Sunday, December 12, 2010

December 12 Weekend Summary

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Summary

  • The GGT Long-Cash Ratio system is healthy.  All of the LCR EMAs are pointing upward, which means that the database is expanding in terms of available good stocks to choose from on all measured timeframes.
  • The GGT Pricing system is healthy.  All of the pricing EMAs are pointing upward, which (should) mean that your net worth is increasing on all measured timeframes.
  • The Short-Term LCR Change Timer is in CASH, although it transitioned to CASH-LONG (0) on Friday.  This move to cash may have been a whipsaw -- it's hard to tell at this point.
  • The Intermediate-Term Elder Force Index Timer is LONG, which says that it is advisable to purchase stocks on the LONG side.
The upcoming week not withstanding, all the indicators over the last week are continuing to point us to the long side.  Despite being at new highs on the indexes you are crazy if you think you should short the market at this point, especially with the LCR EMA slopes all pointing upward.

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The Long-Cash Ratio (LCR) System

Here's the view of the LCR system.  As with all my images, right-click on the image to open in a new tab or window:

































As you can tell from above, the LCR has had a good run since the beginning of December, with 6 of the last 8 trading days showing an expansion in the LONG recommendation of over 2700 stocks.  This is bullish.

The middle of the table is where the meat resides.  This area shows the "slope of the EMAs", and when this area is green, we should be buying stocks on the long side.  As you can see, it's very green, and has been since the 65d EMA slope turned green on 12/3.  You had a head's up on 12/1 that the ice was thawing by the 5d, 8d, and 13d slopes all moving green, and on 12/2 the change of the 21d and 34d again should have made you more comfortable about long positions.   12/3, in conjunction with the Elder status, would have given you the "all in" signal.

A hold-out on this present bull leg is the left side of the table, where we see that the 21d EMA is still below the 34d EMA.  This condition also exists for the 34d/55d EMA pairs.  This area simply tells us that the bull leg is relatively early -- that we need the calendar to click off the days AND we need continued upward expansion of the LCR system for these two holdouts to confirm green.  If this area fails to confirm within 21 trading days of the 5d signal moving green (e.g., by the end of December) I think the writing will be on the wall that we may do more drifting that upward movement -- we'll see.

The right side of the table above shows the normal "slope of the slope" of the EMAs.  We like to see more green than red, which means that the LCR EMAs are going to continue to point upward.  When we start seeing lots of red on the right side of the graph we know that this leg will be under pressure.  Right now, it looks good.

From the perspective of the LCR system, we're in good shape for continued movement into the long side of stocks.  As with all trend following systems, please note that this only provides for a read on where we have been, not where we are going.  The markets could easily reverse at any time, and we'd not see it coming using this methodology.

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The Pricing System

Here's the most recent dashboard of the GGT Pricing System:



































Friday saw a large movement in the GGT pricing system -- up nearly 2.24% on volume that was solid at the 50d MA level.  Remember, GGT screens for stocks that meet the following requirement:
  • Above $1 in closing price
  • Above 100K shares in 50d MA Volume
  • Trade on the three primary exchanges.
There are over 2700 stocks in the GGT database, and the performance of these stocks, which I think comprise higher "quality" stocks than just what can be found on the major exchanges, typically is better.  For so many stocks to advance (recall that the LCR increased 13% too) in price shows that the day was solid in performance.  IBD said volume and turnover were low on Friday, and while volume on the NASDAQ was lower, overall Friday was a very good day.

Like the LCR system, the meat of the figure above is in the middle portion of the table.  Note that ALL of the pricing EMAs are pointing upward -- the database is appreciating in price on all measured time frames, and this can only be interpreted as bullish.

The left side of the table above shows that the pricing EMAs are "properly aligned".  For the most part, with the exception of the 8d and 13d around the middle of November, these EMAs have been bullish since September, with no major nails in the coffin (e.g., all red) since August.  This system alone has confirmed that we should stay the LONG course, at least for now.

On the very right of the figure I've shown the %B and GGT Strength Oscillator readings.  As you can see, both still indicate that there is gas in the tank...

For now, the pricing system is very bullish.  Stocks that we are holding should be appreciating in price, and gains should be occurring.  If the stocks that you are holding are dropping in price then you are holding the wrong stocks.  This isn't to say that you should sell them -- you shouldn't if they are only down a percent or two -- but you should consider how to add winning stocks to your portfolio.

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The Timers

Here's the view of the two timers I follow:







































The left side of the graph shows the Short-Term LCR Change Timer, which with Friday's action, transitioned from CASH (-1) to CASH-LONG (0).  If the LCR moves up on Monday I should purchase stocks LONG, on a short-termed basis.  My available pool of ETFs to chose from is as follows:
  • IWM
  • QLD
  • TNA
  • UWM
  • UYG
  • VTI
Note that without exception all of these ETFs are significantly above their 50d MAs, so I think entry at this time is less than ideal.  Nevertheless, a signal is a signal, and I'll follow accordingly.

On the right side of the figure is the Intermediate-Term Elder Force Index Timer, which continues to indicate that we should be long in the market.  The timer confirmed a move long using the simple-moving-average (SMA) method on 12/2, and since then the markets have risen ~1.9% (according to the S&P500).  Using an exponential moving average (EMA) method the signal came earlier, with the close of markets on 11/26, so purchasing the SPY the morning of the 29th would have you up +5.5%.  It doesn't always work out this way, so the more conservative method generally will keep us out of hot water.

Given that Friday was such a banner day, finding stocks that meet the Elder FI(13) > 0 and FI(2) < 0 is challenging.  Stocks that I have screened for other criteria, in addition to the Elder criteria, are:

AAWW
BEAV
CQB
DBA
IRE

These 5 stocks pulled back on Friday from lofty levels, and will need to continue higher on Monday in order to move forward with initial positions.  Note that if I do move forward with any of these, it will be at a 20% of a full-position level.

There are numerous stocks out there that have solid Elder FI(13) fundamentals but are overbought and need to pullback a bit.  When I screen this long list against Pascal Willain's Effective Volume (EV) site (www.effectivevolume.eu) I come up with a list that shows  good Elder fundamentals as well as accumulation by larger purchases, relative to 8 days ago:

COF
ENER
HELE
HIG
KIE
MDT
T
TCB
THC
ZAGG
ZMH
NVO
ORCL
PG
SPWRA
TBF
TBT
TMV
ADTN
CFN
FSLR
RF
SNV
WTS
ACM
STO
UN
STEC

Note that the FI(2) on all of these is >0, so entering Monday without a pullback would be foolish.  For the most part these equities seem to be gathering steam, so I'll keep a careful eye out for opportunities to enter.  Note that the order of the list is relative ranking in terms of the quality of the chart pattern with respect to Elder FI(13), slope of 13d and 34d lines, volume levels relative to the 10d MA Volume, and price momentum, with the "best" of the list at the top (although all are good).  One way to enter these would be to place a limit order at the EMA8 line, or some variant on that theme.  Note that ALL of these are trading above the EMA8 level...

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Palladium

Palladium, as measure by the ETF PALL, is in an uptrend on the weekly chart but is in a cross-current on the daily chart and is neither in a confirmed uptrend or downtrend on the daily.  I'd need PALL to cross above $74.48 then pull back in order to enter.  The chart pattern would need to improve from here it is in terms of overall 13d and 34d slopes.

Heating Oil

I use the ETF UHN to indicate what heating oil is doing.  In general, heating oil is bullish on the weekly chart but like palladium, has hit some rough roads on the daily chart.  I'd need UHN to cross above $29.35 then pull back in order to enter.  Overall, the chart pattern of UHN is worse than that of PALL.

Brazil

Brazil, as measured by a basket of stocks from that country, seems to be holding the 65d EMA line with the tails of price action on Thursday and Friday, which I would consider bullish for the longer term.  While still in an uptrend (I use the term loosely), the aggressiveness of the uptrend has been weakening over the last month or so, with lower highs in terms of slope of the 65d line.  This being said, the slope line is still positive, so Brazil is to be considered in an up trend, albeit weak.  Note that almost all of the stocks from Brazil are experiencing poor chart patterns, so be selective if you venture here.  Only GGB, out of 30 stocks that I track, is worthy of further consideration by me.

In terms of ETFs, EWZ is the Brazillian ETF that has the most liquidity.  It looks terrible on the weekly and daily scales, and is a solid avoid.

Gold

Gold, as measured by the several indexes available, indicates that it is in an uptrend as far as the weekly is concerned, but the daily is having problems.  The slope of the 65d EMA is very positive, but is pulling back from the highs of this past Monday and Tuesday.  The slope of the 5d EMA is negative and heading downward, so with no floor in sight, now is not the time to enter.  Furthermore, when viewing stocks in the Gold and Silver industry, the slope of the 13d EMA is just crossing the slope of the 34d from above, which is an Elder sell signal.  Of the 16 stocks that I track in this industry, only 4 have a good chart pattern, so caution is advised.

Oil & Gas

Overall, the integrated Oil & Gas companies are in an uptrend.  I track 11 stocks in this group and in general, the group is bullish.  5 of the 11 stocks have bullish patterns with the other 6 breaking down.  XOM and CVX have the best patterns, but XOM is too mature for me to enter at this point.  CVX looks good on the weekly if it can clear $87.08 then pull back a bit, allowing for entry.  BP appears to be out of the woods and just flashed a buy signal this past week.  RDS.A is consolidating and if it can move upward, it looks good.  MRO looks good for entry if we can get a good pullback on the intraday chart.

U.S. Dollar
I use the ETFs UUP and UDN to evaluate the U.S. Dollar Index.  Neither of them have chart patterns that I would call attractive.  UUP has been floundering sideways for about 3 weeks, and needs to start moving upward more aggressively.  UDN has significant resistance overhead, and I personally doubt whether it can overcome the resistance.   Note that if UUP appreciates that there is a high likelihood that the markets will be falling, as UUP is inversely related to the market prices.  Of course, we want a strong dollar, but this results in our ability to purchase foreign whatevers at a lower number of dollars per unit of foreign currency, which is bad for their exports.  

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Remember, you are responsible for your own trading decisions.  Please do your own diligence and take ownership for your actions.

Regards,

pgd


Disclaimer:  As of this writing I own or influence ownership in the following equities:  EFA, SPY, VXF, ARUN, BPOP, DRYS, F, FLEX, HD, IRM, LTD, MCRS, MI, MYL, PAY, PFE, SHO, TC, UBS.