Thursday, October 28, 2010

Sideways Markets, Some Ideas to Watch, Elder still Long

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I note with interest that China is getting hammered right now.  As I indicated yesterday, I unloaded my position in FXI with a 1% TSL, and good or bad, it fired as soon as the market opened, resulting in a 4.5% gain in about 20 trading days. I should have sold back on October 19th when the price closed below the 8d EMA, but c'est la vie.

The contra position to FXI is FXP, and there are a number of indicators which say we need to look closely at this equity:






On the bullish side of the arguement:
  • Of note is that Bull Power has moved positive.  Bull Power is the 13d EMA of price subtracted from the high price, and we want this positive.
  • Elder's Force Index using a 13d EMA -- FI(13) -- has just moved positive. 
  • The MACD Histogram is now positive for the third consecutive day, and it is growing in magnitude.
  • The slope of the slope of the 13d and 34d EMAs is pointing upward.  This takes some time to think about -- because the slopes of the 13d and 34d EMAs are NEGATIVE, but they are pointing upward, we are slowing in price depreciation day-over-day.  This is a necessary requirement for price appreciation.
  • Price gapped up yesterday above the 13d EMA, and it closed above the 13d EMA.
On the bearish side of the argument:
  • The FI(13), as calculated using a simple moving average (SMA), is still negative.  We like to see both the EMA and SMA methods move positive on the same day for a solid signal -- this one is wishy-washy.
  • The absolute value of the slopes of the 13d and 34d EMAs on price are negative, so on these time frames, we are losing in price appreciation.  Note though that because these are pointing upward, we are losing less slow (the car is driving backwards but is slowing down).
  • Volume has been decreasing for some time, so demand is not as high as I'd like to see.
While not shown, FXI still has a GGT LONG recommendation and FXP flashed a Affirmed Cash recommendation, so any entry right now would be quite risky.

Despite GGT, I will continue to watch the FXI/FXP pair, as I think there is some merrit to placing a partial position order in the event any positive action occurs.

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Brazil is another country that is experiencing some difficulties right now.   Here is what GGT has to say about Brazil's ETFs:





EWZ, the largest ETF by volume, signaled a move to cash on October 19th.  Additionally, the two other holdouts (BRF, BZF) finally moved to cash with yesterday's market, hence we're at a crossroads.  BZQ, which is the leveraged contra ETF for Brazil has not yet signaled new long because of the lack of volume.  Despite this, we may want to look at what is going on here

First, here is EWZ, the "normal" Brazillian ETF:


I've placed the cursor on 10/19, as this is when GGT indicated a move to cash.

As you can see above, GGT and Elder are in good agreement that October 19th was the signal date.  This was also the first date the MACD Histogram moved negative, which told us that this run was in trouble.  Bull Power was barely positive on this date, but Bear Power (the low of the day is subtracted from the 13d EMA) was very negative, showing us that the bears were in control.  2 days later the slope of the 13d EMA moved negative, confirming that we should not be in this equity any longer.

BZQ is the leveraged inverse of EWZ.  Here's the chart:



Here, BZQ is showing some preliminary strength.  Here's the bull case:
  • Bear Power is positive, and has been since 10/19
  • Both FI(13) methods were positive as of 10/21, allowing us to enter this ETF
  • MACD Histogram is positive since 10/19
  • The slope of the 13d EMA is positive in absolute value
Here's the bear case for BZQ:
  • The slope of the 34d EMA on price is still negative
  • The momentum indicator -- the "slope of the slope" of the EMAs, is downward for both the 13d and 34d slopes.  We're losing some steam right now in this ETF
  • The 13d EMA is still below the 34d EMA -- we are not in a confirmed uptrend on this ETF.
  • The range of BZQ is bumping against the 8d EMA, and sometimes opening/closing below this level, which is not necessarily a raging bull.  We need to see further opens/closures above the 8d EMA to get a positive buy signal
Like FXP, I think BZQ warrants further watching. 

I think that there is a strong argument that the floor is in on the dollar trade, as measured by the UUP/UDN pair.  Here's UUP's chart:


Yesterday's action was solidly bullish, and had I been watching two days ago, we would have had a good entry point.  Now we need to wait for a FI(2) pullback, which may actually be occuring today (Thursday).  Here's the bullish arguement for UUP:
  • Bull Power is positive (as is Bear Power).
  • The MACD Histogram is positive and growing in magnitude since the negative-positive transition day
  • The slope of the 13d EMA has just closed in positive territory.  This means that on a 13d basis we are appreciating in price at the rate of $0.0025/day (not much, but it's a start)
  • The acceleration of the equity is positive, as measured by the "slope of the slopes". 
  • We have traded 2 days now above the 8d EMA
  • Volume has been increasing since mid-October
The bearish arguement for UUP is weakening but still exists:
  • The slope of the 34d EMA of price is negative.  This means that we are losing value on this time scale at a rate of -$0.0197/day.  Ideally, we want this to be a positive value.
  • The 13d EMA is still below the 34d EMA of price.  We are not yet any where near confirming that this equity is in an uptrend, hence it is risky.
Keep watching, and enter a limited position (I will chose 20%) if the Elder FI(2) moves negative then transitions positive.  Right now it is positive, so purchasing is extended on a short-term basis. 

Patience.

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Here's the dashboard:


Our price index fell yesterday by -0.34% on volume that was 8% above the 50d MA, so this was a normal, ho-hum day.

The LCR fell -14%, landing the day at 1.614.  It has now fallen 8 of the 9 past trading days and indicates that a number of stocks have fallen in value.  As a point of reference, out of these 9 trading days the GGT index has only netted +0.3%, so we are going nowhere at the present moment.

Database strength continues to weaken, and is now at 0.594, indicating that we're in no-man's land in terms of whether we'll go up or down from here.  We are nearing an artificial support line so if we penetrate this, I think we'll move down further from that penetration level of the price index.  Here's the chart I'm referring to:




The next few days should be interesting.

There is no change with respect to the LCR EMA slopes -- they are all pointing downward, which is decisively bearish.  Here's the chart since I did not post it yesterday:




As you can see, the 5d EMA is below the 8d EMA, and the 8d EMA is below the 13d EMA with respect to the LCR.  On these time frames we are losing stocks rapidly to the CASH side of the recommendation list. 

Further, as you can see from the right-hand side of the figure, all of the LCR EMA slopes are pointing downward.  This suggests that on all time frames (5d to 65d) that you had better be pretty darned good at picking winning stocks, because the database is shrinking rapidly on all time scales in terms of available candidates.

Dangerous waters indeed.

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Short-Term LCR Change Timer

The LCR fell on Wednesday, resulting in this timer moving solidly back to CASH.  We are at least 2 days from a long signal, and obviously, both of those days have to be up days with respect to the broad market.  We'll see.

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Intermediate-Term Elder Force Index Timer

The FI(13) is still positive, as indicated by column 12 of the primary GGT dashboard.  This is telling us that we can purchase stocks on the long side.

The slope of the FI(13) is downward, but only for 1 day, so we are not in any trouble here.

The pricing 13 and 34d EMAs of the database price are pointing upward, so we are in a definite uptrend.

Based on all of these conditions, this timer says that it is okay to purchase stocks long and that this is an ideal pull-back situation.  Correspondingly, here is the list of candidates:

URG
GAME
MITI
DECK
GSIC
FBCM
SCHS
AMMD
CLS
MFC
ISLE
C
SHLM
AFFX
ENH
DHF
MYI
ADLR
TROW
CACI
QGEN
RA
KRG
VLNC
GIM
FCJ
STRI
PPDI
PM
EWT
FDO
ONXX
PETM
HRS
IGT
PWRD
LO
CDNS
AVAV
XTXI
TSLA

Ensure that you are moving on these only if they have the prorated volume (discussed in other blogs on this site) and if they are higher than yesterday's high by at least a few pennies.

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

Regards,

pgd