Friday, October 1, 2010

Still a divergence within the Short Term LCR Change Timer, but Elder is Long

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I had a nice dinner last evening here in Ft. Worth with Bob Wilson and David Steckler; looking forward to the next time we can get together.  If you're not familiar with David's blog, you should be, as his insights are valuable.

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Let's start with the dashboard:



The bottom line represents yesterday's data.

Volume was up +6% over the 50d MA, which by ittself is largely unremarkable, as the standard deviation is much wider than this level.  What I take as a point to note is that price held steady, only falling -0.16%.  This is the classic definition of "churning" -- horizontal price action on average or higher volume.  Churning is due to the bulls and the bears fighting an equal war with no clear winners.  My tea leaves indicate that if we continue to see this that we'll be at a major top; conversely, if we fall back to our old ways in moving higher but on lower volume we'll most likely resume this bull leg.

Of particular interest is that the LCR moved upward again, increasing from 3.0 to nearly 3.3.  This means that of the 2900+ stocks in the GGT database many of them increased in price (not reflected in the GGT price, so not so much here), that volume was higher and they already had prices higher than historical optimized levels (very possible), and/or the rate of change of price was larger than historical optimized levels (again, not reflected in the GGT price index).  Whether this was due to window-dressing because of the end-of-quarter or not is largely moot; the key now will be to follow through.

Many market technicians are stating that we are at the top of the range and that we will pull back.  Before you jump on that train remember that they said the same thing when we were flirting with 1033; now it has become the floor and support.  It is very possible that we could move upward.  Note that it is equally possible that we could move downward too.

While we may be at the top, we may not be.  There is nothing in my book of indicators that say sell, so I'm staying the course.

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Short Term LCR Change Timer

The LCR Change Timer continues on the LONG side (columns 7-9), although the GGT equity curve has flattened right now to $1.613 and has remained at this level since 9/28.  This is a time-tested indicator (2 years +), so I watch what it is doing.  The LCR moved upward, so for now, this timer is at least two days away from moving into cash.  With futures up right now we may continue on the long side.  Again, your crystal ball is as good as mine.

Because I cannot trade the GGT index, I selected the VTI.  I've developed a timer for the VTI which is a derivative of the GGT Change Timer, and right now, the VTI timer is in CASH.  Over the last three days the VTI has decreased in closing price from $58.60 to $58.37, so perhaps the VTI timer knows more than I do (likely).  Nevertheless, I will maintain my position in VTI although it is underwater by -0.64%, including commissions.

While I do not recommend chasing this timer, the flattening of the equity curve suggests that if we take off that entry could be prudent.  Use your own discretion.

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Elder Intermediate-Term Timer

The Elder 13d Force Index on the database continues to be positive, which tells us that it prudent to hold stocks on the long side.  This is reflected in column 12 of the dashboard.  The slope of the 13d Force Index had its second consecutive day DOWN, and this is reflected in column 13.  This means that we are losing momentum, but this is exactly the place where purchasing stocks could make sense IF THE INDIVIDUAL STOCK PRICE MOVES UPWARD.  The slopes of the 13d and 34d EMA on the GGT universe price are positive (meaning that they are still appreciating), so we have confirmation that stocks are still in an up trend.  While there is a wall of worry about the lofty prices in the market, aside from the loss of momentum in the Elder FI, there is nothing on my radar that says we are in danger.  I intend to hold all my intermediate positions unless their individual 13d EMA on the Force Index moves negative.

To this latter point, one of the first things that I look at after HGSI updates is whether any of my holdings are negative in the Elder 13d Force Index.  None of my present holdings meets this criteria.

Next, I look to see if the slope of either the 13d or 34d EMA is negative.  If this is the case, the stock is losing ground, and more importantly, it's only a matter of days before the Force Index becomes negative.  I will typically sell any position that has either a negative slope on the 13d or 34d price EMA.  My present holdings in JJG meet this criteria, so I will place a 1% trailing stop loss on the position prior to the open of the market Friday.  I note that this is the worse-performing equity in my holdings, with a loss of -2.96%.

No other holdings meet this negative-value criteria.

Going into Friday, I'm watching the following stocks for entry:

AIMC
CCE
HCKT

TLT
PALL

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Trading Plan for Friday

Today is a travel day back home for me, so I'll only be able to participate the first half of the day.

With respect to the short-term timer, I'm long VTI and will remain so.

With respect to the Elder timer, I'm long in all my positions, and will remain so except in JJG, which I have placed a 1% TSL, GTC.  I will enter the 5 equities above if they move higher in price than yesterday's high and if they do so on higher volume.

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

Regards,

pgd