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.
- the Elder FI(13) (EMA and SMA) moving positive on both Thursday and Friday.
- the MACD histogram is now positive as of Friday's close, also showing that this could have strength.
- 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.
- Dropping to the bottom, we see that we've had two days where the volume has been above the 50d SMA of volume.
- 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.
- In the pricing pane we see that the price has just crossed above the 13d EMA but is still below the 34d EMA
- 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.
Part 2, The Macro View and What to Do About It.
Let's start with the familiar dashboard:
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:
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:
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 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.
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:
- 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.
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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