Friday, October 22, 2010

LCR Falling, Elder still LONG, Contra ETFs Stirring

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The GGT price index fell -0.12% on volume that was 13% above the 50d MA.  The level of the fall in price is within the normal market noise, so I don't think we can read too much into it.  Further, it wasn't at the bottom nor the top of the range, so neither the bulls nor bears were winning at the end of the day.

More of the same ...

The Long-Cash Ratio continued to drop, landing at 1.719 and indicating that we have 1846 stocks on the LONG side and 1074 stocks on the CASH side.  The trend for the LCR is downward, and has been for the last 5 trading days.

I draw your eye to the following chart:



Note that ALL of the primary EMAs on the LCR are pointing downward.  Independent of Elder or other intermediate timers, investing long right now for an intermediate-term investment is risky.  This is a dangerous trading environment, and you are clearly swimming upstream if you think you can hold positions for any duration of more than a few days against the current of the database losing intrinsic value.

I moved a substantial amount of my wife's funds to cash two days ago and this appears to have been a good call given the chart above.

Can we bounce from here?  Sure.  We are already starting, according to this next chart:



This chart is determined by looking at the daily difference of various EMAs on the LCR.  This is my favorite "slope of the EMAs" chart, and when the points are in the pink area, we're losing ground.

The chart above indicates, because all the points are in the pink area, that on a day-over-day basis, stocks are bleeding in terms of having a LONG call prior and now having a CASH recommendation.  The RATE of BLEEDING is slowing and reversing, which is a necessary condition for another up leg.  Hence, if you are short term AND you have a few-day horizon, this could be a good entry environment.  This being said, we could play in this area for a really long time -- simply look at the points in the May 2010 area to understand what I'm saying.  "Venture ye at your own peril ..."

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Short-Term LCR Change Timer

The LCR fell on Thursday, resulting in the timer remaining in CASH.  Hence, I'm in cash and will remain here with my short-term holdings.

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Intermediate-Term Elder Force Index Timer

A picture is worth a 1000 words ...



On the bullish side:
  1. Bear Power is strongly positive
  2. The Elder FI(13), both EMA and SMA methods, is positive
  3. The Elder FI(2) is indicating a good entry point for stocks
  4. The slopes of the 13d and 34d EMAs are positive, so on these time scales, we are in an up trend
  5. Prices are above the 13d EMA
  6. Volume is above the 50d SMA of Volume
On the bearish side:
  1. The MACD Histogram is 2days now with a negative value.  We are losing momentum across the board
  2. The slope of the 13d EMA is below the slope of the 34d EMA.  Both are pointing downward.  We are accelerating DOWN, not up, across the entire database.  Yuck.
  3. We have several down days on higher volume.
The indicators say that we can buy Elder stocks long, so here's the list of the most strong:

MBLX
TWER
URZ
KSU
CFFN
DB
BMO
CYOU
NTLS
BF
OPTR
OFC
DPZ
CLMT
DCT
CL
NNN
LNT
XLU
WTR
FIS
AMRN
WOR
CRIS
IGI
ASTM

Note that I think entering these with no consideration of the falling LCR EMAs is a very risky proposition, but your crystal ball is as good as mine.

[Side note:  In watching pre-market action this morning, one of my holdings, FXI, the Xinhua 25 ETF, has seen a large transaction -- 1.5M shares in a quick series of trades:




That is an amazing volume for pre-market.  FYI only. ]

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Contra ETF Watch

It's hard to ignore the contras right now.  Although they are struggling to move upward, they are getting closer and closer to signaling entry across the board.  In support of this statement I provide the following:



The figure above shows what GGT has to say about various contras in the database.  As you can see, many of these are good on volume and have been signalling strength (look at the Affirmed Longs -- I hold TBT).

Here's what the index is doing in general:



We're very early on Contra ETFs, but I believe we need to watch this group like a hawk.  Here's why:
  1. Bull power is -0.04 and is within reach of moving positive.  This is a requirement for any major long positions in contra ETFs.
  2. The MACD Histogram is positive now, for the past 3 days.  THIS is really important, as it shows that the group is picking up momentum.
  3. The slopes of the 13d EMA and 34d EMAs have crossed from below, and this means that we have upward momentum as a group.  DESPITE this, the values of these slopes are negative, so overall, we are losing money on these time frames, but are now doing it with less bleeding day-over-day.  THis is bullish.
We are early in Contra ETFs, and here is the case why we're early:
  1. Both FI(13) calculations (EMA and SMA) are negative.  We want these positive.
  2. The value of the slopes of the 13d EMA and 34d EMA are negative, as stated above.  We are losing real dollars in this index at the rate of -$0.09/day for the 13d EMA and -$0.20/day for the 34d EMA.
  3. Price of the group is trading below the 13d EMA, which is below the 34d EMA.
All this being said, watch the following contras:

SKF
EUO
EDZ

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Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your actions.

Regards,

pgd