Friday, November 26, 2010

Deja Vu: Short Term Timer May Move to Cash, Elder on Fence

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Summary

  • It doesn't matter how we cut it, the LCR indicators are all bearish.  The slopes of the LCR EMAs are all pointing down, telling us that we're losing available stocks to select on a day-over-day basis.  It's hard to make a case for the bulls when this is the situation.
  • The LCR EMAs are all inverted, which is simply a direct reflection of the status of the slopes (see above).  This action confirms that we should not be substantially long in equities right now.
  • Despite the status of the database LCRs, the  slopes of the pricing EMAs are still pointing upward (barely).  Since we bank prices and not slopes, there is hope for a bull from here, so keep practicing getting your shopping list ready ('tis the season, right?).
  • The Short Term LCR Change Timer is LONG but is in a LONG-CASH (0) condition.  Any failure of the LCR to be significantly on the side of the advancers today will cause us to sell our short-term positions.
  • The Intermediate-Term Elder Force Index Timer is on the fence, really.  From the perspective of the 13d Force Index calculation using EMAs, it is LONG.  From the perspective of the FI(13) calculation using SMAs, it is in CASH.  Hence, either we have a great buying opportunity, or we have a run-for-the-hills scenario.  
DISCLAIMER:  I am holding the following equities:  CHS*, DYP*, FXP*, ROVI (* indicates personal account)
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The LCR

Here's the LCR dashboard; as with all my images, right-click on the image to open in a new window:

































From all perspectives, the LCR is bearish.  On the left we see that the LCR moved upward 15% on Wednesday, ending the day at 0.809.  This is the only glimmer of bull-light in an otherwise dark playground.

Next from the left are the LCR EMAs.  These are all inverted, e.g., the 5d < 8d, 8d < 13d, 13d < 21d, 21d < 34d, and 34d < 55d.  The database is getting more bearish day-over-day, and picking good stocks from what is left (e.g., bullish) is getting harder to accomplish.

The next group, in the middle of the figure, is the most important group.  This area represents the slope of the EMAs, and while these slopes are pointing downward, we have no hope of a bull emerging.  We absolutely need this middle group to show green to reduce the risk of market entry at this time.

The last group, on the right, represents the "slope of the slopes", or in Ken Phillips' parlance, how fast the car is accelerating one direction or another.  The middle area of the graph represents the direction of the car (forward or backward) and the right area of the graph represents whether it is accelerating in that direction.  Wednesday's action tells us that we are going backwards (LCR dropping), yet our foot tapped the brakes on Wednesday (slowing, as evidenced by green across the board).  

If we get several days of green on the right side of the figure we have a reasonable expectation that the middle of the LCR presentation will start showing us some green.  If we see some green in the middle of the picture, we have a reasonable expectation that the left side will start showing green, which means the bull is here.

We're a long way from a broad bull.

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The Prices

Lest you think that the LCRs are all doom and gloom, take a view of the pricing dashboard:






































This presentation is much like the LCR presentation in terms of layout.  On Wednesday, the GGT database rose 1.78% on volume that was -24% below average, as expected for the day before a holiday.  Contrasting against the LCR EMAs, the pricing EMAs are properly aligned (5d > 8d, 8d > 13d, 13d > 21d, 21d > 34d, 34d > 55d). This is bullish, and is the primary reason why this is a terrible time to short the market vis-a'-vis the status of the LCR EMAs.

The middle of the figure shows the slopes of the pricing EMAs.  You can see that Wednesday's action caused them to be bullish across the board, and overall, this is good.  As long as the slopes of the pricing EMAs are pointing upward we can be assured that the pricing EMAs (left side of the figure) will continue to remain bullish.

The right side of the figure is a presentation of the "slope of the slopes".  This is the same "what direction is the car accelerating" discussion as above for the LCRs.  What we see above for the pricing EMAs is that we are bullish across the board, so in Ken's terminology, we are "driving forward with our foot on the gas".  Note that depending upon your time frame some of the time frames are moving faster than others ....

Overall, we have a divergence between the LCRs and the Pricing system.  The LCR system is not supportive of a bull market, but the pricing system continues to indicate that prices are intact and moving upward.  This means that fewer and fewer stocks are providing a disproportionate amount of the pricing gain within the database, and this is bad over the long haul.  Either of two things must occur in the next few weeks:  1) the pricing system reverses, reflecting the state and mood indicated by the LCR system, meaning the bears are in full control, or 2) the LCR system reverses, providing support to the appreciation of prices that we presently see, allowing the bulls to run.  Your crystal ball is as good as mine.

I'm choosing to sit on the sidelines until the divergence is eliminated.

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The Timers

Here's the timer dashboard:







































The Short Term LCR Change Timer is presently flashing a "yellow", which means the present LONG is in jeopardy.  If the markets are down today in terms of the LCR, then because of the internal settings of this timer (time constant less than a day), it goes to reason that this timer will move to CASH.

I exited my positions on Wednesday that were associated with this timer, all for a profit.  I did this because I hit profit targets on Wednesday, not because the timer indicated we exit.

I'm still holding a 40% position in QLD in this timer, and as I write this, it is under huge pressure but is up 1.41% since entry.  Most likely this will be closed today to lock in whatever remains in profit.

The Intermediate-Term Elder 13d Force Index Timer, as indicated above, is in CASH.  The reasoning behind this is that the FI(13) calculation, when performed using a simple moving average (SMA), shows a negative value for FI(13).  Contrasting, but not shown above, is that the FI(13) EMA calculation shows us barely long.   I'm showing the more conservative timer status because it reflects my  investing style.  The result is that the FI(13) timer is telling us to avoid intermediate-length positions in the market.  

I'm holding a sole-holdout in ROVI due to this timer.  It stubbornly has refused to go down and hit it's trailing stop loss, so today may be the day.  I'm content to lock in the gains that I presently have and sit on the sidelines.

Overall, the timers are not clear in their signals, so entering positions either on the LONG side or CONTRA side is risky business.

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Top 25

With the close of markets on Wednesday I generate a new Top 25 stock list.   Because of the market conditions this portfolio is 65% invested.  Here are the new stocks to be added to the list:

AZO
AMZN
DECK
ETN
MEE
MGA
NFG

Stocks to be removed from the portfolio are:

BBL
CLW
GYMB
LAMR
NVO
UNP

Stocks that moved upward in position from last week, including some new additions (meaning they were part of the top 100 but not all were in the top 25) are:

AZO
RL
CKH
FFIV
NOV
PH
MGA
NFG
WLL
DECK

I would consider these stocks the strongest stocks within the portfolio.

The stocks that moved down over the past week are:

NFLX
ABV
FCX
BIDU
DRQ
IBM
FOSL
PXD

These are to be considered the weakest stocks, but still strong out of a universe of over 2900+ equities that I looked at.

Stocks that are unchanged in their position over the past week are:

PCLN
CMG
MIDD
UFS

Interpret how you may... these are holding their own.  Since the close on Thursday of last week the portfolio is up 1.4%, and is up 0.3% since inception on October 31st, 2010.

I will make the changes in this portfolio today after the market stabilizes.

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Trading Plan for Friday, November 26th

Overall, I'm sitting on the sidelines.  I do not think that we have clear signals on which direction to move within the markets, so I'm not willing to commit my hard-earned dollars as well as my kid's college funds to the market right now.

Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your actions and please read the DISCLAIMER listed on the left side of this blog.

I hope that everybody had a nice Turkey Day.

Regards,

pgd