Monday, August 2, 2010

LCR / Price Divergence Starts the New Week

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Let's start with the dashboard:



GGT Price fell on Friday by -0.7%, ending the day at $25.44.  For the week the price was down from the previous Friday's value of $25.75 but was up from the two-week-ago value of $24.45, so we have a mixed signal.  Volume has been dropping ever-so-slightly (July / August vacations?) and was down on Friday -7% from average, which is within "normal" range.  For the week we saw a cumulative drop of -19% in volume compared to the week prior, but only a -4% cumulative drop over the past two weeks, so I largely think that this is unremarkable.  Taken together, downward pricing on less-than-remarkable downward volume is not worrisome to me.

The Long-Cash Ratio drifted upward slightly on Friday; we had 1556/1015 stocks that were LONG/CASH.  This is an increase of just over 1% from the previous day and is out-of-sync with dropping prices.  I've said it before:  we cannot sustain a divergence between the LCR and Price -- either Price must reverse to match an increasing LCR or the LCR must reverse to match a falling Price.  This LCR movement upward is not nearly of the same magnitude as the price change, so my intuition tells me we may be in for a rough ride this week.

I grabbed the screen capture above before the GGT strength values had updated.  The closing value on Friday was NOT the same as Thursday -- the real value is 0.618 and you'll see this tomorrow.  The important thing to note is that it went UP, and when LCR moves up but price moves down, the strength index becomes the price breaker, and it shows that we have momentum TO THE UP SIDE.  A value of 0.618 is still in limbo-land though, so we need to see some large moves upward or downward to get an idea if the trend will continue.

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Short-Term LCR Change Timer

IF MONDAY IS UP, the short-term LCR Change Timer will transition to LONG with the close.  This is because on Friday it went from CASH (-1) to CASH-LONG (0), due to the slight increase in raw LCR value.  IF MONDAY IS UP this will be a signal to purchase short-term instruments on the long side prior to the close.  I typically wait between 3 and 3:45 pm, then I look at the 2x leveraged ETFs.  My favorites are UYM, UGE, UCC, UYG, UXI, DIG, URE, USD, UPW, DDM, EFO, DGP, QLD, UWM, MVV, SSO, and SAA.  Watch for volume to be higher in the last hour than the 10d MA on volume ...  if it is not, I usually do not place the trade.  Make sure that of these ETFs that they are above their 200d MA before you place the trade (left to you to verify).

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Intermediate-Term Elder Timer

The Elder Timer continues to indicate LONG with the 13d Force Index > 0.  It transitioned long on 7/13 and so far, the signal has been mixed.  Here's a better view from my HGSI perspective:



What I like in the above Elder graphic:
  • Elder Bull Power is positive
  • Elder Bear Power is negative
  • Elder Bear Power is moving more negative
  • Elder 13d Force Index ribbon is green, which means that it is positive
  • slope of 13d price EMA is greater than 0
  • slope of 34d price EMA is greater than 0
  • 13d price EMA > 34d price EMA
  • 13d price EMA has a positive (upward) slope
  • 34d price EMA has a positive (upward) slope
What gives me reason to be cautious in the above Elder graphic:
  • Elder 2d Force Index ribbon is red, which means that it is positive.  Friday's bounce could have been too much overall for a Monday entry into stocks (makes entry on Monday more risky)
  • slope of 13d price EMA is negative (downward), meaning we're losing momentum
  • slope of 34d price EMA is negative (downward)
If the slopes of the 13d/34d price EMAs drop below 0 we will have a significant warning sign that this bull leg is over.  If the 13d price EMA slope drops below the 34d EMA slope, then the markets are in serious trouble.

In general, while the Elder intermediate system is telling us it's okay to be long in equities, there are some storm clouds on the horizon.  Nevertheless, stay the course for now.

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Another Intermediate-Term/Long-Term View

I'm not a big line drawer; in fact, I think any chart can be interpreted however we want to interpret it.  Despite this, I think that the traing world DOES believe in line drawing, so I do pay attention.

One of the more popular signals is to watch the 150d MA on a price sequence.  If the slope of the 150d is upward, we're in a long-term up trend.  Conversely, if it is downward-pointing, we're in a long-term down trend.  If it is waffling back and forth in a horizontal fashion, then we are locked in a trading range.  Here's a chart for you to review:



In the bottom pane you have the GGT stock index plotted with a 150d EMA.  Note that since 5/19 we have been in a trading range, as evidenced by the horizontal nature of the 150d line.  Note that we're just above the line now, but historically, we certainly can go below.  Taken by itself we would say that we are a bit overbought and that a pullback could be around the corner. 

Take a look at the upper pane.  This is a composite of a number of EMAs of slope lines on the 65d EMA.  So, take the 65d EMA of price, calculate the slope, then take EMAs of this slope, ranging from 2d (red) to 34d (pink).  I tend to like the pink one (34d) and black one (21d) when looking at intermediate-term trends.  The data suggests that we are nearing the end of this horizontal nature of pricing, and that the longer-term trend is upward.  I draw this conclusion because the slope of the 21d and 34d lines is upward, and although they are below 0, they are becoming less negative, which means that the prices in the database are inching higher day-over-day.  The 2d, 8d, and 13d lines have broken into positive territory, which is bullish.  So, what I'm looking for here is continued positive slope on these slope lines, and I am optimistic that we will continue to move higher (although of course there will be some resets on a shorter-term scale).

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Elder Candidates for Monday

Given that the Elder system is telling us that it's okay to go long (even with the aforementioned storm clouds on the horizon), here are some stocks for consideration IF they move above Friday's high by a few pennies on greater than 10d volume:



I'll leave the Velocity and Acceleration lists to you.

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Trading Plan for Monday, August 2nd

With respect to my short-term LCR Change Timer, I am presently in cash and am looking to move long into 2x ETFs that have solid volume, as measured in the 3-4 pm time frame.  I'm looking for NO ambiguity in the ADV/DEC line as shown at http://www.finviz.com/ on their home page.  My volume requirements are stated above in the text.

With respect to my intermediate-term Elder timer, I am up only 2.4% since July 13th, but will continue to add Elder positions if they show strength.  I am presently holding:
  • KWR, up 13.54%
  • IDT, up 10.05%
  • AXTI, up 6.67%
  • ROVI, up 2.66%
  • GMCR, up 2.18%
  • LSCC, down -0.03%
  • NBIX, down -0.56%
  • CMCSA, down -1.24%
These are not equal weighted -- the position sizes were adjusted at the time of purchase according to the ATR(20) value.

I will purchase from the RS list above (as well as the VEL/ACC lists) if the stocks show strength relative to Friday's price and historical 10d volume, as well as if they meet the Elder filter in the HGSI scan.

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

Regards,

pgd