Friday, July 2, 2010

A New Divergence: Price & LCR Lower, Strength Higher

Let's start with our summary dashboard:

GGT Price fell to the lowest level since February 2010, and is now at $22.79.  It did it on surprisingly higher volume of 3.2M shares, where 2.8M is the 50d MA.  Lower prices on higher volume is another distribution day, and we've had two this week.  Certainly the bears are in control, and if you are buying long positions, you're swimming upstream.

The Long-Cash Ratio (LCR), which is exactly what the name says it is, continues to drop and is now at 0.177, indicating that 425 stocks in the database have some form of long status (New Long, Affirmed Long, or Long) and that 2404 stocks in the database have some form of cash status (New Cash, Affirmed Cash, or Cash).  A mere 15% of the stocks are long, which means that 85% of the stocks are below their optimized pricing and volume levels.  Buyer beware.

Of interest is that the database strength, which is a value between 0 and 1 and is one that indicates how "strong" a stock is relative to it's optimized past, is now moving UP, e.g., gaining strength.  The new value is 0.197, up from Wednesday's close of 0.113.  This is a divergence and indicates that we may be bouncing upward from here -- we'll see.  I want to see the LCR and price action of the database fall in line with this today to see some steam behind a relief rally.  Strength cannot continue to increase while the LCR and price action fall, either strength must drop as LCR and prices fall, or they all will rise together.  This is because they are inter-related in terms of volume and price action.


LCR Change Timer

Our LCR Change Timer, which is a very short-term timer, continues to indicate that we should be in cash (if you are conservative) or in Contra ETFs (if you are more aggressive).  I, unfortunately, sold all my contras except TWM last Friday, so I've missed out on this big drop.  Nevertheless, my limited position in TWM is up 13.49%, which is wonderful.  The cash signal occurred with the close on 6/22; if you would have shorted a theoretical position in the VTI @ $55.87 (Vanguard Total Index, closely resembles the GGT price index), with the close yesterday of the VTI at $52.33, you would be up 6.3%.  If you think that this is unrealistic then you can use the following ETF chart as a guide for your favorite ETFs and invest on the Contra side to whatever your tolerance:

As with all my charts, right-click on the image to open in a new tab or window.  I suggest you print the figure and place it on the wall close to your PC.


Elder Timer

Elder continues to look ugly.  As a whole, the 13d Force Index is below 0, indicating we should not be considering long positions.  This is the prudent approach and unless your time frame is very short, I would stay away from intermediate-to-long-term buys on long positions UNLESS your trading plan averages downward in positions (see my TSP trading blog) as the markets fall.

For the record, here is what HSGI has to say about the database, from the perspective of my Elder screen:

As I said, ugliness.

  • Bull Power is negative and Bear Power is growing more negative, so there should be no question as to your alignment.  
  • The 13d Force Index is pink, indicating that it is below 0.  This negates the 2d FI indicator, which is showing green (I reverse the 2d from what you default in HGSI because you want to consider entering on strength off of PULLBACKS, not when the 2d FI is making new positive highs)
  • Most telling is that the slope of the 13d and 34d EMAs are

    1) below 0 -- prices are falling
    2) are pointing downward -- prices are falling faster

    Until I see some bottoming in these slope values and they start pointing upward long positions are at risk, if they are correlated with the broad markets.


Back to the GGT status graphic:  Pricing and LCR EMAs are all looking bearish.  Again, avoid long positions unless they are counter-trending by nature (e.g., gold, long bond, etc.)


Trading Plan for Friday

Simple:  I'm expecting poor volume, so I'm content to sit on the sidelines.  The GGT LCR Change Timer will NOT give a confirmed long call today, so no action is required at 3:30 - 4:00 pm.  Conversely, there is nothing telling me to close my TWM positions, so I'll let it ride across the 3-day holiday.


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

Make it a great holiday weekend!