Saturday, October 16, 2010

Weekend Update, Part 1, and Part 2

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I've been watching the Contra ETFs lately -- those are the ETFs that move inversely to whatever the opposing long side is doing.  There are 83 of these in my GGT Universe, and as you would expect, they've been bleeding for some time.  Despite this, we now have 6 of the 83 that have some form of long status, and this number has grown by 5 ETFs this past week.  We should understand what and why. 

 
Here's what the GGT method has to say about them, through the close of last evening:

 
 
Three new ones appeared Friday:  SKF, TYO, and TBF.  TBT and TMV flipped earlier in the week (Tuesday), and with the solid "L" in each of the blocks since they flipped, they keep reaffirming their call to the long side. SMB has been long for some time and trades within a very narrow price range, hence it's hard to make any money with that one.  Let's look at each of the other ones through my Elder lens:

 
SKF:

 
 
GGT has signaled New Long for SKF, the ProShares UltraShort Financials, and sure enough, this is also validated by the following:
  1. the Elder FI(13) (EMA and SMA) moving positive on both Thursday and Friday. 
  2. the MACD histogram is now positive as of Friday's close, also showing that this could have strength. 
  3. In the 13d/34d EMA slope pane we see that the 13d EMA slope has just crossed the 34d EMA slope from below, which also is bullish.
  4. Dropping to the bottom, we see that we've had two days where the volume has been above the 50d SMA of volume.
On the negative side for SKF, we are early.  Very early.  This breakout has no internal confirmations.  For example:
  1. In the pricing pane we see that the 13d EMA on price is well below the 34d EMA on price.  This is early and entering now is far more risky.
  2. In the pricing pane we see that the price has just crossed above the 13d EMA but is still below the 34d EMA
  3. If we look at the raw value of the slope of the 13d and 34d EMAs, we see that the raw slopes are still -$0.02/day and -$0.04/day respectively.  We are still losing money on these time frames.
TYO:

 
Given the analysis above, I'll provide a screen shot for your review.  If you have HGSI, you should build this screen, as I find it very useful and full of good information:

 

 
 
Please post your analysis of TYO at our Yahoo! forum by sending an email to GreekGodTrading@yahoogroups.com if you are a member, or first by subscribing by sending a message with an intro to GreekGodTrading-subscribe@yahoogroups.com. Let's see if you've been following along ...

 
TBF:

 
Next in line is TBF:

 

 
 
 
Like TYO, please post your analysis of TBF at our Yahoo! forum by sending an email to GreekGodTrading@yahoogroups.com if you are a member, or first by subscribing by sending a message with an intro to GreekGodTrading-subscribe@yahoogroups.com.

 

 
TBT:

 

 
 
Like TYO and TBF, please post your analysis at our Yahoo! forum by sending an email to GreekGodTrading@yahoogroups.com if you are a member, or first by subscribing by sending a message with an intro to GreekGodTrading-subscribe@yahoogroups.com.

 

 

 
TMV:

 

 
 
 
There's obviously a theme here:  with the exception of SKF, all of these are contra on the long bonds, and what is notable, is that they are all flashing long. 

 
In order to play these I plan to wait for the Elder FI(2) signal to go negative, and then enter as the price clears the previous day's high AFTER the FI(2) goes negative.  For me, it's hard to ignore that the 13d EMA of price is about to cross the 34d EMA of price from below, and for TBF, TBT, and TMV, we already have positive slope values that are trending higher.  This certainly is bullish.

 
Again, your analysis is solicited.  Please post your comments in our GGT Yahoo! forum.

 
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Part 2, The Macro View and What to Do About It.

Let's start with the familiar dashboard:



For the past two days the GGT Price Index has slipped, finishing Friday at $26.07.  The peak of the week was achieved on Wednesday at $26.19.

Volume has been extraordinarily high the last three days, which for me has piqued my interest.  Wednesday was 26% above the 50d MA, Thursday was 23% above, and Friday was 33% above. 

Falling prices on higher volume gives me pause, and it should do the same for you.  If nothing else, it is time to start paying attention.  Continued failure to hit higher prices while volume is high is a major warning sign and indicates churning.

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The Long-Cash Ratio (LCR) fell -10% on Thursday to 4.237 and -9% on Friday, ending at 3.852 (columns 4 and 5).  2319 stocks are in some form of long status and 602 stocks have some form of cash status.  It is refreshing to see that the price index and LCR are in sync, e.g., they both are falling at the same time.  Aside from the significantly increased volume I consider two down days in price and LCR as normal behavior for the markets.

I draw your attention to the following graph:



Take a piece of paper and scan left to right, covering the information to the right.  Pull the paper to the right.  As you uncover new highs in the LCR index, you see that we typically pull back after the local peak.  Not always within a few days mind you, but generally this is true. 

We *just* hit an all-time high of the LCR, compared to the entire GGT history from 9/9/2008.  We have had two days of successive pullback in the LCR.  While the graph suggests that it may take a week or two to significantly reduce the LCR from the previous peak, it generally always occurs.

Of course, your crystal ball is as good as mine.  But given past market psychology at and after LCR peaks, and given that we just hit an all-time high in the LCR, I think it prudent that we watch for a significant pull-back.

How will we know we're starting a pullback, significant or not?

I draw your attention to the next graph:



The graph above is the daily change in value of the 13d, 21d, and 34d EMAs.  It is constructed by taking the data series (in this case the LCR), taking the 13d, 21d, and 34d EMAs, then calculating the daily difference in each of the EMAs.  When this daily difference is positive we are not in the pink zone above, and whatever we're measuring is going up on those 13d, 21d, and 34d time frames.  Conversely, when it is negative, we're in the pink zone, and we're dropping in whatever we're measuring on those same time frames.

This latest bull leg is characterized on the above graph by all the ROCs moving from the pink area to the white area on or about 9/1 - 9/2.  We've had two dips of the 13d below 0 into the pink zone, but because the 21d and 34d did not confirm, these actually became great buying opportunities (there is a lesson here that we should note).

Of particular note is that when the ROCs are falling, prices typically fall.  After peaking on Wednesday, the ROCs have been falling for two consecutive days.  I would expect a bounce to a lower high in LCR, then a continuation of a drop if we are losing steam across the board.  

Hence, I think that the LCR ROC graph will give us some insight as to the strength of any rally from here.

Finally, here is another graph which I think is important:




The above graph is simply all the major Fib EMAs of the LCR plotted together.  Note that we are at an all-time high in the 13d and 21d EMAs -- but the 34d and 55d are below other peaks.  We've risen fast this time, and while we could go further, we could also pull back a bit.

Note that the above graph is related to the LCR ROC graph that is above it -- the ROC graph shows the daily difference in the LCR EMAs above.  We clearly peaked two days ago in the ROC graph, and in terms of the graph above, this means that we're peaking now.  Since the ROC graph is in the white area -- positive -- the LCR EMAs will continue upward, but as long as the ROC graph points downward, the peak in the LCR EMAs will start to top out and eventually fall once the ROC graph transistions to the pink area.

If this isn't clear then please ask, as I think this relationship is important in order to understand the underlying database.

One final graph/table pertaining to the LCR:



The data above generally appears in the dashboard, but I rarely draw attention to it.  The first 4 leftmost colored columns show whether a particular EMA is above the next longer Fib EMA, e.g., is the 8d > 13d, 13d > 21d, etc.  You can see that as of Friday we're all green, which is intermediate-term bullish.

The next columns are related to the slopes of the LCR EMAs -- are they pointing upward or downward.  As you can see, the slopes of the 5d, 8d, and 13d have lead the crossing of the LCR EMAs, giving us a further "early warning" system.

The 5d has developed a dowward slope, so we must watch this.  I will report on the slopes of the LCR daily until we have all red or all green back in our world.

Bottom Line:  The LCR bull is getting tired, although it is still advancing.  We need to watch for it reversing, and this ability to determine when this occurs is clearly indicated by the two graphs and the GGT dashboard above.

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Short-Term LCR Change Timer

Alas, we whipsawed again with Friday's close, this time from cash to long and now back to cash.  THE SHORT-TERM LCR CHANGE TIMER IS IN CASH (-1).  The impact on our test GGT portfolio was a drop in equity from $1.5971 to $1.5838, so not too severe.  Note that we peaked on 9/20 at $1.6333 so we've dropped -3.0% if we followed this timer.

Contrasting, the VTI, which is based on the signal generated with the GGT price index, has been in cash since 9/23, where it was worth $1.5564.  This equity curve peaked too on 9/20 at $1.5821, so the loss is -1.0%.  The VTI signal is in CASH.

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Intermediate-Term Elder Force Index Timer

Refer to the GGT dashboard.  
  • The Elder Force Index 13 day EMA -- FI(13) -- is above 0 and this is LONG (column 12). 
  • The slope of the FI(13) has been downward for the past two days (column 13).  Two days is not a dangerous occurance, as we are significantly above 0.
  • As I indicated above, the 13d and 34d slopes are positive, which is bullish.
The Intermediate-Term timer is LONG, but with the caveats above.

My actual portfolio performance is as follows:

EWO, +8.5%
FXI, +7.67%
BKF, +7.37%
EWH, +7.32%
GXC, +5.68%
PID, +4.65%
SATC, +2.24%
KOL, +2.06%
IAU, +1.48%
XLB, +1.13%
IGE, +0.54%
GMO, +0.28%
AES, +0.19%
XME, -0.27%
JASO, -4.33%

JASO, which was purchased on 10/11, simply has not worked for me.  Furthermore, the Elder FI(13) EMA has transitioned NEGATIVE, which is an automatic sell signal.  I have placed a 1% Trailing Stop Loss (TSL) on this equity, Good til Cancelled (GTC), and cast it to the wind.  Here's the chart:



You can see in the figure above (JASO) that the top red/green ribbon is now red, indicating that the FI(13) is negative.  Even though the price may hold off the 13d EMA, this is a clear sell.  Also note that the MACD histogram is virtually zero, so there is nothing here to hold onto.

  • AES is struggling and values below $12.21 on higher 10d volume are problematic.  The highs of Thursday and Friday have failed to close above Wednesday's high, which is translating to a loss of momentum.  Furthermore, we've had three consecutive days of lower lows, which makes this a marginal hold.
  • EWH is another one that is on my watch list, and values below $18.91 on above-average volume could cause me to dump.  We had a doji on Tuesday, a new high on Wednesday, and again, we've had three consecutive days of lower lows.
  • IGE seems incapable of clearing $36.91 and hence values below $36.23 on higher volume may cause me to close.  Again, we've had three consecutive days of lower lows.
  • XLB is showing the same weakness, and the slope of the 34d EMA is in the single-digits and pointing downward.  Again, a marginal hold, and higher volume with prices below $34.13 could be a good reason to dump.
  • XME had a huge volume day on Friday; unfortunately, it was on a significantly down day.  With three lower days of lows the only redeeming value here is that it closed above the 13d EMA, but the tail is below.  Values below $55.16 are problematic.
As I alluded to above in Part 1, the Contra Treasuries are signalling entry.  I gravitate towards the leveraged ETFs, and TBT is calling me.  I'll wait for the FI(2) to open up so that I can enter.

For those of you who are more risk tolerant, give a look-see at the following:

AMZN
CMCSA
TWO
MON
DGP
VWO
CDNS
FXA
FTR
LINE

I simply think that we're too toppy in equities and I'm looking to protect my profits at this time, although I may move on something within the list if it rockets out of the starting blocks.

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Please note that you are responsible for your own trades, not me.  Please do your own diligence and please understand the logic of what you are reading above before you commit real monies to trading or investing.

 
Regards,

 
pgd