Tuesday, September 21, 2010

Bulls are firmly in control; possible topping indicated in the LCR RoC values

A powerful market day indeed...

Here's the dashboard:

As with all my images in this blog, you can right-click on it and open the image in a new window/tab.

Starting from the left ...

The GGT price index moved upward 1.86% yesterday, ending the day at $25.23.  The last time we were above this level was early August.  Volume has resumed to being below average, and was -10% lower than the 50d MA on Monday.  I know I've been beating this drum for a long time -- here's a picture to go with my music:

Note carefully that during the bull leg of 2009 we saw a significant decrease in average volume but yet we continued higher and higher in price, so we do not need higher volume to sustain an up trend.  What you should clue on here is that once average volume peaked and started downward, confidence was already waning in the markets, and hence we have a self-fulfilling situation.

My point to the price-volume relationship, or more accurately, the lack of a relationship, is simple:  it's all relative.  We're at historically high volume right now, and while it's not as high as May-June 2010, it's much higher than the levels of 2009.  One could easily argue (without counterpoint I may add) that we're seeing broad participation in the markets, and that this leg could continue.

Back to the dashboard, which I'll place here again so you don't have to scroll back and forth:

Note the huge jump in the long-cash ratio (LCR).  It moved upward another 26%, and is now indicating that out of 2880 stocks, 2150 are in some form of LONG recommendation and 730 are in some form of CASH recommendation.  If you want to get an idea of how the LCR ties in with prices and major moves, take a look at the following:

The graph above plots the GGT price index against the LCR.  We've certainly been higher, suggesting that there is room to move upward.  Specifically, the July 2009 time frame started low and moved up over 3.5, and in January 2010 at these same levels and moved up over 3.5 also.  We may or may not see that in the future -- your crystal ball is as good as mine.  What is significant though is that we are not plowing new ground -- we've been here before.

An interesting graph, which may help give some insight about where we are going, is the following:

This is a graph of the Rate of Change, on a daily basis, of the LCR, plotted with the GGT Price Index.  We see that we are approaching the highest ROC levels that we've seen in nearly a year (Feb/Mar 2010 was higher), and although we continued higher, the rate at which we did so was less, and eventually, we backed off in price and everything moved lower.

The LCR ROC graph above suggests to me that we are most likely going to see a bit of a pullback in the next couple of weeks, simply because we cannot sustain this ROC.  I note with a cautious eye that we had this same condition in Feb/Mar 2010, and we continued higher through the end of April ...  Given the state of the economy, and that we're moving into an election period, we could march upward very slowly, such as three steps forward and two steps backward ...

This next graph shows me the underlying strength in the GGT signals within the database:

Of relevance here is that every time we get to these levels -- and they are lofty -- we have pulled back and consolidated.  Not a severe pullback, but enough to shake out the weakest and then resume the march upward.

Note that we now have a strength reading of nearly 1.0 -- 0.983 to be exact, and when you're at the top, there's only one direction to go ....


Short Term LCR Change Timer

Columns 7 & 8 on the dashboard tell us what this timer is doing.  Right now it is LONG, and has been since 9/1.  This is a 13-day streak, and if you recall my presentation last week at our monthly meeting, this is longer than we normally run on a long streak by about 3-4 days.  Note we have had much longer runs, so this certainly could continue.  Note you need to be a member of the group where the file is located in order to view it (to become a member, send an email here).

Alas, I was on vacation when this leg started, and I don't chase this timer.  Hence, the funds I allocate to this timer are in cash, and will remain so until the timer resets back to cash.  The time frame simply is too short to jump in at this point.

Had you moved on this timer you'd be quite happy.  The GGT equity index has moved from $1.552 to $1.633 and the VTI equity index has moved from $1.745 to $1.833, the former within 13 trading days and the latter within 12 trading days.  This is a 5% move for the GGT equity index and VTI equity index.  They don't all work out like this, but it is nice when they do.


Intermediate-Term Elder Timer

This timer has nothing to do with GGT, but it's such a powerful method that I use it as one of my primary timers to stay on the right side of the market.

The Elder 13d Force Index has been positive since 9/1, telling us that it is okay to enter stock positions LONG.  This can be seen in column 12 of the dashboard.  If you have HGSI, you can also create the following screen or view one of the many Elder screens:

Note in the image above how the 2 & 13 DMA, Force Index ribbon bar is GREEN -- this is telling us that the 13d MA on Force Index is positive.

Another key point in the HGSI image above is that the 13d and 34d MA on price are
  1. 1) both positive in magnitude -- units are $/day so we are appreciating at the rate shown in $/day
  2. 2) that the 13d MA is above the 34d MA -- a necessary condition for sustained momentum
  3. 3) that both are pointing upward -- another sign of acceleration of price to the upside.
As a whole, the GGT universe of 2800 stocks is moving upward nicely in price.

A number of stocks are candidates for entry today if they move higher than yesterday's high:

AMLN -- more risky, as the 13d slope is below the 34d slope
AZK -- ditto AMLN
EXK -- two days of sell-off with bearish engulfing pattern; need a significant reversal to enter
GRS -- ditto EXK

There are more; the filter I used is this:

You can do your own work if you have HGSI and build this filter, scanning "All Securities" (if you haven't downloaded the GGT universe from this weekend).


Trading Plan for Tuesday, September 21st

With respect to the short-term LCR Change Timer, I'm sitting pat as I choose not to chase this timer.

With respect to the Elder Intermediate Timer, the stocks above are candidates if they continue higher than yesterday's highs, and do so on higher volume.  My volume entry thresholds are unchanged and you should memorize them:

Enter a stock if and only if price is higher than the previous day's high AND volume exceeds the percentage levels of the 10d MA of volume by the following times and amounts:
  • 10:00, 12.5%
  • 10:30, 25%
  • 11:15, 33%
  • 12:15, 50%
  • 1:15, 60%
  • 2:15, 70%
  • 3:15, 90%
All times East-Coast, New York time.


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