Wednesday, September 8, 2010

Mixed Signals

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Let's dive right in to the dashboard:


GGT price fell more than the average markets, which I take as a shot across the bow.  Recall that the GGT stocks are:
  1. liquid, in that they trade at least 100K shares average volume
  2. are above $1 in price
  3. are on the three major exchanges
Higher volatility on what I would consider 3000 benchmark stocks is not what I want to see in a bull leg.

Volume was incredibly low, -29% below the 50d MA.  Declining prices on lower volume typically is a good sign, but I like the decline to be slight, not -1.49%.  My mental bear meter is increasing in value, unfortunately.

As part of a divergence we have the Long-Cash Ratio (LCR) moving upward 2%, causing another mixed signal to be thrown in the bag.  The LCR requires price, volume, AND rate of change of price to all be advancing, so when applied to 3000 stocks, and when they move up in a fundamental (albeit slight) manner, I take note.  We cannot sustain a price/LCR divergence for any length of time.  Either:
  1. Price will resume an upward march, matching the direction of the LCR, or
  2. The LCR will reverse and move down, matching the direction of the price index.
Your crystal ball is as good as mine as to what will occur.  Mixed signals like this are dangerous for new entries into positions, so caution is certainly advised.

While the LCR inched upward ever-so-slightly, the strength of the database fell from 0.7 to 0.6.  Sustained values above 0.7 typically portend a pullback of some degree, hence this could be what we are seeing.  I like bull legs to start when the strength value (presently 0.601) is below 0.3 or lower; we haven't been there since 8/13/10.

Based on these indicators alone, I think caution is advised.  I think a bull from here, absent of any major news from the White House or Fed, is a long shot.  I see more downside potential than I do upside at this point in the cycle, futures being up as I type this not withstanding.

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Short Term LCR Change Timer Status

The LCR Change Timer move to LONG-CASH (0) from LONG (+1), based partly on the lack of strength in the LCR movement.  A down day today (Wednesday), as measured from the ADV/DEC line at http://www.finviz.com/, will certainly drive this indicator to CASH.  Alternatively, if we have an up day, we will hold this status.

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Intermediate-Term Elder Timer

The Elder system continues to indicate that the 13d Force Index is positive, opening further consideration of other Elder variables.  Both the 13d price slope and the 34d price slopes are positive, which is bullish.  The 13d price EMA is still BELOW the 34d price EMA, which is bearish for our conservative/confirmation stance.  So while we are in day 3 of the aggressive Elder system saying we are long, the conservative approach is still holding us in cash, indicating we should wait.  I intend to do so, as NONE of my Elder candidates from yesterday cleared their Friday highs.  Hence, I'm still 100% in cash at the present moment.

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Trading Plan for Wednesday

On a short-term basis, I am in cash.  I missed the signal last Wednesday due to my vacation, and I do not chase signals.

On the intermediate-term basis, I will continue to watch for Elder candidates, but I'm skeptical.  In case you're interested, here is my watchlist:




Remember the rules for entry:  today's entry must be above yesterday's high (buy on rising strength), the 13d Force Index MUST be positive, the slopes of the 13d and 34d price EMAs MUST be positive.  You can't search on 34d price slope, so I use the 50d in my HGSI scan.

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Remember, you are responsible for your own investment decisions, not me.  Please take ownership of your work.

I will be traveling to Sacramento on Thursday on the 6 a.m. flight out of Dulles Airport so there is a high likelihood that I will not blog in the morning.  If the update is done tonight at a reasonable hour I will post a short note about today's action.  I return late Friday night.

Note that there is a HGSI/GGT meeting this Saturday at 10:00 a.m. in Alexandria.  Leave me a note below if you have not yet received information (log into our GGT Yahoo! site for details).

Regards,

pgd