Wednesday, July 21, 2010

Short Term Whipsaw? Watch for Reversal to Short-Term LONG

Let's start with our dashboard:

Monday saw a reversal of sorts, with the markets opening significantly down and then moving upward steadily throughout the day.  The GGT Price Index moved up +1.67%, ending at $24.97.  Volume was steady compared to the 50d MA @ 2.6M shares.  I consider this data normal.

The Long-Cash Ratio (LCR) moved upward again, a jump of 15%, to finish the day at 0.616.  Overall, 972 stocks are above their historical optimized values and 1577 are below, with the trend moving upward at the present time.  Rising prices on rising LCR is bullish on a short-term basis.

The GGT Strength Index, which is an oscillator between 0 and 1, jumped a huge amount from 0.318 to 0.619.  This has moved us into never-never land -- the area above 0.2 and below 0.7 it typically wishy-washy and using this indicator in a vacuum is a crap shoot.  Although I like to see price, LCR, and strength aligned, it's hard to tell what's going on right now.


LCR Short Term Change Timer 

The LCR Change Timer, which is a short-term timer, has moved back to CASH-LONG (0) from it's transition to cash on Monday.  It is very possible that if Wednesday is up that we will move long again.  This whipsaw in the signal, while not "normal", does happen.  Here's a chart I posted last week which shows the number of times, when the timer is in CASH, that it transitions back to LONG:

The chart above shows us that since August 2008 we have had:

  1. 5 occurrences of the signal changing within 2 days 
  2. 2 occurrences of the signal changing within 3-4 days
  3. 4 occurrences of the signal changing within 5-6 days
  4. 6 occurrences of the signal changing within 7-8 days
You get the idea.

Bottom line:  don't be surprised at a call to long.

To determine whether we should move long, I use

Here, we see that for Tuesday's action, we had 4699 ADV stocks and 1428 DEC stocks.  Volume was below "average".  194 New Highs were reported, and 114 New Lows were reported.  Aside from the volume, these are bullish indicators.

Watch FinViz near the end of today.  If you see the ADV/DEC favoring the ADV side of the balance, then there is a high probability that the LCR will move to LONG.  You'll have confidence if you also see the New Highs > New Lows.  Conversely, if you see the DEC > ADV, we'll be stuck in this limbo-land at least another day or two.


Our Friend Elder, the Intermediate-Term Timer

Elder continues to indicate a bull leg, as evidenced by the following:

  • Elder 13d Force Index is positive (indicated by the green LONG in column 9)
  • Elder 13d Force Index slope is upward (indicated by the green BULLISH in column 10)
  • Elder 2d Force Index is positive (which is showing that we should WAIT to enter now, column 11)
  • GGT 13d EMA slope is positive (column 12)
  • GGT 34d EMA slope is positive (column 13)
  • 13d EMA > 34d EMA (column 14)
My watch list for stocks, using HGSI, is the following:

Note that all of these stocks have a positive 13d Force Index and a negative 2d Force Index, yet have an ERG > 240.


Trading Plan for Wednesday

I sold my positions in UWM and QLD using the 1% TSL, which in hindsight was probably a bad thing to do but the rules are the rules. 

If the markets move higher today I will enter the index ETFs.  I will do this because of the LCR Short Term Change Timer transitioning to a LONG call with the close today.

If stocks on the list above are up above yesterday's highs on good 10d volume (see yesterday's blog for my chart of "good volume"), I will open intermediate-term positions in the stocks above.  I will make the evaluation later today, say after 3:15 pm.


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