Sunday, September 19, 2010

Using HGSI and GGT

I acknowledge that the majority of you who read this do not have the High Growth Stock Investing package available here.   Despite this, I *do* own the package, and in lieu of other options, or lack there of, HGSI provides some very good capabilities. 

Given this, I want to explore some charts of the GGT system using HGSI.  We can use other packages, but HGSI makes this relatively easy.  I'm all for easy.


A GGT Refresher

Methodology:  GGT looks at a given stock in terms of price an volume.  The lookback period is presently 1 year, although I've been known to go back 2 and 3 years.  1 year seems to work fine.  Using this lookback period, two pricing exponential moving averages (EMAs) are generated, as well as a volume EMA.  Furthermore, three different rates of change (ROCs) are generated.  These six variables are mixed and matched to provide the optimum equity curve for the chosen equity over the lookback period.  Once the values of these 6 variables are known, these are used in the daily walk-forward calculations, and based upon the price and volume action TODAY, a classification of 6 different types is assigned:
  1. New Long
  2. Affirmed Long
  3. Long
  4. Cash
  5. Affirmed Cash
  6. New Cash

  • New Longs are only generated if 1) yesterday was some form of cash (Cash, Affirmed Cash, New Cash), and 2) if price AND volume are above historical EMA and ROC values that provide an optimum equity curve.  These are the riskiest new movers, because they have been in the dirt prior to this assignment but have broken out for some reason.
  • Affirmed Longs are generated if 1) yesterday was some form of long (Long, New Long, Affirmed Long), and 2) if price AND volume are above historical EMA and ROC values that provide an optimum equity curve.
  • Longs are generated if the price and volume are above historical EMAs/ROCs, and the previous day was some form of long status.
  • New Cash stocks are only generated if 1) yesterday was some form of long (Long, Affirmed Long, New Long), and 2) price is BELOW historical EMA levels.  Note that ROC and volume do NOT play a role in New Cash assignments -- a simple drop of price is all that is required to kick us out of a long status.  It's a good idea to sell an equity that has a New Cash recommendation.
  • Affirmed Cash equities are generated yesterday was some form of cash (Cash, New Cash, Affirmed Cash) and price is below historical EMA values.  If you have a stock that is flashing Affirmed Cash, and you're holding it, you're not a happy camper, as the price is falling.
  • Cash recommendations are generated if two conditions exist, which tend to confuse folks:
    1) price is ABOVE historical optimized EMA levels, but volume is BELOW historical optimized EMA levels (e.g., the equity is breaking out on low volume)
    2) price is below historical optimized EMA levels.  In this case we don't care what volume is doing, as it is ignored.
The key is to invest in stocks that are appreciating.  How can we use GGT and HGS to identify those stocks?

Generally every weekend, a full accounting of the stocks and their recommendations are posted in the Yahoo! group for GGT.  Simply ask below in the comments are if you are not familiar.  ETFs are posted NIGHTLY by my colleague, Joe.  Between the two you should be able to get a good view of what the market is doing on a day-day or week-week basis.


New Long Recommendations

I can take the 6 recommendations as shown above and plot in HGSI.  Let's start on the bullish side with New Longs:

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

In the image above I've taken Dr. Jeffrey Scott's 2ac Daily view and added another frame with various slopes of the pricing EMAs.  This information can tell us a considerable amount about what the stocks are doing and where they are going. 

A key point to understand is that I have modified the 2d Force Index ribbon (4th from top) to BE RED WHEN (+) and GREEN WHEN (-).  This is reversed of how Jeffrey has normally configured this view.  If you understand Elder's methods you'll understand why I've made this change.

Another key point to understand is that because the recommendations for the stocks comprising a given set of recommendations changes daily (there are 112 securities that are New Longs as of the close of 10SEP17 that were NOT in this index on 10SEP16) the chart data prior to the day of the index capture has to be taken with a cautious eye.  While the *performance* of the stocks on 10SEP16 is close to that of 10SEP17, these stocks were members of other groups on 10SEP16.

Most charting packages do not plot slope.  HGSI does, and it is very useful, but seldomly used because most people do not know how to interpret what you are seeing.  In the case of the figure above, I do the following:
  • Take the 65d EMA of price.  65d is 1 quarter/13 weeks of trading, and is a good, intermediate-term indicator.
  • Take the slope of the 65d EMA of price.  If the slope is upward, then we know that the stock is appreciating.  I take multiple slopes --2, 8, 13, 21, and 34 are plotted.
  • YOUR EYE can see the "slope of the slope", or SoS.  If all the slope of the slopes is upward, then we have a strong set of stocks.  The converse is true too.
Here is how I evaluate each of these groups (refer to the New Long  figure above):
  • My eye goes directly to the price performance of the group, which is clearly trending upward. 
  • In the slope pane, we are looking at various EMAs of slopes on the slope (SoS) of the 65d EMA of price.
  • The MAGNITUDE of the SoS is important.  Here, we see that only the 2d SoS above 0; all others are TRENDING positive, but the actual value is still below 0.  We expect this for New Longs, as they are newly emerging securities within this group.
  • We expect both volume AND price to be jumping for this group, as this is a new recommendation status.  Hence we see volume AND price jumping upard dramatically.
Key to this chart is that:
  1. the 2d SoS is trading well above all the other SoS EMAs,
  2. all but the 34d SoS EMA is pointing upward -- this is necssary for a sustained bull,
  3. 13d Force Index is green, which means it's positive.  These stocks are appreciating in price AND they have volume increasing, hence the 13d FI --> (+).
You can download the zip file, located in the Files section of the GGT Yahoo! site, to get a complete list of New Longs.  Once you have done so go to the "By Recommendation" page and you'll have what you need for all 6 classifications.

Picking stocks in this group is risky, but it does represent the new breakouts and can be lucrative if you choose correctly.


Affirmed Long Recommendations

Affirmed Long recommendations arise because the equity is experiencing both volume AND price appreciation above historical optimized levels.  These stocks are in demand, and chances are, they have been in demand for some time.  Let's have a look:

Make sure you take the time to compare the ribbon bars above (Bongo Weekly, Bongo Daily, Accumulation/Distribution, Force Index 2d & 13d, and Bollinger).  What you see is that we have very good indicators on the Bongos, the stocks are being accumulated, and that the 13d Force Index has been positive (+) for some time, which means that volume and price have been moving up for these stocks for some time.

Take a look at the SoS window.  First, every SoS is inan up-trend, which is powerful.  Hence, each of the stocks in this group are accelerating upward in price.  Next, note that each SoS has a magnitude well above 0 -- each is positive.  Ensure that you contrast this with the New Longs, and you can see the power in this methodology.  Note that stocks in this group have been moving upward for some time.

In the pricing window, these stocks are well above the 17d, and are continuing upward.  These are quality stocks.  Note that the dark blue line (50d) and red line (200d) are in up trends.  This is good.

Finally, take a look at the bottom volume numbers -- we have spike in volume, and when combined with price appreciating, show why we have "Affirmed Longs". 

I like picking stocks in this group, as they have demonstrated an ability to move upward.


Long Recommendations

Here are the stocks that are ranked LONG:

Long recommendations are much like Affirmed Longs, in that they are stock that are trading above historical optimized levels, but price and/or volume could be lacking on the day of the recommendation. 

Note above that we have the third ribbon from above, the accumulation/distribution of the stocks in the index, actually going from dark green (maximum accumulation) to a lighter green (less accumulation).  Note that in the SoS window we have the 2d SoS pointing DOWNWARD -- we're losing momentum on a 2-day basis.

Note in the pricing window the doji on 10SEP16 and the down price on 10SEP17 -- these stocks are not moving upward.  They could, but as you can see, they have not been moving up.  I would avoid picking stocks in this group.


New Cash Recommendations

New Cash recommendations are just beginning to break down.  We see further evidence of distribution of the stocks (note the transition from green to yellow in the 3rd ribbon bar), and we see a breakdown in the Elder 13d Force Index, which is a major cannon shot across our bow.  The 2d SoS value is dropping, and has been for several days, and more importantly, many of the SoS values are below 0, which means these stocks have failed.

If I haven't already sold a stock with a New Cash recommendation, I certainly do so when it pops up on my radar.  These stocks are in trouble.


Affirmed Cash Recommendation

 Affirmed Cash recommendations have been in a down trend for at least 2 days, and usually much longer.  Their prices are falling hard, and if you look carefully above, you see a sea of red in the ribbons, and more importantly, you see nothing but negative SoS values, AND you see SOS values that are pointing downward.  Note that in the pricing window that the solid blue line (50d MA) is moving downward, so these stocks are losing value on a longer-term basis.  Avoid, avoid, avoid.


Cash Recommendation

Cash recommended stocks are poised to breakout, or not.  Note that in the SoS window how the slopes are all trending up, but everything is below 0.  This is bullish.  Note in the pricing window how stocks are moving upward slightly, and how the 50d MA is starting to move up.  This too is bullish.  Investing in stocks in this group, in an up market, is generally safe.  Conversely, if the stocks as a whole are moving down, investing in this group is a money loser. 

Chose stocks in this group with caution, but there are early breakouts.  Remember, many stocks will move to this area in a new bull leg but will hold here if volume isn't present -- prices may still be moving upward.  Hence, there are goood candidates.


I hope that the above helps you to understand HGS and GGT, and how you can use one to evaluate the other.

Let me know if you have any questions.