ETFs.

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Remember, you are responsible for your own investment decisions, please do your own diligence.

Regards,

pgd