Wednesday, August 11, 2010

GGT Contra ETFs Signal Long, ST Timer in CASH, Elder Intermediate (barely) Long

I tend to dislike openings such as the one we are about to experience.  Futures are sharply negative, yet all of my intermediate-term indicators are still long.  What to do, what to do...?

In preparing for triathlon, there is a saying:  "train like you race, race like you train".  The correlary is simple with applicability to trading -- stay the course if you believe in your indicators.  I've backtested this Elder system every-which-way that I can and I need to believe the indicators.  A one-day-pending-drop does not a market make, so time to test my beliefs .... and test the efficacy of backtesting.

Onward to the dashboard:

Our stock index fell -1.16% on Tuesday, ending the day at $25.66.  This is the lowest day that we've seen since the end of July and obviously shows that volatility is entering back into the market.

Volume was "normal", if there is such a thing in the summer months, with the number of shares traded only -3% down from the 50 MA value of 2.47M shares.  Volume increasing on down days but light on up days is not necessarily a good indicator of a robust bull leg, to say the least. 

The Long-Cash Ratio fell again, landing at 1.36.  It now indicates that 1481 stocks have some form of long status and 1089 stocks have some form of cash status.  Of greater importance is that this indicator has dropped from 1.879 on 8/4 to this value last night, a change in over -27%.  Put another way, over 1/4 of the database has gone from LONG to CASH in just 5 trading days.  THIS is a clear warning shot.

Database strength fell again, ending right in the middle of our 0 to 1 range at 0.529.  I'm looking for a reset value below 0.2 to signal a new leg upward -- we're a bit away from that today.


Short-Term LCR Change Timer

Our Short-Term LCR Change Timer signaled a move at the end of Friday to cash; Monday was an up day and one of you out there (you know who you are) questioned the efficacy of this timer, as it has been moving out of sync with the market.  Well, yes, (pause) and no (another pause). 

For you scientifically-minded folks, the LCR change timer has a dynamic time constant applied to the LCR value.  Right now, because the markets have been so choppy and trendless, the time constant has dropped from a normal value of just over 4 days to less than 1 day.  Yes, it needs time to catch up.  No, it doesn't stay out of sync for long.  I suppose the skeptics who want 100% accuracy in a trading signal will use days like Monday to point to the signal not being 100% spot-on, and they are correct.  No timer is 100% accurate -- but we must live to fight another day.  I remind you that in general, this one timer has turned a 1x, non-leveraged index using just the long side of the trades into a 30% internal rate of return since 9/11/08, or put another way, $1 on 9/11/08 is now worth $1.634.  You can trade the Vanguard ETF VTI (Total Index) on the signal and probably to pretty well.

I note with interest that NON of my contra ETFs are trading above their 200d MA, so while today looks like a train wreck about to happen, today is not the day to enter the contra ETF market.

I'm content to sit in cash on the short-term portfolio and watch the train wreck.  Pull up a chair.


Intermediate-Term Elder Timer

Elder doesn't forecast, he looks backward at price and volume action.  The primary indicator, the 13d Force Index, is still positive.  The slope of the 13d MA in price is still positive.  The slope of the 34d MA in price is still positive.  The 13d MA price is above the 34d MA in price.  THESE ARE ALL INTERMEDIATE-TERM indicators, not short term, and they say "stay the course".

What YOU can't see but I can is that we are just above the zero-line in this 13d FI value.  I put a 1% decline in GGT price in the equation FOR TOMORROW, along with normal volume (2.5M shares), and IF THIS HAPPENS TODAY, Elder's timer will move below 0 with the close of the markets tonight, indicating that we should close our intermediate-term portfolio TOMORROW.  Should we anticipate and do it today?  Therein lies the 2.3% question, because that is how much this portfolio is up (and note that it is down -1% from yesterday's value of 3.3%).

To be mechanical, the answer of course is "no".  Do not sell anything.  This will be a one-day bounce south, the buyers will swoop in, and prices will lift tomorrow.  To be prudent, the answer is "yes", trim the weakest.

Ford (F), is having a hard time in my portfolio.  My position is presently down -2.18%, and the pre-market trading is another nearly -1% below yesterday's close.  Here's what HGSI has to say about Ford:

Here's what I don't like above Ford:
  • The slope of the 13d EMA in price (red) is positive (the car is driving forward) but the direction of the line is down (the car is moving forward but slowing).
  • The slope of the 34d EMA in price (yellow) is positive but is pointing down.
  • The 13d slope line has crossed the 34d slope line from above, this is bearish.
  • Both slope line values are barely positive (13d = $0.044 / day, 34d = $0.0512 / day).
  • Ford price is under the dotted industry group price in the price window -- it is performing worse than it's group at the present moment
Given that I'm losing money in this position, and given that the stock is losing steam and not moving upward, I am going to sell it for a loss.

NLC falls in exactly the same boat as Ford.  My position is down -3.04%.  There is no pre-market trading on this one so I'm stuck with holding until the market opens.  Shoot.

This is almost the same picture as Ford.  I'm unloading this at the open.

As amazing as this sounds, I'm looking to pick up strength today on the intermediate term ("Buy when others are fearful" -- Warren Buffett).  Here are stocks that fit my screen:

These are all relatively mature stocks in that their Elder 13d Force Index has been long for some time.  If we change the filter to only return those Elder stocks that have transitioned in the last 5 trading days, we have:

While these three are a very small subset of the Elder picture, it does show that there are new candidate worthy of consideration.  Use your own discretion.



I normally do not comment on GGT ETFs, but what I'm seeing today is remarkable.  Take a look at the following image:

Specifically, these are CONTRA ETFs.  Ignore the Rydex contras, as they are not being traded.  What this shows is that we have had a significant number of contra ETFs that are appreciating in price, volume, and rate of change, enough so that we have the first new wave of CONTRA ETF positions.  I especially like the high-volume, lower-price contra ETFs, so IF YOU ARE AGGRESSIVE, you may want to look at these a bit closer. 

DISCLAMER:  My testing has shown that purchasing contra ETFs in a long/intermediate-term bull market is hazardous to your financial health.  These are NOT candidates for my short-term timer, and every one of these contra ETFs fails the Elder screen.  I provide the list here because as a whole, these are early break outs to the down side.  Tread carefully.


Trading Plan for Wednesday

With respect to my short-term timer, I plan to continue to sit in cash.

With respect to my intermediate term Elder timer, I'm unloading Ford & Nalco.  I intend to watch for Elder candidate strength and will purchase accordingly.

I'm watching the GGT contra ETFs, but I will not open positions today.


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