Thursday, September 23, 2010

Short-Term Timer has moved to LONG-CASH; Elder Intermediate Timer is LONG.

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A crack in the ice?  We'll see.

Here's the dashboard:



Price and volume both dipped yesterday by -0.72% and -4% respectively, which shouldn't be much of a surprise to any of you.  This is stronger volume than we have been seeing (column 3) so I'm paying a bit more attention to the price-volume relationship.  The psychology of the market when we see higher than normal volume is that more people are playing, and falling prices indicate that we're distributing more than we're buying.  I would not fault anybody for locking in gains at this point.

The LCR fell 16%, and has set us up for a change in the short-term LCR Change Timer.  More on that below. 

As far as the strength index is concerned, we've dropped a large amount, indicating that as a whole, the database is much weaker -- many stocks are lacking in price, volume, and/or rate-of-change of prices, causing the strength index to drop to 0.662.  NOTE:  we hovered at this strength index at the beginning of this bull leg, so this may be enough of a reset to resume an upward march -- or not.  Again, your crystal ball is as good as mine.

Based on these indicators alone, I would not be surprised at a reset in prices today (Thursday).  The drop-in-prices-on-average-volume is a significant signal, and the divergence we saw yesterday suggests that this leg needs a reset.

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Short-Term LCR Change Timer

The LCR Change Timer has a fast response time -- about 0.8 days -- so as the LCR goes, so does this timer.  This is an adaptive value and has been moving upward as this leg has been getting longer.  What is significant is that the drop in the LCR yesterday was enough to cause it to transition from LONG (+1) to LONG-CASH (0), which is a direct signal for those following this timer to:
  1. protect profits
  2. get ready to close short-term LONG trades
The best way to trade this timer is to plop your rear in front of the PC around 3:30.  Go to http://www.finviz.com/.  On the home page, in the upper left corner, you'll see the following:



If you see the number of Advancing issues LESS THAN the number of Declining issues, then there is a very high probability that the LCR will continue the transition and move to CASH (-1).  If this is the case then you should close your short-term LONG trades.

Conversely, if we have ADV > DEC, then the ST LCR Change Timer will remain in the LONG-CASH (0) state.  Do nothing except protect your longs if so desired.

I am presently not trading this timer, as I was on vacation when it signaled long on 9/1.  I've been patiently waiting for it to reset and resume a long march to the upside.

The GGT equity index fell (column 9) as did the VTI equity index (column 11), for those of you keeping track.  These have had a nice run (it may not be over).

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Intermediate-Term Elder Timer

Column 12 is the 13d Elder Force Index.  It is green, which means that it is positive --> it is okay to purchase stocks on the LONG side.  Next to it (column 13) is the slope of the 13d Elder FI, and it is RED.  This means that the slope is falling, which is CAUTIONARY.  I like to buy stocks when the market, as a whole, is moving upward with these two showing green.  They are not both green.  Nevertheless, I purchased some stocks yesterday, and I have my list ready for today.

Note that the slope of the 13d EMA on price, and the slope of the 34d EMA on price are both GREEN, which means they are positive.  The database is appreciating in price on these time scales.

If this is only a pause, then these securities, IF THEY MOVE HIGHER ON HIGHER VOLUME, should be good vehicles:

ADRE
DVY
IYT
IYE
IEZ
ACWX
EFA
EWP
IXC
IGE
RSX
PXH
PID
PSP
DIA
XLE
SDY
XHB
XES

AIMC
AXL
BUD
IGTE
INAP
KKD
NTCT
QSFT
LUV
TWTC
UAUA
VHC
WRLD

See my blog from yesterday to see the filter I used for these equities.  Note that the ETFs do not have the ERG > 240 scan line.

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Trading Plan for Thursday

Short-term:  watch for the LCR to reset (or not).

Intermediate-term:  I'll pick up the equities above IF:
  1. they move higher than yesterday's high
  2. they do so on higher volume.  I listed my volume requirements earlier this week.
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Remember, you are responsible for your own investment decisions, not me.  Please do your own work.

Regards,

pgd