Monday, September 13, 2010

Elder Intermediate Timer LONG, Too Late for Short Term LCR Timer

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For those of you who were able to attend, I want to thank you for your time Saturday.  As always, I left feeling energyized and focused, a feeling that had escaped me for several months while we got our act together.  I enjoy our meetings and time together, as it forces me to think on my feet in front of all of you, as well as ensure that I'm properly prepared and disciplined, which I always need to focus upon.  I also enjoy the fellowship and respect that we have for each of us, which is very unique for a diverse group of people such as ours. 

Again, thanks to each of you who could attend.

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I presented something new to all -- how to use the Short-Term LCR Change Timer with various ETFs, starting with the Vanguard Total Index (VTI).  The graph I presented is below (as with all my graphs, please right-click on it to view in another tab, window, or to save to disk):




Note that the data in this graph is slightly different than what I presented at our meeting:  In preparing this blog entry for daily consumption/macro updating I found an error in the timer calculation so the VTI/LCR calculator was not updating with adaptive values.  The result above is a larger equity curve than what I presented Saturday, with relatively the same amount of drawdown.

Here are the various traces:
  • The top two traces are the VTI daily closing price and a 150d EMA on the VTI.  If you look closely, you'll see that the VTI is trading just above the 150d EMA.
  • The bottom trace is the VTI timed with the short-term LCR Change Timer signal.  You can see that even though this timer does move you to cash (the flat periods), if the market is drawing down, this equity curve also draws down.  We see that the period of September 2008 to March 2009 saw nearly a 30% loss in this method, which would cause most people (including me) to abandon the approach.
  • The red trace is adapted from Larry Connor's work and simply gates the short-term LCR Change Timer, the VTI, and the 150d EMA on the VTI, so that we only trade the VTI when the price of the VTI is above the 150d EMA AND we get a long signal from the short-term LCR change timer.
In reviewing the video tape I note that I did NOT make two items explicitly clear this past Saturday: 
  1. if the price trades below the 150d EMA yet the LCR Change timer is LONG, this is a SELL signal.  No exceptions.  
  2. if the price is below the 150d EMA and the LCR Change timer moves LONG, THEN in subsequent days the price moves above the 150d EMA, it is okay to go LONG as the price moves above the 150d EMA.
Correspondingly, I've added the VTI status and equity curve to the dashboard under the "Short Term Timer" area:




As you review the above Short Term Timer columns, note that the LCR Change Timer has been long since 9/1 (7 trading days) and that the VTI signal has been long the past 5 trading days.  This is because the VTI is bouncing above and below the 150d EMA line.  At the present time do NOT chase this signal, as it is nearing it's historical average and could move south at any time.

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Intermediate-Term Elder Timer

Under the column "13d Elder Force Index" you will find that we have been LONG since 9/1, indicating the the Elder 13d Force Index is positive.  This is our primary gate to enter stocks long on an intermediate-term basis.

The column to the immediate right of this one is the slope of the 13d Force Index (FI).  The 13d FI is trending upward from a positive value, which is bullish.  This gives me confidence that this leg is a real bull leg.

The next column is the 13d pricing slope is bullish, which means that it is positive in absolute value.  This means that day-over-day, the 13d EMA of price of the entire GGT database is moving upward.  A rising tide lifts all boats and all of that ...

The next column is the 34d pricing slope and it too is bullish, which means that it is also positive in value.

Having both the 13d price slope and the 34d price slope, with the 13d Force Index all being positive means that the entire database is in an uptrend and that we should be paying attention to the long side of the market.  Although somewhat risky at this point, the Elder Intermediate-Term Timer is indicating it is okay to enter stocks on the LONG side.

The question of course is "what stocks?"

The list is growing thin -- most of the candidates are losing momentum, as measured by the "slope of the slope of the 13d and 34d lines".  Here is the list, and I'll follow by an example of loss of momentum:



This is a list of stocks from the GGT Universe that have a positive 13d Force Index and a negative 2d Force Index, that have a Earnings-RelativeStrength-Growth (ERG) above 270, and that have volume > 50K shares.   The list above is sorted ERG descending.  Of somewhat of a concern is the column all the way to the right -- this is the Accumulation/Distribution index for the individual stock and reflects money flow in and out of the security.  Only three of these have money flowing in:  TSL, FFIV, and EGO.  Let's look at TSL:



Although the 13d FI > 0 and 2d FI < 0 for TSL, we can see that the slopes of the 13d and 34d EMAs on price, while > 0 (bullish), actually have a negative slope -- e.g., they are becoming less positive.  I interpret this as a lack of momentum in the stock and this gives me great pause for any long entry.  We can see this in the price action -- we've apparently hit a resistance right around $28.28, so Friday's action not withstanding, this is probably a poor candidate for an Elder entry.

Hence, I am modifying Elder's rules a bit -- we want momentum to be increasing, not decreasing, as measured by the "slope of the slopes" of a short EMA (13d) and a long EMA (34d).

If we expand the Elder criteria and scan rapidly through the stocks, looking for those with positive slopes on their 13d slope and 34d slope, I get the following downselected list:

BIN
BUCY
CIGX
JOYG
MIPS
NNI
NTGR
SIRI

Let's look at Sirius/XM (SIRI), as this has a compelling chart:


Despite the Doji on Friday (indicision), the slope of the slope lines are positive-trending.  This is a good sign, and any strength on Monday can be considered a bullish indication.

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Trading plan for Monday, September 13th

Short-term LCR Change Timer System:  the timer is LONG, and we've missed entry on the VTI signal.  Hence I am continue to be patient and sit in cash.

Intermediate-Term Elder Timer:  the stocks above look compelling -- if they move upward past their Friday's highs on significant volume (see below) I will enter a position.  My schedule for volume is as follows:

by 10:00 12.5% of the 10d MA Volume
10:30 -- 25%
11:15 -- 33%
12:15 -- 50%
1:15 -- 60%
2:15 -- 70%
3:15 -- 90%

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

Regards,

pgd