Sunday, February 28, 2010

GGT Recommendations -- Are they Valid in Changing Markets?

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Bill W. of our NoVA group asked whether GGT is having a hard time in view of these present market conditions.  This is a great question and allows me to show why the answer is a resounding "NO".  By design, GGT updates itself as market conditions change, which is the way I designed the process in the first place. 

Again, the only holy grail strategy that exists out there is that market is continually changing, hence your strategy better be constantly changing, or you'll only capture small portions of up periods, essentially proving that the same strategy over some period is a zero-sum game.

GGT has six classifications to a given equity:
  • New Long:  requires that the price AND volume of the equity be above historical optimized values for gain, AND that the trading day prior the equity was in some form of cash status (New Cash, Affirmed Cash, or Cash).
  • Affirmed Long:  requires that the price AND volume of the equity  be above historical optimized values for gain, AND that the trading day prior the equity was in some form of long status (New Long, Affirmed Long, or Long).
  • Long:  requires that the price of the equity be above historical optimzied values for gain, AND that the trading day prior the equity was in some form of long status (New Long, Affirmed Long, or Long).
  • Cash: requires that the volume of the equity be BELOW historical optimized values for volume resulting in good gain and that the trading day prior the equity was in some form of cash status (New Cash, Affirmed Cash, or Cash).  Note that price may be above the optimum level for past gains, but without volume confirming, the equity will be locked with this status.
  • Affirmed Cash: requires that the price of the equity be BELOW historical optimized values for gain and that the trading day prior the equity was in some form of cash status (New Cash, Affirmed Cash, or Cash).
  • New Cash: requires that the price of the equity be BELOW historical optimized values for gain and that the trading day prior the equity was in some form of long status (New Long, Affirmed Long, or Long). 
The beauty here is that for an equity to move from a cash recommendation to a long recommendation, we must have price and volume, whereas to move from long to cash, we only need a drop in price.

If we take the six recommendations above for stocks that closed on Friday, February 26th, and look at them in terms of pricing EMAs, VectorVest's Relative Timing (RT) EMAs (RT is roughly the slope of the 65d price EMA of the equity, scaled between 0 and 2), and 13-day Elder's Force Index, we'll see some interesting confirmations of whether we should be in individual equities.

Let's start with New Longs, which means that these stocks were all in some form of cash status (New Cash, Affirmed Cash, or Cash) on Thursday, February 25th.  As with all my graphs, click the image to see a larger view, and right-mouse click and open in a new window if you want to read and view at the same time.  Note that the most relevant data is contained on the right side of these graphs, so if your monitor or web browser does not display the full picture, please use or another window to view the graphic files full-screen:



Here's how to read this graph:
  1. The 13d/21d/34d are all newly in an uptrend, with initial crossing of the 13d EMA of the 21d EMA from below just beginning to occur.  As many of you know, this is my 1st criteria for entry into an individual equity, at a 25% of full-position level.  This crossing from below is bullish.
  2. The average price of this basket of stocks is trading above the EMAs, which is bullish.
  3. The instantaneous RT value, which is roughly the slope of the 65d EMA of the average price of this basket of stocks, is above 1.0, which means that the slope is now pointing upward.  This is an indication of intermediate-term uptrending.
  4. The instantanous RT value of this basket of stocks has been above 1.0 for two consecutive days.  As many of you know, this is my criteria for considering any strategy -- I want to see that the strategy is returning stocks that are in an uptrend.
  5. Note the average volume of this basket:  3.22M shares.  We'll use this below.
From this graph we can conclude that GGT New Longs are just that -- newly meeting the conditions of being in an uptrend.  Hence New Longs are returning stocks that are breaking out.

Let's look at the New Long RT EMAs:



The EMA periods that I use in the RT graphs are shorter than the pricing EMAs:  here I use 8/13/21.  Note the following from the graph above:
  1. There are no RR-track patterns of RT EMAs at this point. This makes investing in this basket of stocks more risky, because we could certainly fail from this point.
  2. RT EMAs are just crossing above 1.0, showing sustained intermediate-term uptrend. I like stronger EMA lines, but by design, all of these stocks had a cash recommendation on Thursday, which is why they are just starting to show upside momentum.
From the RT EMA graph above, we can conclude that New Long stocks are just poised to break out, that as a whole, they are just entering an intermediate-term uptrend.

I think Elder's 13d Force Index is an important indicator.  Let's look at this from VectorVest's perspective:



The first thing to realize is that this basket of New Longs has just transitioned from a negative value of FI(13), which means do-not-enter, to a positive value.  As you move from right to left on the graph data becomes less relevant (Why? this is an extra-credit question -- leave the answer in the comments block below), it clearly shows that this basket of New Long stocks is giving a green-light for entry, and is doing so relative to a recent time frame.  I view this as very important.

Finally, let's look at the New Longs using the HGSI tools, as I know many of you do not have VectorVest:


I find this graph incredibly revealing.
  1. The 4th ribbon from the top is Elder's 13d Force Index.  Note that it is showing that it just transitioned to green (positive) with Thursday's action.
  2. The white area is where I plot the 65d Slope EMAs on price.  The 2d EMA is shown in red, and this is roughly the same shape an relative magnitude changes as the RT value shown in the first graph of this blog, e.g., this is a very good proxy for the VectorVest RT instantaneous value.  If you look closely, this 2d EMA value has been above 0 (which equates to 1.0 in VectorVest-land) for three days, very close to the VectorVest RT value.  The upward movement of this 2d EMA is bullish for this basket of stocks.
  3. The 8d EMA value of the 65d slope of price is newly positive, but appears to be topping in a short-term pattern.  We expect this, because by definition, New Long stocks have both price and volume acceleration to the upside, which moved them from their Cash status.  A slight pull-back here of individual equities, while not required, would not be unexpected.
  4. ALL the 65d slope EMAs are in an uptrend.  This is bullish, and tilts the tables in our favor.
  5. Unique to HGSI is the blue bar at the bottom of the graph -- this is called a Little Kahuna, and you see that it occurred for this basket of stocks on Friday.  Here, we're seeing at least a 24% movement in the Bollinger %B reading, which is generally bullish.  Again, we expect something along these lines, since by definition, New Long stocks have both price AND volume appreciation on the day of the recommendation.
From the above graph we can conclude that New Long stocks are newly trending upward, on a short-term basis, and overall, they are showing indications of having intermediate-term strength. 

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GGT Affirmed Longs

Let's repeat the process for the GGT Affirmed Longs.  Starting with the pricing EMAs, we have:

































This is a beautiful chart pattern.  Here are the takeaways:
  1. The pricing EMAs (13d/21d/34d) are in an up-trend and are not showing any weakness.
  2. The pricing EMAs are showing our characteristic RR-track pattern to the upside -- this is a powerful showing of momentum.
  3. The average price of this basket of stocks is trading above the EMAs -- this is bullish.
  4. The instantaneous value of RT is well above 1.0 and is moving upward.  This too is bullish.
  5. Although as we get further from the right side of the graph, towards the left, the data becomes less relevant (why?), we do see that we had significant crossings of EMAs of this basket of stocks right around 2/17, essentially confirming that we are in a new up leg from the perspective of this sort. 
  6. Note the average volume of this basket:  2.98M shares.  While lower than the 3.2M of the "New Longs" basket, this is a very strong number.  Remember these two values, as we'll use them below.
From the above graph we can conclude that GGT Affirmed Longs are in a short-term uptrend, as evidenced by the RR-track pattern of the pricing EMAs, and that we're in an intermediate-term uptrend, as evidenced by the greater-than-1.0 value of RT AND that it is moving positively to the upside.

Let's take a look at the RT EMAs for the Affirmed Longs:



The RT EMAs for the Affirmed Longs show much the same behavior as the pricing EMAs, which is very bullish for this basket of stocks:
  1. RT EMAs (8/13/21) are all above 1.0, indicating a sustained intermediate-term up trend
  2. RT EMAs are in a classic upward-pointing RR-track pattern, which is very bullish and the angle shows considerable strength
  3. The relative crossing of the RT EMAs back on 2/16 - 2/17 correleates very well with the pricing EMAs and gives us confidence of a sustained intermediate-term uptrend for this basket of stocks.
Correspondingly, from the RT EMA graph above, we see that the GGT Affirmed Long basket has short-term momentum (via the RR-track pattern), and intermediate-term price appreciation (RT values strongly above 1.0).

Let's look at the 13d Elder Force Index for the GGT Affirmed Long basket:



As we can see above, the FI(13) is very positive, showing massive price and volume appreciation for this basket of stocks.  This makes sense:  the GGT Affirmed Long basket is constructed by classifiying all stocks with BOTH volume and price appreciation above their historical optimized levels for gains, on a given day.  The Elder trend lines above (13d/34d) both being upward, combined with the FI(13) being positive, shows that we can enter this basket of stocks since there is a bias to the upside.

Finally, let's look at what HGSI has to say about the GGT Affirmed Longs:



The HGSI graph reveals a considerable amount of data for us:
  1. EVERY 65d slope EMA (2/8/13/21) is in a powerful uptrend, with every value well above 0.  This indicates that this basket of stocks is very bullish in terms of trend.
  2. The 3rd ribbon from the top is % Accumulation / Distribution.  The dark green level here shows that this basket of stocks has seen significant accumulation over the past couple of weeks.
  3. The pricing area is clearly evident.  Within this area, the 50d MA is shown in blue, and the 200d MA is shown in red.  We see that both of these lines are trending upward, and this is very bullish for this basket of stocks.
  4. The bottom two graphs primarily show volume.  The upper graph of the two shows a 50d MA on volume, and the bottom one shows a 21d MA on volume.  We see that on 2/26 that both of these were above their averages.  This is to be expected -- Affirmed Long recommendations are provided to stocks that have BOTH price appreciation AND volume above their optimized levels.
From the above graph we can conclude that the Affirmed Long basket of stocks has the greatest strength in terms of aggregate price and volume appreciation, relative to the recent past, and is certainly worthy of our further consideration for new stock picks.

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GGT Longs

Let's look at GGT Longs, which can have lower volume than historical optimized levels, but not price, e.g., they are light-volume candidates that are still showing pricing power.



I find a couple of things interesting about this basket of GGT Longs:
  1. The pricing EMAs are in an uptrend, which is bullish for this basket of stocks.
  2. The pricing EMAs are showing the characteristic RR-track pattern upward, which indicates that this basket of stocks has momentum
  3. The instantaneous RT value for the GGT Long basket is well above 1.0, which means that the 65d EMA of price is in a intermediate-term uptrend
  4. The slight decrease in instantaneous RT value shows less momentum for this basket of stocks relative to the "New Longs" or the "Affirmed Longs".  This loss of momentum is a precursor to dropping out of the "long" classification all-together, so stocks in this basket are showing more weakness.
  5. Average volume of this basket of stocks is 2.01M shares, which is considerably less than the 2.9M for the Affirmed Longs and moreso than the 3.22M shares of the New Longs.  This is by design -- Long-rated stocks can have a volume reduction, but not price reduction, relative to their historical optimized values, and yet can still maintain their classification.  I've found that some of these can be attractive for entry, e.g., a light-volume pullback.
Correspondingly, I conclude from the above graph that GGT Long-recommended stocks are attractive in that they have price appreciation and momentum (as shown by the upward RR-track pattern), but have less upward momentum than the Affirmed Longs (as shown by a lower instantaneous RT value).

Let's show what HGSI says about this basket:



Like the other two HGSI graphs, I simply love the richness of content of this screen.  Let's look at the key areas:
  1. The third ribbon from the top is the % Accumulation / Distribution level.  Dark green means that this basket of stocks has been under heavy accumulation -- we expect this, since by definition, the basket is comprised of "Long"-recommended stocks, and these typically see accumulation when their prices go up.  The fact that we see such a long period of %A/D being dark green shows that this basket *may* be a bit long in the tooth in terms of appreciation.
  2. The fourth ribbon from the top is Elder's 13d Force Index, and we see that it has been green for some time.  This certainly means that this basket of stocks is worthy of entry, e.g., we can cherry pick from this basket, because the 13d average of the (daily change in price multiplied by the volume of each day) is positive. 
  3. I've not talked about the sixth ribbon from the top but this is %B and Bollinger bandwidth.  We see that when this is very high in value that the ribbon is dark red -- we've appreciated a considerable amount so caution is advised, and right now, we've recently transitioned from dark red (heavy appreciation) to lighter red (less appreciation), hence there may be some upside room in this basket.
  4. The white window shows the EMAs on the slope of the 65d EMA of price.  As I said above, the red line represents a 2d EMA and is a close proxy for the instantaneous VectorVest RT value.  Just as on the prior RT graph for GGT Longs we see that this value is positive but is showing a lower value than the recent peak, e.g. a slight loss of momentum.
  5. ALL the 65d slope EMAs are well above 0 -- indicating that this basket of stocks is still in an intermediate-term uptrend.  This is bullish.
  6. The 8d EMA of the 65d slope EMA is peaking and starting to trend down.  This is cautionary for this basket of stocks -- we're seeing weakness.  Again, this is by design.
  7. Observing the pricing and two volume windows, we see that Friday's price action resulted in a Doji on lower volume.  Doji's sometimes mark a change in sentiment, so we need to be vigilant.  Because this basket specifically excludes stocks that are above their historical price AND volume, and only reflects stocks that are above their historical price, this basket has a tendency to reveal early weakness in the underlying market.
  8. This basket of stocks is still well above the 50d MA and 200d MA, which is bullish.
Correspondingly, we can conclude from the HGSI graph that stocks in the GGT Long basket could be topping and may be poised for drop, or may just be experiencing a period of consolidation above their historical optimized levels.  Scanning this basket for stocks that have dropped in price on lower volume but are in industries that are moving upward is a favorite scan of mine ....

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GGT Cash

GGT Cash recommendations are generally made to any stock that may have a price above the historical optimum, but does not have volume.  This will keep us out of low-volume stocks that are falsely appreciating in price, e.g., sucker's rally stocks.

I'll continue the analysis with HGSI charts:



Let's analyze the chart above:
  1. The third ribbon from the top is the % Accumulation / Distribution gage.  We've been transitioning from green to now yellow, e.g., these stocks in this basket are being sold overall.  This is bearish.
  2. The fourth ribbon from the top is Elder's 13d Force Index.  Note that it is RED, which means that it is below 0 and this is bearish.  In general these stocks should be avoided unless you are cherry picking specifics.
  3. The 7th ribbon from the top, just above the white chart area, is the %B and Bollinger Bandwidth.  We see that it is yellow, which isn't bad, but coupled with the other bearish indicators, gives great pause at investing in these stocks.
  4. The white window plots the slope EMAs.  We see that EVERY EMA is below 0, e.g., overall, the stocks in this basket are LOSING MONEY on an intermediate-term basis. 
  5. Furthermore, in the slope EMA window, we see that the 2d (red) and 8d (green) EMAs are struggling, e.g., they are pointing downward.  Stocks in this group are in the process of losing momentum to the point that the intermediate-term EMAs are now pointing downward.  This is bearish.
  6. In the pricing window, which has a slight yellow background, we see that the 50d EMA (blue) is trending downward.  We also see that the index price for this group is below the 50d, which I tend to consider bearish.
  7. Finally, the bottom two indicators show volume (bars) and average volume (lines).  The upper indicator is the 50d MA, and the lower indicator is the 21d MA.  We see that volume on Friday was below both the average values.
Correspondingly, from the chart above, we can conclude that on the whole, stocks in the Cash basket are losing momentum, have short and intermediate-term bearish stances, and represent relatively poor volume plays relative to the Long groups.  Playing in this pool of stocks is very risky (although there are many that could reverse to long status ... more on that later in a separate blog where I cover the topic of strength/intensity).

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GGT Affirmed Cash

GGT Affirmed Cash stocks are basically stocks that are underperforming in price, relative to their optimized values.  These stocks were already in a cash status (New Cash, Affirmed Cash, or Cash), and essentially represent those that "are having their coffins nailed shut".

Let's see what HGSI has to say about this group:



Since we know the drill, here are the terse comments:

  1. 3rd Ribbon:  % Accumulation / Distribution is clearly in full distribution as a pink value.  This is bearish.
  2. 4th Ribbon: Elder's 13d Force Index is clearly RED, which is less than 0 and is bearish.
  3. %B and Bandwidth are dark green -- the stocks in this group are oversold and are at the bottom of their Bollinger Bands.  This can be construed as bullish, but you have to be laser-precise on cherry picking.
  4. The white window is the EMA slope window, and shows that the 2d (red), 8d (green), and 13d (blue) are all in a downtrend.  The stocks in this group are losing momentum very quickly, and it is systemic into the intermediate-term time frames.
  5. The slope EMAs are well below 0, indicating that we are losing anywhere between -$0.17 and -$0.36 cents per day on an index of ~$190.  May not seem like alot but this is not a trend line you want to invest within.
  6. The pricing window shows the 50d (blue) in a clear downtrend.  This is bearish.
  7. The pricing window shows the index of this group bouncing off the 200d.  Piercing this would be incredibly bearish.
  8. The bottom two volume windows both show that stocks in this basket lost value on Friday (red) and that they are are both with volumes higher than the 50d or 21d MA.  This is bearish and is considered distribution for this basket of stocks.
From the above graphic, we can conclude that GGT Affirmed Cash stocks are in a clear downtrend, are losing momentum, and are doing so on highe volume, which is considered distribution.  I personally avoid Affirmed Cash stocks at all times.

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GGT New Cash

GGT New Cash stocks were previously in some form of long status the prior trading day (New Long, Affirmed Long, or Long), but due to a severe price hit, have dropped below the optimum level relative to the recent past.  New Cash equities can certainly whipsaw back to a long status, but they need BOTH price appreciation and high volume to do so.  Note that volume is ignored to take a stock from a long status into a New Cash recommendation.

Here's what HGSI has to say about New Cash:



Here are the comments:
  1. These stocks have been in some form of long status the day prior, hence have been under accumulation.  Note that the 3rd ribbon from the top has moved from dark green (heavy accumulation) to light green (less than dark but still noteworthy).  This shows a trend change and the beginning of distribution, which is bearish.
  2. The Elder Force Index (13d) has just turned RED (4th ribbon).  This is bearish.
  3. The white area shows that the slope EMAs are mixed.  The 2d (red) is clearly in a downtrend, as is the 8d (green).  The 13d (blue) is peaking and slowing, as is the 21d (purple).   This is bearish for the shorter length EMAs but still bullish for the longer term EMAs.
  4. The slope EMAs are all above 0, so the intermediate-term is in an uptrend.  Note that the 2d looks to be the first to cross 0 from above, which will be bearish for the intermediate-term trend.  We expect this -- these stocks are all falling in price, knocking the trend of the basket downward.
  5. The pricing window shows that we had significant price drop on Friday, as evidenced by the red candle. 
  6. The pricing window shows that this basket of stocks has been losing steam, even when the market is showing upside growth (as previously shown).  New Cash stocks should be avoided, and if long positions are held and then they turn to New Cash, they should be sold.
  7. The pricing window shows that prices are right at the 50d EMA (blue).  I typically view any prices below the 50d level as bearish, and we just closed at this new bearish level.
  8. The bottom two windows show volume, the top one being 50d MA with volume, and the lower one with 21d MA with volume.  Both are higher than their MAs, which is bearish because it shows distribution by the big boys, AND more importantly, having stocks in this classification show falling prices on higher volume is NOT a requirement -- it's simply a tell of the market. 
This final graph tells us a tremendous amount about stocks that were holding up:  New Cash stocks were under accumulation but are now starting to be sold (% A/D), Elder 13d FI turning negative (change * volume is less than 0, showing distribution), and the slope EMAs are beginnng to point downward, showing loss of momentum.  I typically sell ANY equity that shows a New Cash recommendation without much hesitation.

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I hope that this helps you understand the six different GGT classifications.  Stock and ETF classifications can be found in the Yahoo GGT web site files section (for which you have to be a member) at

http://finance.groups.yahoo.com/group/GreekGodTrading/

If you are not a member, you can send a request with a short statement on why you want to join to:

GreekGodTrading-subscribe@yahoogroups.com

Sometime in the near future I'll discuss the concept of intensity/strength of a given stock, which can give us further insight on which ones have upside room to move.

I'm traveling the following week (March 1-5), so postings will be as I have time.

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Remember, you are responsible for your own trading decisions, not me.  Do your homework.

Leave a note below in the comments field if so desired.

Regards,

pgd

Wednesday, February 24, 2010

Potential timer signal change ...

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GGT has developed a timer that is based on the change of the Long-Cash Ratio (LCR).  The LCR is exactly what it sounds like -- the ratio of the number of stocks in the database with a LONG recommendation, relative to the number of stocks in the database with a CASH recommendation.  The current signal going into Tuesday, February 23rd was long, and Tuesday was the start of the 9th consecutive trading day with a LONG status.

With the close on Tuesday, February 23rd, the signal has transitioned to a Long-Cash (0) value.  If today (2/24) is a down day as far as the database is concerned, then I expect it will further transition to a CASH (-1) level, which would be bearish for long positions in equities.

Pay particular attention to the ADV/DEC in the major exchanges today.  One way to do this is to watch the data on the home page at http://www.finviz.com/, and you'll see an aggregate of all action for the day.  Individual index action is largely irrelevant, although the S&P500 index does contain the most stocks hence will be closer in representation to the ADV/DEC performance.

For the record, the LCR closed below 1.0 on Tuesday after hitting a high of 1.099 on Monday.  1568 stocks are indicated LONG going into Wednesday, and 1586 stocks are indicated CASH.  While the 13d/22d/34d EMAs of the LCR are all positive in direction (bullish), the day-over-day change is decelerating (bearish), and we need to watch this for a change in market sentiment.  Furthermore, the 55d and 65d EMAs of the LCR are trending DOWN, which is intermediate-term bearish.  We need these all to line up, either all pointing upward, or all pointing downward, to call a definative market trend.  Right now we are in transition, so I intend to protect profits.

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Remember, you are responsible for your own trading decisions, not me.  Do your homework.

Regards,

pgd

Friday, February 19, 2010

Notables from Thursday, February 18th

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Summary

The GGT price index continues to hit all-time highs on solid volume, which is bullish.  The GGT long-cash ratio continues to climb, which is bullish.  The LCR change timer is telling us to be LONG.  The GGT strength index has shown one-day weakness, which is divergent from the increase in price and increase in LCR, and if this continues on Friday, is indicating that we should protect gains and enter a contra hedge position as necessary.


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GGT Price and Volume Index

GGT price hit an all-time high of $23.08 on Thursday on 1.8M shares volume, which is 9% over average volume.  Note that we're decelerating on price changes day-over-day, and if this continues, we'll certainly reverse.  Nevertheless, we're still bullish -- higher prices on solid volume is good.

GGT LCR

The GGT Long-Cash Ratio continues to increase, now with 1521 stocks indicating LONG and 1792 stocks indicating CASH.  This gives a ratio of 0.849, which is up substantially from our low on 2/8 of 0.232.  Continued upward movement in the LCR is bullish, and we need to be positioned accordingly. 

GGT LCR Change Timer

The LCR Change Timer is still indicating that we should be LONG.  The LCR changeEMAs are decelerating from negative values or are positive in their indicators, which is bullish.

GGT Strength Index

The GGT Strength Index fell on Thursday from Wednesday's peak, which means that the stocks in the underlying database are weakening in price and/or volume.  This divergence from the Price Index as well as the LCR could be general noise, or it could be an early indicator.  Long-term, either the strength must improve with LCR for prices to keep increasing OR the LCR must reverse to match the decrease in strength, which signals a local top.  The strength index is at 0.79 on a scale of 0 to 1, and indicates that we are weakly overbought.  While we certainly could go up from here, if this action continues today, we should protect gains and/or enter contra positions near the close.  Look for higher market indexes today but on mixed, nearly 1:1 ADV/DEC levels by the end of the day to decide what to do.

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Remember, you are responsible for your own trading decisions.

Regard,

pgd

Wednesday, February 17, 2010

IsTuesday's action for real?

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Stocks rallied Tuesday, causing me to wonder if this is a head fake or if it's for real for a new sustained bull.  Obviously, either answer is equally possible, but let's look at the the tea leaves.

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Summary:

From a pricing perspective, price action is BULLISH.  Volume is average, which is NEUTRAL.  The Long-Cash ratio has been rising for the past 5 days and this is BULLISH.  The GGT LCR Change Timer is indicating that we should be LONG.  The GGT strength index is indicating that we are approaching overbought areas and that we should be conscious of locking in gains.

Opinion:
The indicators shown below have had their present state for several days, and the status of the strength index not withstanding, indicates we should be careful about entering long positions at this point.  Nevertheless, continued strength will be good on an intermediate basis, and I'm looking for a slight pullback to enter if the longer up-trend continues.

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GGT Price

GGT Price is constructed by taking 3313 stocks and perfoming a numerical average of the individual stocks.  These stocks are presently representing the three major exchanges and have volume in excess of 50K shares.  For Tuesday, February 16th, the GGT Price index hit $22.83, which is an all-time high since I started this index back in August/September 2008, taking out the high of 1/19.  This action is bullish.

GGT Price EMAs

I use the GGT Price EMAs, 13/21/34/55, to give me an idea of what the price has been doing relative to those time periods.  The deltas on these EMAs, e.g., what is their slope change on a day-to-day basis, is important because of the slope change is positive and the EMA slope is positive, then we are in an uptrend.  Conversely, the opposite is true.  When we look at the rate of change (ROC) in the slope change, we have an indicator of whether we are moving faster to the upside or downside.  The detlas on all these EMAs are positive, and have been since Tuesday, 2/9, which is bullish.

GGT Price EMA ROCs

The ROC of each of these EMA deltas is slowing, but are still all positive, which is bullish BUT indicates some weakness in this bull leg.  A 3-day smoothing EMA on these ROCs is showing that they are all positive day-over-day, which us bullish.

GGT Volume

GGT Volume is constructed the same way the GGT Price index is constructed.  The 50d MA of Volume is 1.65M shares, and we have had 28 days of sustained volume ABOVE the 50d average.  This indicates a strong and healthy market.  Yesterday's action was 1.87M shares, 13% above average, which is within the "noise" of a standard deviation and is unremarkable.  Upward prices on average volume is necessary, but not sufficient, for a sustained bull leg.  We'll color this green but the overall influence is more or less neutral.

GGT Long-Cash Ratio (LCR)

The GGT LCR continues to show strength at 0.569, indicating that there are 1201 stocks with a long recommendation and 2112 (Rush anyone?) stocks with a cash recommendation.  The indicator has rose continuously for the last 5 trading sessions, and this is a bullish sign.

GGT LCR EMAs

The GGT LCR EMAs are *just* showing signs of bullishness.  The 13d EMA of the change in LCR just turned positive, e.g., the slope of the 13d LCR EMA is now pointing upward.  This is bullish.  The longer EMAs -- 21/34/55/65 -- are still pointing downward but are decelerating in their negativity/becoming more positive, e.g., they are negative in absolute value, but if they continue this trend, they too will move positive.  The negative value of the LCR EMAs is BEARISH, but is negated by the deceleration, so I'll color this yellow -- bullish tendencies, but still bearish in indicator.

GGT LCR Change Timer

The LCR Change Timer, which is a timer that looks at the day-to-day change in the LCR and indicates which side of the market we should be on with respect to a short time frame, has been long since Wednesday, 2/10, and this is bullish.  If invested in the GGT index since inception in 9/08 using this timer you would have a total gain of 84%.  The performance of the timer has been relatively flat since 10/28, which would frustrate some of you.  Nevertheless, we should be LONG according to this timer.

GGT Strength Index

The GGT Strength Index is formed by looking at the individual strengths of each of the stocks, then averaging these, then normalizing these values between 0 and 1.  A 0 indicates very oversold, and a 1 indicates very overbought.  The strength index has moved up to 0.78, which historically, is in the territory for reversal (anything over about 0.6).  While there certainly is upside available, the probability of reversal, especially in horizontal trending markets, is greater when this has this value.

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Remember, you are responsible for your own trading decisions, not me.

Regards,

pgd

Friday, February 5, 2010

Notables from Thursday, February 4th

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I'm back in NoVA now after an abbreviated vacation in Orlando.  We came back early due to the pending storm....

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I watched with angst yesterday as the markets tanked and as each of my stop losses triggered.  I took a pretty significant hit across each of my portfolios, with only my wife's TSP account in "protection" mode.  Despite the hits we must continue to search for entries, as *this* is the time to buy rising industries and stocks.  Before I go there, let's take a look at the GGT stats.

GGT Price - Bearish

The GGT Price Index is at $21.40, which is down significantly from Wednesday's close of $22.17 and represents the lowest value attained since January 5th, when it was $21.35.  This was a -3.47% change from Wednesday, and is the 11th largest drop out of 273 trading days that I reviewed.  We have to go back to 6/22/09 to see a larger drop, and as many of you know, we did not start that leg of the bull until mid-July, nearly 3 trading weeks later.  While the past is no predictor of the future, when we have encounted such deep cuts in the past, the bleeding continued for a bit.

GGT Pricing EMAs -- Short-term Bearish, Intermediate-term Indecisive

The shorter term GGT Pricing EMAs (13/21/34) are both with a negative slope, e.g., they are falling.  The 55d EMA and the 65d EMA are still positive in value but are slowing.  Of particular relevance to me is the slope of the 65d of price, smoothed with another 21d EMA.  This has been falling since the 20th of January, and it crossed into negative territory on the 22nd and hasn't transitioned positive since.  Note though that this same 65d EMA of slope of the price is positive when smoothed with a 34d EMA, so we're in a transition place.  If the 55d and 65d slopes move negative, and if this 34d EMA of the slope of the price moves negative, then we know that the bears are out of hibernation. 

GGT Volume -- Bearish w/ Decreasing Prices

The GGT Volume Index continues to show incredible participation -- we had 2.5M shares trade yesterday, when normal 50d average GGT volume is 1.52M shares, which is 64% higher.  This is different than the 6/22/09 drop, which showed a large drop in prices on -9% lower GGT volume, relative to the average volume at the time.  I typically don't get worried when we have large changes in price on lower volume, but when we see large changes in prices on higher volume, we have to take notice.  This is a very bearish sign.

GGT LCR -- Trying to Move Upward from Oversold Levels

The GGT LCR moved lower on Thursday and is now at 0.302, indicating that 793 stocks in the database are LONG and 2627 stocks are CASH.  This is a whipsaw from Tues/Wed, when we saw Tuesday jump up to 0.469 from Monday, and Wed move barely higher to 0.479.  Two sustained days of the LCR moving upward triggered our LCR change timer to LONG, and if we had followed the rules, we would have entered stocks / ETFs yesterday if they had higher prices (use Elder!).  Obviously, Thursday's action was downward, and we would not have purchased any long stocks / ETFs.  If prices are higher today (Friday) we should enter short-term long positions to take advantage of a rally, but I would do so with very tight stops to protect any apparent profits.

GGT Strength Index -- Bullish

The GGT Strength Index is at the lowest levels since November 2008 (yes, 2008), and indicates incredibly oversold conditions.  If you have the kahonas, enter long positions if today's prices move above yesterday's high values.  In terms of ETFs, look seriously at the Direxion ETFs, which are 3x leveraged ETFs, and look at stocks that have been attractive but have been hammered more than normal as of late.  If you purchase long positions on higher prices than yesterday, set stops tight to protect any profits -- this could be a rocky ride!

Intermediate Term Trend Indicator -- BEARISH

We are below our GGT prices of 2 weeks ago --> bearish.  The GGT LCR value is below 1.0, e.g., more stocks in the database have a CASH recommendation than LONG -->  bearish.   Use caution on the long side, as the indicators are all showing continued weakness.

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Various Strengths of Indexes I Track

I track the constituent stocks in various indexes to see the relative GGT strength of each.  As you might expect, we were hammered yesterday.  The values after the index are normalized between 0 and 1, with 0 indicating completely oversold/new low and 1 indicating completely overbough/new high.  I have listed 1x and 2x long positions for the ETFs that move with these indexes.

DJ30:  0.22, fell 57% in strength from Wednesday (review DIA and DDM)
NDX100:  0.06, fell 82%, INCREDIBLY OVERSOLD (review QQQQ and QLD)
Brazil: 0.13, fell 52%
Russia: 0.19, fell 36%
India: 0.17, fell 56%
China: 0.23, fell 49%
SP500: 0.06, fell 84%, INCREDIBLY OVERSOLD (review SPY and SSO)
SP400: 0.08, fell 78%, INCREDIBLY OVERSOLD (review IJH and MVV)
SP600: 0.12, fell 57% (review IJR and SAA)
Russell 2K:  0.16, fell 50% (review IWM and UWM)

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Remember, you are responsible for your own trading decisions, not me. 

Regards,

pgd

Tuesday, February 2, 2010

Notables from Monday, February 1st

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LCR Change Timer - Bearish

The LCR change timer, which is a very quick timer, is continuing to indicate that we should be on the bearish side.  The LCR inched up Monday to 0.381, indicating that 944 stocks in the database have a long recommendation and and 2476 stocks in the database have a cash recommendation.  This timer is up a total of 88.5% when investing in non-leveraged funds for the period September 2008 to present, so it pays to listen to this system.

LCR EMAs -- Negative, but Decelerating:  Bullish

A decelerating EMA, when it is negative, means that it is still going negative, but at a slower and slower speed.  This means that if this trend continues that it will eventually go positive, which means (in the case of LCRs) that we have more stocks in the database changing to a long recommendation than those that are changing to a cash recommendation. 

The bearish stance of the LCR Change Timer and the bullish stance of the LCR EMAs tells me that we have a divergence and that we will either continue south (EMAs will begin dropping again) or that the change timer will move back to the long side.  Only time will tell.

GGT Strength -- Bearish, but Consider Long Hedge Positions on Strength

The GGT Strength Index moved up Monday from 0.02, which is very oversold, to 0.19, which I believe is still quite oversold.  This being said, we could bounce around here for a few days, so entry into a long hedge position on strength (e.g., use Elder's method of entering long ETFs when they move higher than the previous day's high) would not necessarily be a bad move.

GGT Prices -- Rising on Increasing Volume

The GGT Price Index is back above $22 at $22.02, and is doing so on average volume of 1.46M shares, which has been steadily increasing for the last month.  Our high-point bogey is $22.71, which we set on 1/19, so we have a ways to go.  We are presently 2.2% away from the top of a pricing channel, which shows that we have some upside room, relative to the recent past, and we are 3.8% away from the bottom of the pricing channel, which shows we have considerably more downside room available. 

GGT Price EMAs --Accelerating Upward

The accelerating nature of the pricing EMAs is in step with the decelerating LCR EMAs, showing that we have upward pressure within the database.  If this continues we will see highs in prices, and we will see the LCR move upward.  We also will see the LCR Change Timer reverse.  Again, hedge positions in long ETFs are warrented, provided that we are entering on strength.

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Remember, you are responsible for your own trading decisions.

Regards,

pgd