Friday, November 12, 2010

Deteriorating LCR, Elder Intermediate Timer Long, LCR Short Term Timer in CASH

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Welcome from Northern Virginia.  I was unable to post yesterday due to my travel schedule, and things should be "back to normal" for today's action.

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Summary
  • The LCR fell for the 2nd consecutive day confirming the move to CASH on the Short-Term LCR Change Timer
  • The slopes of the EMAs on the LCR -- 5d, 8d, 13d, 21d, 34d, 55d -- are all negative.  When this has occured in the past it has been dangerous to my intermediate-term investing health.  I plan to prune my weakest stocks today (FUQI and EFA are GGT New Cash going into 11/12, LULU and BC are the weakest of the GGT, LLC holdings, and SKS and GSIT are my weakest personal holdings).
  • LCR Strength Index has pulled back to 0.580, which is sitting on an artifical support line.  Although this indicates we have plenty of room to run upwards, breaking this support line and closing below is not a good sign.  I think today's market action will be crucial.
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Long-Cash Ratio Analysis

We need to be aware of what is occuring with this indicator:









































The LCR has fallen three conecutive days, landing at 1.94 on 11/11.  It is presently indicating that 65% of the stocks in the database are LONG, or put another way, 1866 are LONG and 962 are in CASH.  Three days of falling LCR is normal market behavior and by ittself, we should not be concerned.

With respect to the raw LCRs themselves, the 13d EMA has remained stubbornly below the 21d EMA, which kept a crack in the ice and is a bit of a concern.  I am watching to see if more of the LCR EMAs "invert", that is, that the faster EMAs drop below the next adjacent slower EMA.  If we see more red in the middle of the figure above we know that we're in trouble.  Conversely, if the picture in the middle does not change, we should be in relatively good shape for entry into stocks.

The right-hand side of the figure above is problematic from my perspective.  ALL of the slopes of the LCR EMAs, from the 5d through the 65d, have now turned down.  This is a bad sign, and unless these turn upwards, the green LCR EMAs in the middle of the figure don't stand a chance.  When these slopes of the LCR EMAs turn down across the board, without ambiguity, it tells me to prune my weaker holdings.  In this case I define "weaker" as those holdings with a poor relative strength, or if you use the GGT stock files, you can check the Long Strength column for the appropriate values.  In the latter case, anything with a 1 or below can be considered weak.

I consider the rate of change of the LCR EMAs important:

































In the figure above, I am plotting the rate-of-change (slope) of the 13d, 21d, and 34d EMAs on the raw LCR index.  When the values are in the white zone, upper portion of the figure, the LCRs are climbing positively on those time scales, and when they are like shown in the lower portion of the figure, the LCRs are losing ground on those time scales.  I already showed in the previous figure that the slopes of the LCR EMAs were negative; this figure shows what this looks like for three of them.

In the figure above, the fact that all of these are pointing downward does not bode well for us.  It suggests that there is not a floor at the present time, hence I would expect raw LCR values to continue to drop.  Because the LCR is tied to price and volume action it is highly likely that we will see a corresponding drop in the individual prices of stocks.  This is not good for our present holdings, but it is good if you have cash and are waiting on the sidelines.

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Strength Index

I have an oscillator that allows us to look at the strength of the underlying database, in terms of the minimum and maximum values that it has ever attained in the history of the GGT universe.  Here's the graph:


























The figure above shows that we have hit all-time highs with the GGT price index (dark blue), and at the same time, we have dropped in the overall strength of the database to levels that are at an artifical trend line support.  This is artificial because the world does not know this chart -- it's a "pure play" for us and it gives me an unbiased view of the behavior of the database in terms of strength.  I am specifically looking for this support level to be violated with one-or-two additional closes substantially below the level where we are today -- 0.580 -- and if this occurs, I would not be surprised at seeing overall market volatility increase a considerable amount as well a more-significant pullback to visible market support levels (SPX, INDU, N100, etc.)

We'll see ...

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Short Term LCR Change Timer

The LCR Change Timer is in CASH.  Positions in QLD, UWM, and UYG were closed on Thursday, November 11th, all for a realized loss.  This loss is due to a number of things: 
  1. my travel schedule this past week,
  2. internet problems at home precluding access to my tools while I was on the road, and
  3. nuances with TradeStation concerning order entry/order execution. 
Hsin and I are working on procedues to overcome external issues such as what we've recently experienced.  Actual loss values with respect to the position size in the GGT, LLC portfolio are:
  • QLD, -1.34%
  • UWM, -0.82%
  • UYG, -1.41%
I am presently in CASH with respect to all short-term LCR Change Timer holdings.

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Elder Intermediate-Term Force Index Timer

Elder's Force Index Timer is still showing LONG.  Given this, there are candidates that are available for purchase:

WSTL
PNX
PTRY
DLIA
WIN
AOL
HMSY
CHK
DNP
MLNK
MTSN
FNFG
TRST

Note that this is downselected from a list of over 141 initial candidates; infer what you will in this.

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GGT Top 25

Every Wednesday I will provide a list of new GGT stocks that meet my top 25 criteria.  Those stocks are:

GOOG
PCLN
AAPL
CMG
CEO
AGQ
AMZN
ABV
NFLX
MA
CF
CME
AZO
FCX
BIDU
BAP
GYMB
SOHU
LNN
SNP
AMG
SI
PTR
BEN
PCP

The top 8 are relatively unchanged in position from last week, and AGQ is a new addition to the LONG list.  Note that these candidates all are in some form of GGT LONG as of the close of the markets on Wednesday, November 10th.  These have not been further screened for entry.

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As with all equities, purchase on strength, not weakness.  Elder's 2d FI method provides a good basis for learning how to do this.  Ensure you pay specific attention to volume on the day of purchase -- e.g., buy stocks in demand, not ones that are simply increasing in price.

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

Regards,

pgd