Friday, December 17, 2010

Divergences galore, I'm moving to the sidelines and watch you make money ...

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Meeting Reminder:


There is a monthly meeting this coming Saturday, December 18th, from 1 p.m. to 3 p.m. at the Great Falls Library, 9830 Georgetown Pike, Great Falls, VA 22066. The GGT, LLC investment club will meet immediately following the advertised meeting. WebEx information has been provided in the GGT and GGT, LLC Yahoo! groups.


Admin Note:


I like to be accessible to you folks, and I certainly don't mind you calling or sending emails.  My preference though is for you to use the GGT, LLC forum or the GGT forum to post your questions -- I know others have the same questions so posting and answering there generally will get a good dialog going (and it really helps me out when others answer!!!).  So, if it's not a private topic, please use the Yahoo! groups for your questions.  Thanks in advance!

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Summary


  • There are NO "New Longs" in the ETF scan tonight.  I don't think that this has ever occurred in 2.5 years of daily runs.
  • With respect to "New Longs" for the stock scan, we have a concentration in Drug (Biomedical/Genetics, 6 total), Utilities (6 total), and then groups of 3 or less.  I'll post the list below, but this is the 2nd day that Drugs and Healthcare are breaking out.
  • The LCR FELL today, despite the major indexes all moving up, and despite the GGT price index moving up 0.7% on normal volume.  This is a serious divergence; more on this below.
  • The LCR system continues to deteriorate.  We now have 2 consecutive days of the slopes of the LCR EMAs pointing downward, which means that the database is contracting in the number of stocks that are above their "optimized" levels.
  • The LCR system "slope of the slopes" is more-or-less pointing downward for 4 consecutive days. These indicators lead the LCR EMA slopes, so when we get 4+ days of downward movement here, we are guaranteed to reduce our chances that we'll pick good stocks because the slopes of the LCR EMAs will move down, reducing the pool that we can choose from.
  • In direct conflict with the LCR system, the Pricing system is still healthy, with all of the slopes of the pricing EMAs still pointing upward.  In fact, the pricing "slope of the slopes" is pointing upward, thus reversing the three-day downturn that we've been experiencing.
  • The GGT strength index moved upward today, which is in direct contradiction to the shrinking LCR but also in direct support of the increase in prices.  
  • The Short-Term LCR Change Timer is in CASH.  Because the LCR fell today, the earliest that this could move long is Monday.
  • Elder's Intermediate-Termed Force Index timer is long and suggests that we should be purchasing stocks on the long side.  The FI(13) has fallen 7 of the last 9 days though, and the EMA method of calculating this status is close to moving underwater.  Contrasting, the SMA method of calculating this status is solidly positive, which is bullish.  

Wow.  Talk about conflicting indicators.  When the GGT database is shrinking (as measured by a falling LCR) I have learned that it is better to sit on the sidelines, hence I've only 6 positions in the market.  Increasing prices and strength but falling LCR values, in conjunction with the Elder Force Index dropping 7 of the last 9 days, gives me pause at entering new positions at this time.  Rising ADV/DEC lines across all major exchanges but a falling LCR is a serious divergence and one that cannot be ignored.  

I like trends, and I like indicators to line up.  We have neither, so I'm happy to sit on the sidelines for now, protecting the equities that I'm presently holding (EFA, SPY, VXF, HD, IRM, and PFE).

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The LCR System

Here's the dashboard view of the LCR system.  Sorry that I haven't posted these daily -- lots going on and doing the graphics takes time.  Thanks for the notes though -- at least I know someone's reading  :)   

As with all my images, right-click to open in a new browser or tab:

































The left column shows the raw Long-Cash Ratio (LCR) value.  RIght now it has been falling 5 of the last 7 days, so we certainly have been shrinking the database.  If it is not clear why the database gets smaller when this number is dropping please post a note here and I'd be happy to answer.

The middle of the graph is where the meat is.  Specifically, this is the area that shows the slope of the LCR EMAs, from the 5d to the 65d.  As you can see, we have had 2 days where the slope is pointing down.  While this isn't any reason for panic, it does point that this bull leg has had a hard time getting going, and if this red continues, it will have a hard time staying in motion.

The right side of the graph is the "slope of the slopes" of the LCR EMAs.  When these are pointing up, this area is green.  When they are pointing down, this area is red.  The slope of the slopes drives the behavior of the slopes of the EMAs -- this is why you see red on the right before you see red in the middle.  Make sure you understand this -- it is critical to knowing if the market is losing steam on the long side.

Right now, we're losing steam on the long side.

Another graph I watch is the following:






























This is a graph that is related to the previous one, in that here I'm only displaying 3 LCRs -- 13d, 21d, and 34d. This graph is a rate of change graph -- it simply looks at the slope of the slope (SoS) on a day-over-day basis.  When the SoS is positive the EMAs will be in the upper half (white) area of the figure, and when the SoS is negative the EMAs will be in the lower half (pink) area.  Pointing upward in the white area is bullish, and pointing downward in the pink area is bearish.

Superimposed on the graph is the GGT price index, which shows you the price movements in relation to the ROC values.  You see that there is good correlation between readings in the pink area and falling prices, and the converse is true too.

If you look closely, we've had two days of closing just below the zero line -- we're in the pink area.  We're not falling fast, so no panic is warranted, but this is a slow bleeding that will rob us of our money if we buy stocks right now.  Sure, there are stocks going up -- in fact, the ADV/DEC ratio was 2:1 in favor of rising prices today, but you don't see that bullishness on the graph above, which is problematic.

What I want to see is a reversal of this graph and those dots to move back into the white portion of the figure. Until they do, caution is advised.

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GGT New Longs for Friday, December 17th

I've received three notes in three days about the GGT New Longs, so I'll make a greater attempt at posting what's new.  Here's what has popped up out of the update:






































Of particular interest to me is the number of new longs in the Drug and Utility sectors.  If anybody has an idea about this, please let us know...  You can see that these stocks are very liquid, so there are some good candidates available.

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

Regards,

pgd