Tuesday, November 30, 2010

Short Term Conditions Improving, Mid-Term Ugly, Longer-Term Subject to Interpretation ...

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Summary
  • The slope of the 5d EMA on the LCR has moved positive, the first time since 11/9/10.  This is a necessary requirement if we're to see any form of sustained bull leg (and not just trending).  All the other LCR slopes remain pointing downward, which is still bearish on those time frames.
  • Despite the ADV/DEC line at http://www.finviz.com showing favoritism to the bears, the LCR actually moved upward +13%.  This shows internal strength within the database that is deeper than just price action, and is bullish.
  • Because the LCR did not drop, the Short Term LCR Change Timer remains in Long-Cash (0).  Today's action is a pivot point -- if it is a strong drop the timer will move to CASH (-1), if it is a weak drop today will remain in the present state.  If today is a strong day it will move back to LONG (+1), else if it is a weak increase today it will remain in its present state.  Implications are simply that if we want to move back into IWM, UWM, QLD, UYG, VTI. or TNA on a short-term basis the option is open to us if the markets move higher
  • The Intermediate-Term Elder Force Index timer is still in CASH if we use a simple-moving average (SMA) calculation method.  Contrasting, if we use an exponential-moving average (EMA), the timer is LONG.  Since we're not confirming we're on the fence post and we can invest either way.
  • In terms of pricing, every EMA slope less than the 21d is still pointing downward.  This isn't bullish, and indicates that we need more bull action in terms of prices in order to move upward.
Given the above, my bias is slightly bullish, but we're too early to declare a breakout of the rangebound markets that we are in.

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The LCR

































As with all my images, right-click on it to open in a different tab or window.

On the left, the Long-Cash Ratio, which measures the performance of the universe with respect to price, volume, and rates of change, moved upward +13% on Monday.  This is bullish and indicates that there is internal strength in terms of price, volume, and/or pricing rates of change.

Next, we have the raw LCR value.  When this is getting negative on the time frames indicated, life is bearish.  Since they are all red life is bearish.  What causes them to be bearish is that despite the 1-day change in the LCR value above (+13% on Monday), overall, on the time frames indicated, the database is contracting day-over-day.  This is bearish.

In the middle of the figure we have the "slopes of EMAs".  "Rise over run" is the way to think about this.  If you take the various EMAs and plot them, look at the direction they point.  If they point up, the middle part of the figure is green.  If they point down the middle part of the figure is red.  With the exception of the 5d slope, everything is red.  This is bearish.  Until these start turning green (pointing up) the LCR EMAs on the left will continue to indicate red.  This too is bearish.

The fact that the slope of the 5d EMA has now pointed upward is bullish, but just barely.  We need the entire row to be green; right now it simply says that on a 5-day interval (but less than 8d, mind you) the database is starting to reverse the decline.  This is good, but early.

The right side of the figure shows the "slopes of the slopes".  This is hard to picture, so Ken Phillips has a way to describe it ...  if we have a car which is driving forward (middle part of graph green) or backward (middle part of graph red), the right side indicates if we are slowing in a given direction (foot on brake) or accelerating in a direction (foot on gas).  Since the middle part of the graph is red, we're driving backward.  Since the corresponding right part of the graph is green across the board, our foot is on the brake -- e.g., we are going less-negative day-over-day, which is necessary for the middle part of the graph to turn green.  So, since we've had three days of "green" on the right portion of the graph, we're working hard at turning the middle portion of the graph green (but it hasn't happened yet).  The bears are winning, but the bulls are getting stronger...

Conclusion:  life is really early to declare moving aggressively into the long side of the market.  The database is starting to expand on a 5-day window, but longer time frames are still bearish.  Hence, caution is advised.

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The Prices




































Prices actually fell in our world -0.19% on volume that was -17% below the 50d average volume.  This is not too worrisome, but certainly, is NOT a confirmation day of a bull, so don't bet the farm long just yet.  We *really* need to see a banner day on large volume, and until we do, risk is high.

The layout is exactly in the same order as the LCR presentation above.  Here, pricing is still very bullish, with all but the 8d above the 13d (e.g., the 13d *IS* above the 21d EMA, the 21d EMA > 34d, and the 34d > 55d).  This simply tells us where we are, not where we are going, so don't read too much into the green.

The middle portion of the graph shows that the slopes of the 5d through the 21d EMA on prices are pointing down.  You should interpret this as bearish.  The only saving grace here is that the 34d and the 55d are pointing upward, which is bullish.  SO, on longer, intermediate-termed scales, we are still in a bull market.  This is important.

Lastly, the stuff on the right side is the "slope of the slope", or which direction is the price car driving.  The answer is simply "it depends on what length the car is".  We see some cracks in the bear ice on the 5d and 8d periods, but anything longer than 8d is bearish.   SO, we are REALLY at mixed  points in the market, and things are out of sync:
  • As shown in the middle, the 5d slope and 8d slope are bearish, e.g., they are pointing down.  "The 5d/8d car is driving backwards".  On the right side we see that the change in slope is positive:  "The car is driving backwards but our foot is on the brake -- we'll be stopping the bleeding soon and will be driving forward shortly".  This is bullish on short time frames.
  • As shown in the middle for the 13d and 21d slopes, they too are bearish:  "The car is driving backwards".  Furthermore, as evidenced by the right side of the graph, the 13d and 21d slope of the slopes is DOWN, negative, bearish, whatever:  "the car is driving backwards and our foot is on the accelerator -- we're driving backwards faster on the 13d and 21d time scales".  This is bearish on these time frames.  Yuck.
  • Finally, as shown in the middle, the slopes are positive for the past 34d and 55d windows.  This is good and is to be considered bullish:  "the car is driving forward".  The problem here is that the right side of the figure shows that the slope of the slope is negative for each of these periods:  "the car is driving forward but our foot is on the brake -- if this continues, we'll be stopping".  Obviously, an ominous cloud on the horizon.
I really like all green bars ... that's a "Discovery, you're a go for throttle up".  Right now we don't have this, so the only interpretation is that we should be careful.

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Money Flow

Pascal Willain runs a paid site called Effective Volume (http://www.effectivevolume.eu).  Pick up a subscription and dig around; the concepts are intriguing.  One of the charts he presents there is as follows:





You can see that although we're not in a raging bull in terms of money flow by his indicators, money is tricking into the market as opposed to net out flow.  If you look at this in context of the time frames I presented above in the LCR and Pricing analysis, you can see that it all makes sense -- on the 5d and 8d windows, the slopes of the 20d Money Flow Strength has been positive, hence why we're seeing some underlying strength.  It all correlates on a shorter time scale in terms of bullishness, and it correlates well in terms of net outflow if you look at longer time frames (13d, 21d, 34d, 55d).

Simply some independent validation to the LCR and pricing charts ....  :)

Overall, on a short-time frame, we're just starting to emerge from a bearish period.  We are early, very early. Risk is high for a reversal at this point.  We need up days to be stronger than down days.  We need up days with confirming volume.  Until we see such behavior the risk takers can make their money -- I'm content to wait and do surgical strikes...

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The Timers






































As you can see above, the Short Term Timer is still with a value of 0.  An up day as far as the LCR will cause it (most likely) to stay at this value, and a strong up day will cause it to move back LONG.  The converse is true too, so we'll have to wait and see.

The GGT equity curve fell slightly on Monday, as did the VTI equity curve.  Nothing we can do there, but I will say we exited with small profits last week from this system, and I'm reluctant to chase it back long if it moves in that direction.  We'll see...

On the right side we have the Elder timer system.  Using simple moving average methods, the timer is in CASH.  Below is a presentation from HGSI that I built that shows a conflicting Elder condition:

























The graph above is of the GGT universe, viewed through the HGSI Elder lens.  Bottom line is that the top ribbon bar calculates the Elder timer state using the EMA method (showing bullish), and the middle ribbon calculates the Elder timer state using the SMA method (showing bearish).  GGT uses the SMA method, so the system is bearish.

Slopes for the GGT universe (about the middle of the figure) are flat but positive (the car is driving forward at a constant speed, our foot is neither on the gas nor is it on the brake).  STUDY the HGSI graph and ask questions if you don't understand what you are seeing -- the most important aspect above is that prices are flat.  

I like moving long when prices are in an uptrend, not when they are flat.  I like moving long when the Elder system confirms on both methods -- they are not confirming.  I like moving long when the slopes of the 13d and 34d EMAs are positive (they are) and are pointing upward (they are not).

Risky business indeed.

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Trading Plan for Tuesday

Surgical strikes.  I'll look at Elder and Contra Elder candidates, and if they look good in terms of price and Effective Volume cash inflow I'll place a limited order. 

I'm traveling for the rest of the week starting today around noon and will back Saturday morning (I hate red eyes from LA, but it is what it is).  Blog updates will be thinner the rest of the week.

Post your questions and comments below or in the GGT forum.

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Remember, you are responsible for your own trading decisions, and I am not.  Please take ownership for your actions.

Regards,

pgd