Monday, December 6, 2010

Timers are Long, SP500 Resistance Needs to Be Overcome

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Summary

  • Significant resistance at $123 on the SPY; we need to close above this else Katie, bar the (exit) doors....
  • Short Term and Intermediate-termed timers are LONG
  • LCR confirms LONG
  • Pricing system confirms LONG
We probably should be long on any sign of weakness...

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SPY

I'm not a big believer of moon cycles, planet alignment, golden rules, or Fib analysis, but I certainly believe that the phenom exists because other people are constantly looking for correlations.  One correlation that seems to be particularly strong (right now, not always) is the Fib retracement level of 61.8%, which often reveals itself as support and resistance.

Take a look at the following chart, which shows both the $INX and SPY, the S&P500 on a weekly scale:






















The top graph is of the SPY, and the bottom graph is of the $INX, which is the S&P500.  The two track each other exactly, as we expect.

What we see here is that we are encountering significant resistance at SPY = $123.00 / $INX = $1229.01; failure to close above this level in the near-term will be considered bearish and a failure of this bull-leg for many (including me).  I've highlighted previous areas where this has been an issue -- the more times we hit a resistance level without penetrating the greater the likelihood that the resistance level will hold.

We seem to be holding ....

Remember, this is a weekly scale.

So, if you believe in the above, take a look at the next graph:























The figure above basically shows the uncertainly in local support levels, on a weekly basis, for the SPY.  It essentially states that we could see support in the range of $117.22 to $117.92; failure to hold these levels would certainly be very bearish overall.

Food for thought...

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The LCR

The Long-Cash Ratio (LCR), which is a measure of how many of the stocks in the database have some form of LONG recommendation to those that have a CASH recommendation, increased for the previous week from 0.887 (1396/1574) to 1.816 (1758/968).  This is a large increase for one week, and suggests that it is time for a pullback.

Here's the LCR chart:
































On the good side of evaluation, note that we now have the 5d > 8d EMA of the LCR, as well as the 8d > 13d.  This is moving in the right direction, and further movement where the longer EMAs are properly aligned is further confirmation of a bull leg.  Unfortunately, until we get this intermediate-length confirmation, we have to remain focused on the short term, and consequently, we'll have to be watchful of a bull-leg failure.

The middle of the figure shows the slopes of the LCR EMAs.  Friday was a great day -- all green.  This is an absolute requirement for any form of sustained bull leg, and we must continue this pattern (green) if we want the LCR EMAs to show proper alignment.  Simply look back in the past at this indicator and you'll see why this is a leading indicator relative to the positioning of the respective LCR EMAs.

The right of the figure shows the "slopes of the slopes" of the LCR EMAs.  We've had three solid days of green, which means that with the middle of the graph showing all green, that "the car is driving forward with our foot on the gas".  This is bullish, to be sure, and we need to participate.

From all LCR viewpoints, weakness on Monday is a good opportunity to purchase stocks long.  I plan to do so, discussion of the $INX / SPY notwithstanding.

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GGT Pricing

Friday, December 3rd, saw another consecutive day of increases in prices within the GGT database.  The price index moved upward another 1.82%, showing an increase in 4 of the 5 days of the week, which is bullish.  Despite this bullish price action, volume was up only on 3 of the 5 days, which gives me pause.  The net change for the GGT from Friday close to Friday close was from $26.52 to $27.97, or 5.46%.  This is a huge amount of change for 1 week.

Here's the pricing table:

































As you can see in the figure above, the pricing EMAs are all properly aligned, with the 8d > 13d > 21d > 34d > 55d.  This is bullish.

The middle of the table shows that the slopes of the pricing EMAs are all pointing upward, which is bullish.

The right side of the graph shows that the slopes of the slopes of the pricing EMAs are all pointing upward, which again means "the car is driving forward and our foot is on the gas".

Next to the slope of the slope area is a new tracking that I am doing -- this is Bollinger's %B reading of the database.  Values of 1.0594 suggest an overbought level and that we are due for a pullback.  Note that next to this, in the rightmost position, is the GGT strength oscillator, which shows that we also relaxed on Friday from Thursday's level.  There seems to be a good correlation between the %B reading and the GGT strength index, which gives me further confidence in our tools.

What is significant about the graph above is that it is bullish across the board -- and now combined with the LCR analysis, indicates that we should move aggressively into long positions.

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The Timers

The Short-Termed LCR Change Timer is LONG, and has been since action on Thursday.  I have chosen not to chase this timer, and prefer to wait for it to reset into CASH and transition long prior to re-entry.

The Elder Intermediate-Termed Force Index Timer is LONG, and has been since action on Thursday.  This timer is indicating that we should purchase stocks for the intermediate-term on the LONG side.

To this end, here is my list of candidates for Monday:

SINA
ARUN
LTD
EBR
MOT
PAY
BPOP
AAPL
MELI
DECK
RIO
AZK
UBS

Many of these are overextended, so I will wait for a pullback in prices prior to entry.  I will enter with 20% positions to start, SP500 discussion notwithstanding.  Here's the Timer table:





































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Trading Plan for Monday, December 6th

I intend to move into the aforementioned stocks on an intermediate-termed basis.  I am presently holding 20%  positions in the following stocks, and will add to them if they pullback and show signs of reversing:

HD
MI
RYAAY
PFE
WY

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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