Wednesday, November 17, 2010

Avoiding New Long Positions, Elder = CASH, ST Timer = CASH, Contras are Early

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Summary:
  • The LCR ratio has fallen below 1.000, the first time this has occurred (transition from above to below) since 8/11/10.  More stocks in the database are contracting than those that are expanding, as a whole.
  • ALL slopes of the LCR EMA's are negative.  This is the 4th day in this state, and in this period, the database price has fallen -5.998%.
  • The LCR EMAs continue to be inverted (5d < 8d, 8d < 13d, 13d < 21d, 21d < 34d).  The 34d is still above the 55d, which indicates that this still could be a short-term correction, not a prolonged "where is the bottom" move.
  • The short-term LCR Change timer remains in CASH. This is the 5th day in this state.
  • The intermediate-term Elder Force Index Timer is in CASH.  This is telling me to avoid purchases in any long positions.  This is the 3rd day in this state.
  • ALL slopes of the pricing EMAs are negative.  This is the first time this has happened (transition from Bullish to Bearish) since 8/11/10.  Until these start turning up I shall absolutely avoid any thoughts of entering long positions.
  • -3x Contra ETFs have just signaled an initial confirmation of entry, as determined by the 2-method Elder Force Index
  • The -2x contra of the Euro, the EUO, looks interesting for Wednesday.
  • The -2x contra of silver, the ZSL, also looks interesting for Wednesday.
  • Avoid Russia, as it is breaking down.
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Something New

Starting today, I'm going to make it an attempt to look in some detail, given the GGT and Elder lens, at different vehicles that we should be considering.  I'm proposing the following days/categories for review; the days correspond to the days that you should see some information on those particular areas:







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-3x Contra Index

I discussed this concept at last weekend's monthly meeting.  Essentially, HGSI allows us to form our own index, and if I use the Direxion 3x leveraged inverse ETFs in a group, we can get a very good indicator of what is going on in the market.

Here's the -3x Contra Index chart:





























We have a preliminary early new bull signal with respect to the -3x contra ETFs.  Here's the rationale, starting at the top of the figure:
  1. Bull Power is positive
  2. Bear Power is positive
  3. Both 13d Force Index methods (EMA and SMA) are positive
  4. The MACD histogram is positive for it's 4th day
  5. The MACD is above the MACD signal line
  6. The 13d EMA slope is positive and pointing upward
  7. The 34d EMA slope is pointing upward (but is still negative)
  8. The Bollinger Band %B value is 0.71, which suggests plenty of upside room
We are early in this chart, which means overall, we are early for contra ETFs.  Here is the arguement to wait:
  1. No EMA crossings have yet occurred, e.g, the 8d is just below the 13d.  Despite the 8 points above, entering now is risky unless we can find individual equities.
  2. We are well below the 40d EMA and the 160d EMA in terms of price.  Until we close above the 40d, this is risky.
  3. We are not in any form of sustained downtrend.  Until the 40d x 160d from below, you have to be very, very, very nimble in playing contras.  Surgical strikes are the rule of the day.
Here are some thoughts that I am having at the present moment:

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The Euro

The Euro continues it's weakness, as measured by the ETFs FXE and the EU, resulting in terrible chart patterns.  Everything about the Euro is telling us to continue to "run away", and if the 8d EMA crossing the 13d, 34d over the past 5 days weren't enough confirmation, we have a nail in the coffin appearing with almost a certain closure of the 8d and 40d, which will occur on Wednesday if FXE keeps moving downward.  Here's the chart:





























There's nothing here that I find worthy of our monies.

This being said, the leveraged contra ETF on the Euro, the EUO, looks compelling for entry.  Here's the chart:





























Here, we see a couple of confirming indications that suggest we should be considering this for some form of entry on Wednesday:
  1. On 11/9 the Elder Bull Power moved positive, the MACD histogram confirmed the behavior of the rise with three days continuously rising, and the 13d EMA Slope line crossed positive;
  2. On 11/10 the 8d EMA on price crossed the 13d EMA of price from below;
  3. On 11/12 the 34d EMA Slope line crossed positive;
  4. With today's action, the 8d EMA on price crossed the 34d EMA of price from below and Elder's 13d Force Index has moved positive with both the SMA and EMA calculation methods.
As a check, %B is just shy of 90%, which my trading partner Hsin likes to use as a cutoff criteria.

The only thing remaining is a price closure above the 160d line as well as a crossing of the 13d and the 34d from below.  Hence I'm considering a 50% position in EUO provided the conditions remain in place with any type of pull-back on Wednesday.  The other 50% can get added when we get the 13x34d crossing as well as the closing above the 160d line.

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Silver

Presently, silver looks terrible as measured by SLV, SIVR, USV, SIL, and DBS.  Elder's 13d Force Index (both methods) is decisively negative, effectively blocking entry to the long side of silver.

Conversely, the contra side of silver, as measured by ZSL, looks interesting:





























Again, a number of conditions make this a good candidate for entry, albeit a bit early:
  1. Elder's 13d Force Index, both calculation methods (EMA, SMA) have turned positive now for two days.  This is the enabling gate for the equity.
  2. The MACD Histogram has been positive for two days.  If tomorrow is an up day, then this would confirm the trend as far as the MACD is concerned.
What makes this early is that both the 13d/34d EMA slope lines are negative.  Countering this, they both are trending upwards rapidly, and the 13d will cross over to positive territory if Wednesday is an up day.  Another early situation is that none of the EMAs have crossed, e.g., the 8d has not crossed the 13d from below.  With positive-trending slopes this will occur; if the positive trend occurs it is simply a question of time whether this is on Wednesday if the trend continues or Thursday.

Given this uncertainty, I'm considering a 20% position in ZSL, with an entry on any strength.

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Russia

I've been watching Russia, first via the Russian ETF RSX, and also by available ADRs that correspond to Russia (CTCM, MTL, MBT, VIP, WBD).  Here's the chart; Russia is an avoid for now:





























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Trading Plan for Wednesday:

I intend to give serious thought to small, initial positions in selected contra positions.  I have no intention of entering any long positions at the present time.

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

Regards,

pgd