Tuesday, August 31, 2010

Short Term Timer Could Flip, but ...

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Well, that was a rather pittiful day.

As you may have surmised from yesterday's action, the short-term LCR Change Timer did NOT move long.  The alternating up and down days of the LCR (Long Cash Ratio) has kept the timer sitting at netural, and with a time constant of just shy of 1 day in length (it's adaptive), the timer goes as the market does, well, almost.

Here's the dashboard:



The GGT price index failed to follow through on Monday, which I take as a bearish indicator.  While it jumped over +5% on Friday, it gave up -1.7% on Monday.  Volume, which has been in the toilet, continues to remain there, with volume -34% below the 50d MA level.

[As an aside, we were down -32% on 8/32, -30% on 8/16, etc.  You can scan column 3 above and see for yourself that it's not been a good volume period.]

Poor volume simply means that we, the retail investors, are more exposed to large orders from the big boys and girls, simply because their volume will move the price when (and if) they play in your particular stock.  I consider this specific period of lack of volume as "swimming with the sharks".

The LCR, which is a ratio that puts the number of long-rated (New Long, Affirmed Long, and Long) stocks against the number of cash-rated (New Cash, Affirmed Cash, and Cash) stocks, fell -11% to end at 0.383.  The LCR is waffling, and when it waffles, it's hard to make money.  Also note that the LCR is significantly below 1.0, indicating far more stocks have a cash rating (2075) than have a long rating (795).  Yes, there are some great bargains out there, but also note, there is nothing indicating that the floor is in on those bargains. 

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Short-Term LCR Change Timer

This timer has now indicated it's 4th day of back-and-forth action, and is biased to the cash side simply because that is where it started back on 8/24.  A down day in the markets today (Tuesday) will cause this timer to revert back to the Cash (-1) side; an up day will cause it to flip to a Long (+1) status.  As you know, the financial web site www. finviz.com has everything you need to determine what this timer has done -- simply review the ADV/DEC box in the upper left of the site around 3:30 to 3:45 pm EDT to get a feel for the overall market.  Here's yesterday's view of the ADV/DEC picture:



Note a couple of pieces of useful information:
  1. The ADV/DEC was decisively bearish by the end of the day, with only 1245 advancing and 4954 declining.  From this alone you knew with a high degree of confidence that the LCR Change Timer did not flip to long (see yesterday's blog).
  2. Volume was poor for the DOW stocks, with it sitting nearly at 75% of the normal volume.  The NASDAQ and S&P500 are also indicated on the same page, so you can see if there is a bias or not (did Technology get hammered more than the S&P500?)
  3. The New High/New Low indicator is relatively balanced.  In a bear market we typically see this behavior all the way to favoring a strong bias to New Lows.  In a bull market we see a large number of New Highs and a dry-up of New Lows, starting from this point.  Entering the market now is risky, simply because you are swimming up stream.
I believe it is doubtful that we will see a new bull emerge within the next 4 trading days, and correspondingly, because I will be out of all electronic coverage until the weekend, I do think I will move to the sidelines and sit pat.

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Intermediate-Term Elder Timer

I received a question yesterday about "what is meant by Elder?".  Elder refers to Dr. Alexander Elder, and you should become familiar with his literature, as it will help to make you money.  If nothing else, it will help to keep you on the right side of the market almost all of the time.  Google his name on Amazon and pick up his books -- you will not be disappointed.

I recieved another question about "what filter is used to develop the watch list?".   What I presented yesterday is not a filtered watch list, it was the entire GGT universe.  You can download the universe in the files section at Yahoo! by subscribing to GreekGodTrading-subscribe@yahoogroups.com and going into the files section.

Yesterday's presentment of the GGT universe, but through the HGSI Elder lens, is my own view of a default screen within HGSI.  Here's today's view:



Nothing has changed much from yesterday, although we do see that the slope lines of the 13d Force Index are moving upward.  We need this to cross the 34d from below AND, to be absolutely confident that we're bouncing upward, we need both of these slope values to go above 0 (they are presently below -- make sure you understand what you're seeing above).

As you see above, the 13d Force Index is PINK, which tells you that it is below 0.  Nothing else matters -- if the 13d FI is below 0, do not invest in intermediate-term holdings.  Period.

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Trading Plan for Tuesday

I'm leaving on a mountain-climbing trip with my son in the weee-hours of the morning tomorrow, and will be out of radio contact (literally) for the next few days.  No cell phone, no internet, just the stars, planets, and moon above me and the wind whipping through the rocks.   Oh yes, and my 11-year old who already can't sleep because of anticipation.  Correspondingly, I'm sitting pat for today.

For those of you who are not going with me (all of you), I would watch the ADV/DEC line at http://www.finviz.com/ to get a jump on any bounce.  Note though that we're still bearish, September is a historically bad month, and as of yesterday's data, nothing looks attractive on the long-term.  You'll have to be surgical in order to make money right now, and I don't have time nor the inclination for such a headache.

Note that as the last day of the month I am moving all of my wife's TSP funds to CASH (G-Fund).  I'll revisit reallocating upon my return.

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Please remember that you are responsible for your own trading decisions, not me.  Please do your own work and take ownership for your wins and losses.

Regards,

pgd