Monday, July 26, 2010

Short Term LCR Change Timer has moved LONG

Let's start with our normal dashboard view:

Over the last two trading days I've watched the GGT Price Index move up 2.64% and 1.82%, finishing Friday at $25.75.  Volume over the last 6 trading days has been right in line with the 50d MA, which is now at 2.6M shares.  Strong price movement on solid volume cannot be ignored, hence we have a fundamentally-solid setup to the long side.

The 4th column from the left is the GGT Long-Cash Ratio (LCR).  The LCR has moved above 1.0, indicating that more stocks in the database are above their historical EMAs than are below.  To be precise, we have a LCR of 1.273, a value not seen since May 4th.  We now have 1430 stocks with some form of a long recommendation and 1123 stocks with some form of a cash recommendation.  These are stocks that
  1. Trade above $1
  2. Have daily trading volume above 100K
  3. Are on the three major exchanges
Hence I consider them all to be very liquid and very indicative of the market as a whole.  The fact that we have crossed over with more stocks long than not is a tipping point achievement -- if we can maintain this, I think we'll continue to move higher.  We'll see.

Providing a cautionary view is the 6th column from the left, which is the GGT database strength.  This is an oscillator that moves between 0 and 1, with 1 being completely overbought.  Right now we are at 0.834, which indicates that we are significantly overbought and the probability of a pull-back is increased.  Typically, values higher than a less-than-scientific-level of 0.7 are indications of being overbought, and when this value resets to an-again-less-than-scientific-level of 0.2 we typically start moving upward.  I would be cautionary in jumping on new longs today, but of course, this depends on your timeframe.  This strength indicator is a very short-term indicator, and in terms of using it for intermediate-length holdings, is probably more powerful when it is used to signal entry than to indicate buying/selling.


Short-Term LCR Change Timer

The LCR Change Timer, which is a short-term timer, has moved LONG with Friday's close.  I use this timer to enter the index leveraged ETFs, and will do so today (Monday).  See last week's blogs for a better idea on the timing/duration of this signal.


Intermediate-Term Elder Timer

The Elder timer system has been long since 7/13.  I entered stocks this past Thursday afternoon, after they indicated that they were moving higher on solid volume.  I posted my stocks, and a question came up over the weekend on how I chose the stocks, as my blog from last week only contained those meeting Elder's criteria and those that met a HGSI relative strength criteria.  Let me explain, although due to limitations with HGSI I cannot recreate the scans on Wednesday of last week (it is not a historical database per se).

Today's Elder scan based on Acceleration, Velocity, and Relative Strength is as follows:

These are the only stocks in the HGSI database that meet the following filter:

It should be very evident in the view above how I am selecting stocks.

The key here is that HGSI allows us to look at Relative Strength, which is a comparison to a specific company's price change over the past 12 months, Velocity, which is the CHANGE in Relative Strength over some period of time, and Acceleration, which is the CHANGE in Velocity over some period of time.

So look at the figure above the filter selection criteria.  Globalscape is showing a 99% in Relative Strength, which means in price action, it is outperforming 99% of the database.  The Velocity of Globalscape is also a 99, so it's change in price action is presently outperforming 99% of it's history.  Note though that it has an Acceleration of 20, which means that compared to the past, it's not moving up as aggressively as it has in the past.  The result is that while Globalscape is a good candidate for entry, it does seem to be losing steam in moving upward (acceleration is slowing).

So, in my selection of good candidate stocks meeting Elder's entry criteria, I look for strong Relative Strength, then I look for those stocks which also have a strong Velocity -- those that are moving up in Relative Strength to their history -- and I also look for those stocks which have a strong Acceleration -- those stocks who are gaining price value at an increasing rate.  THIS is how I selected my entry list for Thursday -- it was a combination of RS, VEL, and ACC stocks that were "Green", as well as those that had good volume for the day.

Putting this in context, the portfolio is up since my entry late Thursday:
  • BRCM - down -0.33%
  • GMCR - down -2.60%
  • IDT - up +2.62%
  • KWR - up +3.68%
  • LSCC - up +4.83%
  • ROVI - up +0.45%
  • VLTR - down -0.66%
These are not equal-weighted, as I used the ATR(20) to size the positions.  Net-net the portfolio is up an actual +1.65% for the day on Friday and going into trading this Monday morning.


Trading Plan for Monday

For my short-term timer, I intend to enter the leveraged 2x index ETFs if they are showing strength.  Market futures are down as I type this so entry early in the day is suspect.

For my intermediate-term timer, GSB and QUIK have strong Relative Strengths.  As part of the Elder system, they have to clear Friday's high for me to enter.  GSB and GMCR have strong Velocities, and again, I want to see price strength before entry, at least above Friday's high.  QUIK and GMCR have strong Accelerations, but since they are already in the list, this criteria is moot.


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