Friday, October 29, 2010

Churning, Elder is Long by a Thread, & How to Prune Your Holdings ...

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I had a nice dinner and conversation last evening with Bob Wilson here in Ft. Worth.  One of the topics was how to monitor/manage holdings.  I've no clue on whether this is the "right" approach, but it's what I do on (almost) a daily basis.

Many of you know that I moved my wife's Thrift Savings Plan (TSP) funds to cash last week.  This is a restricted account, meaning that I can only invest in what amounts to 3 funds that are closely matched in price by the following ETFs:  EFA, SPY, and VXF.

HGSI makes it relatively easy to make a snapshot of equal-weighting a portfolio of these equities.  Right now, if we review this TSP "Index", we have:



While we can debate whether I pulled the trigger too soon I moved to cash on 10/20, based on the signals seen in this composite view on 10/19 it looks like a good decision.  Specifically, the Elder 13d Force Index -- FI(13) -- moved negative, as did the MACD histogram.  Furthermore, even though the 13d and 34d slopes of these EMAs were positive in absolute value, they had a downward slope themselves (loss of momentum -- "the car is driving forward but slowing down"), and the index closure below the 8d EMA of price told me to throw in the towell.

Hence, given a fixed basket of equities, it is possible to create a fixed basket of equal-weighted items that can give you a good view of the "health" of the selections.  As you can see from the above presentation, the FI(13) flashed another down day on Wednesday, and the FI(13) using the SMA method moved to cash on Wednesday and has remained there.   Bottom line:  time to remain on the sidelines in the TSP funds.

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The next thing that I do is create a list in HGSI that contains all of my holdings across all accounts.  This is another equal-weighted basket of equities, and gives me a state of the overall health of my selections.  Here is a graph of my present holdings:


Here's how I evaluate my portfolio, and the process is the same for the constiuent stocks:
  • Bull Power:  Positive, which is bullish
  • FI(13) - EMA method:  green, which means it's positive, which is bullish
  • FI(13) - SMA method:  green, which is bullish
  • MACD Histogram: positive and growing, which is bullish
  • slope of 13d and 34d price EMAs:  positive, which means we are in an uptrend in the portfolio
  • "slope of the slope" of each 13d and 34d price EMAs:  pointing upward, so we are accelerating upward (car is moving forward and is accelerating)
  • Price series trading above the 8d EMA (green line):  bullish
  • Volume increasing over the last couple of weeks (blue line):  bullish
You may be surprised to learn that here are my holdings:

SKS, +3.03%
VVC, +1.03%
TMV, +1.25%
TBT, +0.94%
SKS, +0.31%
WEC, +0.25%
VXX, -1.85%
GLL, -2.43%
ZSL, -3.61%

The point here is that I can scan through these holdings on a daily basis, and can prune whichever one that I desire that isn't passing muster.

As I indicated yesterday, I dumped FXI and my 1% TSL triggered at the open.  Here's the chart as of last evening:



The process for individual evaluation is the same as the composite.  Here's my read of FXI:
  • Bull power moved negative which is bearish
  • FI(13) EMA method is red which means it's negative and this is bearish
  • MACD histogram is negative and growing more negative, which is bearish
  • The slope of the 13d EMA is below the slope of the 34d EMA, which is bearish
  • Both slope lines are pointing downward, so this is a loss of momentum.
  • The slope of the 13d EMA is almost crossing the zero line, so on this time scale, we are close to starting to lose significant money on a day-over-day basis.
  • The price series closed below both the 8d and 13d EMA lines
Hence, I think my exit of FXI yesterday morning was done at the appropriate time.

I suggest that each of you folks who are using HGSI evaluate your portfolio the same way, and for those of you who do not HGSI, you consider getting a 60-day trial.  It's a powerful charting program.

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The dashboard:


The GGT price index dropped slightly yesterday on normal volume, so more of the same.  We're in a holding pattern until mid-terms and the FOMC meetings are concluded.

The LCR continues to drop, indicating that we have further weakness in the database.  The value of 1.419 indicates that we have 1656 stocks with some form of LONG status and 1167 stocks with some form of CASH status.  I note with interest that we have not been this low in LCR since 9/10, and we were in an up-trend at that time.  The ability to pick stocks in an uptrend is definitely more difficult now, so caution is advised while the LCR is trending downward.  Note that the LCR has fallen 10 of the last 11 trading days.

GGT strength fell again, and is now against the artificial supprt line that I discussed yesterday.  If today is weak we will penetrate this support line, which I will consider another bearish nail in the bull coffin.

Overall, caution is advised.

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Short-Term LCR Change Timer

The LCR fell, hence this timer is solidly in CASH.  We are at least two days from a long call so there is no need to do anything here.

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Intermediate-Term Elder Force Index Timer

The bottom line is that Elder is still indicating that this is a good time to buy stocks.  The FI(13) is positive, the 13 and 34d EMAs are trending upward, so this works well for the present moment.

What you don't see but I can see because I calculate the real numbers is that we are within a day or two of the FI(13) moving negative.  If today bleeds any significant amount, either in price or volume, we could see a signal to move out of long positions in general.  Stay tuned.

Given that Elder is still indicating long, here are some candidates to watch:

SPN
CAR
FPO
FCZ
WB
CVC
STT
SF
AYR
PST
NLS

Obviously, a short list.  Take this as a warning shot.

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Today is a travel day, so I'm content to do nothing.

Make it a great weekend.  Please remember that you are responsible for your own investment decisions, and that I am NOT.  Take responsibility for your actions.

Regards,

pgd