Tuesday, August 17, 2010

A Pending Bounce? Perhaps, but Price and LCR Diverge

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I can't do graphics today (iPad) so you will simply have to be content with reading ...

GGT price moved UP +0.38% to end the day at $23.83.  Volume was anemic -- on Friday it was down -26% from the normal 50d MA, and again on Monday it was down -30%.  These are well outside the standard deviation (22%) and suggest great uncertainty in the market in terms of both the retail players as well as the institutionals. 

Elder's 13d Force Index is NEGATIVE, which is precluding any intermediate-term investments.  After bottoming on Friday it did turn upward on Monday (less negative but still is below 0), so while the more aggressive of you may think that this is a great buying opportunity, it is dangerous to your financial health to purchase stocks for the intermediate-term at the present time.  I'm not even scanning for intermediate-term holdings using HGSI because this indicator is blocking me.  I've shown in the past that failure to acknowledge this simple gate will erode your gains, so I simply do not make intermediate-term purchases when this value is negative.

The Long-Cash Ratio FELL slightly on Monday, in contrast to the price moving upward.  This is because the  LCR requires price AND volume to get a New Long call, and it simply wasn't happening on Monday.  So while prices moved up, the LCR continued to fall, and this divergence is a flag on the pole for us.  Either:  1) prices will reverse and will fall with the LCR, or 2) the LCR will reverse and lock-step with prices.  Given the "oversold" nature of the database right now (GGT strength = 0.36 on a 0-1 scale), I would say there is greater likelihood of a short-term bounce upward than a continued knife-edge drop to the down side.  Remember though -- your crystal ball is as good as mine.

It is a rare occurance when the LCR falls but the GGT Short-Term LCR Change Timer moves upward.  It did so on Monday, simply because we've been floating around the LCR level of 0.449 for the last few days (Wed = 0.66, Thurs = 0.53, Fri = 0.45, Mon = 0.45).  This timer says to "get your short-term long ETF list ready" if the day is up.  I measure the "day is up" by looking at http://www.finviz.com/.  In the upper left corner you will see an ADV/DEC line -- if this is decisively on the ADV side by 3:30 EDT then we can assume that the ST LCR Change Timer will transition to +1 (LONG) and that we should move into long ETFs.  If you decide to do this, I strongly suggest you pick ETFs that are
  1. greater than $1 in price (most are)
  2. greater than 100K 50d MA volume
  3. are above their 50d MA in price
This is an easy filter for HGSI and you should have built it by now.  If you haven't, do so or ask questions on how to do so.   I even go a step further and require that the 13d Force Index on the ETFs be positive and/or that the 13d and 50d slope lines are postive, but many of you may find that too restrictive.

With Monday's action, the intermediate-term does not look promising.  The 13d price EMA has dropped now below the 21d price EMA, and this is the wrong direction.  The 8d LCR EMA is below the 13d LCR EMA, and this too is problematic. ALL of the major slopes of the pricing EMAs are downward (8/13/21/34/55), and this is simply bad for a bull.    ALL of the major slopes of the LCR EMAs are also pointing downward, and again, this is very bad for the intermediate term.

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Trading Plan for Tuesday

Short-term:  I intend to watch http://www.finviz.com/ at the end of the trading day and if this is moving decisively in the ADV favor, I will purchase strong ETFs that meet the 1-2-3 criteria above.  I prefer leveraged ETFs.

Intermediate-term:  I intend to sit pat.  The Elder 13d Force index is negative.

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Please, do your own diligence and take ownership of your decisions.  I cannot be held responsible for what YOU decide to do.

Regards,

pgd