Tuesday, September 7, 2010

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Perhaps I should go on vacation more often ... the market seems to be on a tear and I missed the past 3 days of action.  Well, lest you think I've been lollygagging around, here's proof that I've been working hard:



That's me, blue coat, 2nd from left, and my son Greg, age 11, is in the front row, red coat.

If you think that this was a cake walk simply google "Mount Whitney Mountaineer's Route"; elevation change of 6,300' in less than 6.3 miles horizontal distance is nearly a 19% average grade up (and down, which is actually more difficult on the knees....)

Sooooooooo, back to reality........

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Here's our dashboard view:


As luck would have it, the last three trading days have seen a significant increase in the GGT price index.  The value going into this morning's open (Tuesday, 9/7) is $24.57, a full $1.35 gain since last Tuesday.  Volume tapered off on Friday compared to Thursday, with Thursday less than Wednesday's action.  I'm somewhat concerned to see rising prices on lower volume, but we bank increases in price, not volume.  Nevertheless, if/when we have a pullback, we'd want to see lower volume on the declining prices, indicating that everybody is sitting pat.

Of particular relevance is that the Long-Cash Ratio (LCR) has jumped significantly, and has closed over 1.0.  This is an internal metric, and whether the value is 0.9 or 1.1 is largely irrelevant.  What is significant about this zone is that we now have a balance of stocks with a LONG recommendation, as well as those with a CASH recommendation.  Bottom line is that this is a necessary step to a bull leg, and we need to watch it.

The 5th data column from the left is the database strength, which is normalized between 0 and 1.  What is significant here is that we're holding strong over my less-than-scientific level of 0.7, which actually indicates that we are due for a bit of a short-term pull-back.  This doesn't mean that it will happen today, but it certainly suggests that the likelihood of dropping prices is greater as time marches forward.

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Short-Term LCR Change Timer

The short-term time signaled a move LONG with Wednesday's action, and has been solidly positive since then.  I WILL NOT CHASE THIS SIGNAL, e.g., it's too short and we're long in the tooth on this one to do us any good.  If you played it based on other signals/instinct, good for you.  I'd protect profits, especially since as I type this the futures are lower by a significant amount.

If today is another up day the timer will remain long.  If the day is a strong down day the timer could transition to LONG-CASH (0), which means you should consider locking in profits.

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Intermediate-Term Elder Timer

I divide the Elder universe into two parts:
  1. Aggressive:  move LONG if the 13d Force Index is positive, the slope of the 13d EMA of price is positive, and the slope of the 34d EMA of price is positive, or
  2. Conservative:  all of #1 above, plus I require that the 13d EMA of price be above the 34d EMA of price.
Hence, if you look at the graphic above, you see that:
  1. the 13d Elder Force Index (FI) has been positive for 3 days (bullish)
  2. the slope of the Elder FI is positive (bearish if too strong of a slope)
  3. both the 13d and 34d pricing slopes are positive (bullish)
Note that these three things qualify the Elder system to give an aggresive LONG signal.  Aggressive means that it could be early, hence, it could fail.  It also means that if it sticks we may have more gain than the conservative approach.

To get a conservative LONG signal, I need condition #2 above to be met.  Here's HGSI's view of Elder to help in the visualization:


 This is a pretty important image, and it's one we need to look at closely.

At the top, Bull Power is very positive, much so than Bear Power.  This is BULLISH.  Under Bull/Bear Power we have the Elder FI, and we see that it has been green for 3 days, just like the GGT dashboard picture above.  This is BULLISH.  Under this we have the 2d Force Index as RED, which means that it is POSITIVE.  REMEMBER -- Elder advocates buying on a pullback, so this is effectively blocking us from entering the GGT index (we can search on stocks that have positive 13d yet negative 2d FI).  Of HUGE value is that the 13d EMA slope is very much above the 34d EMA slope, which I consider very bullish.  Finally, we see that the 13d EMA PRICE and the 34d EMA of PRICE are just crossing from below, and if today is an up day (it has not been so far), then we could have a confirmation of this bull leg.

Bottom line, I think it just a wee bit early to say that we need to jump in, but the market has my attention.

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Trading Plan for Tuesday, September 7th

If the markets are up today I plan to enter longer-term Elder positions that have a
  • positive 13d Force Index
  • negative 2d Force Index
  • are moving higher than Friday's high value (e.g., my entry will be higher than Friday's high)
  • has a 13d pricing slope that is positive
  • has a 50d pricing slope that is positive (HGSI cannot search on 34d, hence 50d slope will be used)
Good luck hunting!

Regards,

pgd