Friday, October 29, 2010

Churning, Elder is Long by a Thread, & How to Prune Your Holdings ...

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I had a nice dinner and conversation last evening with Bob Wilson here in Ft. Worth.  One of the topics was how to monitor/manage holdings.  I've no clue on whether this is the "right" approach, but it's what I do on (almost) a daily basis.

Many of you know that I moved my wife's Thrift Savings Plan (TSP) funds to cash last week.  This is a restricted account, meaning that I can only invest in what amounts to 3 funds that are closely matched in price by the following ETFs:  EFA, SPY, and VXF.

HGSI makes it relatively easy to make a snapshot of equal-weighting a portfolio of these equities.  Right now, if we review this TSP "Index", we have:



While we can debate whether I pulled the trigger too soon I moved to cash on 10/20, based on the signals seen in this composite view on 10/19 it looks like a good decision.  Specifically, the Elder 13d Force Index -- FI(13) -- moved negative, as did the MACD histogram.  Furthermore, even though the 13d and 34d slopes of these EMAs were positive in absolute value, they had a downward slope themselves (loss of momentum -- "the car is driving forward but slowing down"), and the index closure below the 8d EMA of price told me to throw in the towell.

Hence, given a fixed basket of equities, it is possible to create a fixed basket of equal-weighted items that can give you a good view of the "health" of the selections.  As you can see from the above presentation, the FI(13) flashed another down day on Wednesday, and the FI(13) using the SMA method moved to cash on Wednesday and has remained there.   Bottom line:  time to remain on the sidelines in the TSP funds.

==========

The next thing that I do is create a list in HGSI that contains all of my holdings across all accounts.  This is another equal-weighted basket of equities, and gives me a state of the overall health of my selections.  Here is a graph of my present holdings:


Here's how I evaluate my portfolio, and the process is the same for the constiuent stocks:
  • Bull Power:  Positive, which is bullish
  • FI(13) - EMA method:  green, which means it's positive, which is bullish
  • FI(13) - SMA method:  green, which is bullish
  • MACD Histogram: positive and growing, which is bullish
  • slope of 13d and 34d price EMAs:  positive, which means we are in an uptrend in the portfolio
  • "slope of the slope" of each 13d and 34d price EMAs:  pointing upward, so we are accelerating upward (car is moving forward and is accelerating)
  • Price series trading above the 8d EMA (green line):  bullish
  • Volume increasing over the last couple of weeks (blue line):  bullish
You may be surprised to learn that here are my holdings:

SKS, +3.03%
VVC, +1.03%
TMV, +1.25%
TBT, +0.94%
SKS, +0.31%
WEC, +0.25%
VXX, -1.85%
GLL, -2.43%
ZSL, -3.61%

The point here is that I can scan through these holdings on a daily basis, and can prune whichever one that I desire that isn't passing muster.

As I indicated yesterday, I dumped FXI and my 1% TSL triggered at the open.  Here's the chart as of last evening:



The process for individual evaluation is the same as the composite.  Here's my read of FXI:
  • Bull power moved negative which is bearish
  • FI(13) EMA method is red which means it's negative and this is bearish
  • MACD histogram is negative and growing more negative, which is bearish
  • The slope of the 13d EMA is below the slope of the 34d EMA, which is bearish
  • Both slope lines are pointing downward, so this is a loss of momentum.
  • The slope of the 13d EMA is almost crossing the zero line, so on this time scale, we are close to starting to lose significant money on a day-over-day basis.
  • The price series closed below both the 8d and 13d EMA lines
Hence, I think my exit of FXI yesterday morning was done at the appropriate time.

I suggest that each of you folks who are using HGSI evaluate your portfolio the same way, and for those of you who do not HGSI, you consider getting a 60-day trial.  It's a powerful charting program.

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The dashboard:


The GGT price index dropped slightly yesterday on normal volume, so more of the same.  We're in a holding pattern until mid-terms and the FOMC meetings are concluded.

The LCR continues to drop, indicating that we have further weakness in the database.  The value of 1.419 indicates that we have 1656 stocks with some form of LONG status and 1167 stocks with some form of CASH status.  I note with interest that we have not been this low in LCR since 9/10, and we were in an up-trend at that time.  The ability to pick stocks in an uptrend is definitely more difficult now, so caution is advised while the LCR is trending downward.  Note that the LCR has fallen 10 of the last 11 trading days.

GGT strength fell again, and is now against the artificial supprt line that I discussed yesterday.  If today is weak we will penetrate this support line, which I will consider another bearish nail in the bull coffin.

Overall, caution is advised.

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Short-Term LCR Change Timer

The LCR fell, hence this timer is solidly in CASH.  We are at least two days from a long call so there is no need to do anything here.

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Intermediate-Term Elder Force Index Timer

The bottom line is that Elder is still indicating that this is a good time to buy stocks.  The FI(13) is positive, the 13 and 34d EMAs are trending upward, so this works well for the present moment.

What you don't see but I can see because I calculate the real numbers is that we are within a day or two of the FI(13) moving negative.  If today bleeds any significant amount, either in price or volume, we could see a signal to move out of long positions in general.  Stay tuned.

Given that Elder is still indicating long, here are some candidates to watch:

SPN
CAR
FPO
FCZ
WB
CVC
STT
SF
AYR
PST
NLS

Obviously, a short list.  Take this as a warning shot.

========================

Today is a travel day, so I'm content to do nothing.

Make it a great weekend.  Please remember that you are responsible for your own investment decisions, and that I am NOT.  Take responsibility for your actions.

Regards,

pgd

Thursday, October 28, 2010

Sideways Markets, Some Ideas to Watch, Elder still Long

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I note with interest that China is getting hammered right now.  As I indicated yesterday, I unloaded my position in FXI with a 1% TSL, and good or bad, it fired as soon as the market opened, resulting in a 4.5% gain in about 20 trading days. I should have sold back on October 19th when the price closed below the 8d EMA, but c'est la vie.

The contra position to FXI is FXP, and there are a number of indicators which say we need to look closely at this equity:






On the bullish side of the arguement:
  • Of note is that Bull Power has moved positive.  Bull Power is the 13d EMA of price subtracted from the high price, and we want this positive.
  • Elder's Force Index using a 13d EMA -- FI(13) -- has just moved positive. 
  • The MACD Histogram is now positive for the third consecutive day, and it is growing in magnitude.
  • The slope of the slope of the 13d and 34d EMAs is pointing upward.  This takes some time to think about -- because the slopes of the 13d and 34d EMAs are NEGATIVE, but they are pointing upward, we are slowing in price depreciation day-over-day.  This is a necessary requirement for price appreciation.
  • Price gapped up yesterday above the 13d EMA, and it closed above the 13d EMA.
On the bearish side of the argument:
  • The FI(13), as calculated using a simple moving average (SMA), is still negative.  We like to see both the EMA and SMA methods move positive on the same day for a solid signal -- this one is wishy-washy.
  • The absolute value of the slopes of the 13d and 34d EMAs on price are negative, so on these time frames, we are losing in price appreciation.  Note though that because these are pointing upward, we are losing less slow (the car is driving backwards but is slowing down).
  • Volume has been decreasing for some time, so demand is not as high as I'd like to see.
While not shown, FXI still has a GGT LONG recommendation and FXP flashed a Affirmed Cash recommendation, so any entry right now would be quite risky.

Despite GGT, I will continue to watch the FXI/FXP pair, as I think there is some merrit to placing a partial position order in the event any positive action occurs.

=================

Brazil is another country that is experiencing some difficulties right now.   Here is what GGT has to say about Brazil's ETFs:





EWZ, the largest ETF by volume, signaled a move to cash on October 19th.  Additionally, the two other holdouts (BRF, BZF) finally moved to cash with yesterday's market, hence we're at a crossroads.  BZQ, which is the leveraged contra ETF for Brazil has not yet signaled new long because of the lack of volume.  Despite this, we may want to look at what is going on here

First, here is EWZ, the "normal" Brazillian ETF:


I've placed the cursor on 10/19, as this is when GGT indicated a move to cash.

As you can see above, GGT and Elder are in good agreement that October 19th was the signal date.  This was also the first date the MACD Histogram moved negative, which told us that this run was in trouble.  Bull Power was barely positive on this date, but Bear Power (the low of the day is subtracted from the 13d EMA) was very negative, showing us that the bears were in control.  2 days later the slope of the 13d EMA moved negative, confirming that we should not be in this equity any longer.

BZQ is the leveraged inverse of EWZ.  Here's the chart:



Here, BZQ is showing some preliminary strength.  Here's the bull case:
  • Bear Power is positive, and has been since 10/19
  • Both FI(13) methods were positive as of 10/21, allowing us to enter this ETF
  • MACD Histogram is positive since 10/19
  • The slope of the 13d EMA is positive in absolute value
Here's the bear case for BZQ:
  • The slope of the 34d EMA on price is still negative
  • The momentum indicator -- the "slope of the slope" of the EMAs, is downward for both the 13d and 34d slopes.  We're losing some steam right now in this ETF
  • The 13d EMA is still below the 34d EMA -- we are not in a confirmed uptrend on this ETF.
  • The range of BZQ is bumping against the 8d EMA, and sometimes opening/closing below this level, which is not necessarily a raging bull.  We need to see further opens/closures above the 8d EMA to get a positive buy signal
Like FXP, I think BZQ warrants further watching. 

I think that there is a strong argument that the floor is in on the dollar trade, as measured by the UUP/UDN pair.  Here's UUP's chart:


Yesterday's action was solidly bullish, and had I been watching two days ago, we would have had a good entry point.  Now we need to wait for a FI(2) pullback, which may actually be occuring today (Thursday).  Here's the bullish arguement for UUP:
  • Bull Power is positive (as is Bear Power).
  • The MACD Histogram is positive and growing in magnitude since the negative-positive transition day
  • The slope of the 13d EMA has just closed in positive territory.  This means that on a 13d basis we are appreciating in price at the rate of $0.0025/day (not much, but it's a start)
  • The acceleration of the equity is positive, as measured by the "slope of the slopes". 
  • We have traded 2 days now above the 8d EMA
  • Volume has been increasing since mid-October
The bearish arguement for UUP is weakening but still exists:
  • The slope of the 34d EMA of price is negative.  This means that we are losing value on this time scale at a rate of -$0.0197/day.  Ideally, we want this to be a positive value.
  • The 13d EMA is still below the 34d EMA of price.  We are not yet any where near confirming that this equity is in an uptrend, hence it is risky.
Keep watching, and enter a limited position (I will chose 20%) if the Elder FI(2) moves negative then transitions positive.  Right now it is positive, so purchasing is extended on a short-term basis. 

Patience.

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Here's the dashboard:


Our price index fell yesterday by -0.34% on volume that was 8% above the 50d MA, so this was a normal, ho-hum day.

The LCR fell -14%, landing the day at 1.614.  It has now fallen 8 of the 9 past trading days and indicates that a number of stocks have fallen in value.  As a point of reference, out of these 9 trading days the GGT index has only netted +0.3%, so we are going nowhere at the present moment.

Database strength continues to weaken, and is now at 0.594, indicating that we're in no-man's land in terms of whether we'll go up or down from here.  We are nearing an artificial support line so if we penetrate this, I think we'll move down further from that penetration level of the price index.  Here's the chart I'm referring to:




The next few days should be interesting.

There is no change with respect to the LCR EMA slopes -- they are all pointing downward, which is decisively bearish.  Here's the chart since I did not post it yesterday:




As you can see, the 5d EMA is below the 8d EMA, and the 8d EMA is below the 13d EMA with respect to the LCR.  On these time frames we are losing stocks rapidly to the CASH side of the recommendation list. 

Further, as you can see from the right-hand side of the figure, all of the LCR EMA slopes are pointing downward.  This suggests that on all time frames (5d to 65d) that you had better be pretty darned good at picking winning stocks, because the database is shrinking rapidly on all time scales in terms of available candidates.

Dangerous waters indeed.

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Short-Term LCR Change Timer

The LCR fell on Wednesday, resulting in this timer moving solidly back to CASH.  We are at least 2 days from a long signal, and obviously, both of those days have to be up days with respect to the broad market.  We'll see.

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Intermediate-Term Elder Force Index Timer

The FI(13) is still positive, as indicated by column 12 of the primary GGT dashboard.  This is telling us that we can purchase stocks on the long side.

The slope of the FI(13) is downward, but only for 1 day, so we are not in any trouble here.

The pricing 13 and 34d EMAs of the database price are pointing upward, so we are in a definite uptrend.

Based on all of these conditions, this timer says that it is okay to purchase stocks long and that this is an ideal pull-back situation.  Correspondingly, here is the list of candidates:

URG
GAME
MITI
DECK
GSIC
FBCM
SCHS
AMMD
CLS
MFC
ISLE
C
SHLM
AFFX
ENH
DHF
MYI
ADLR
TROW
CACI
QGEN
RA
KRG
VLNC
GIM
FCJ
STRI
PPDI
PM
EWT
FDO
ONXX
PETM
HRS
IGT
PWRD
LO
CDNS
AVAV
XTXI
TSLA

Ensure that you are moving on these only if they have the prorated volume (discussed in other blogs on this site) and if they are higher than yesterday's high by at least a few pennies.

====================

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

Regards,

pgd

Wednesday, October 27, 2010

Elder still long, LCR continues to fall, so caution is advised

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A number of my holdings are rolling over, and because of this, I've been slowly moving what positions remained into cash. 

I sold EWO yesterday, having bought it back at the end of September.  Here's the chart:


Althought the FI(13) is still positive for EWO, you can see that the MACD histogram is negative, and has been for several days.  I didn't see any reversal occurring in the short-term future so this was the most convincing indicator for me.  Further, you can see that the slopes of the 13d EMA and 34d EMA on price are both trending down, with the 13d slope < 34d slope.  Although both are positive, there isn't any real movement upward, hence this confirmed that it was time to sell.

Overall gain was about 9%; Hsin is tracking in real time and he can weigh in as to what the actual gain was.

I purchased SNDA a few days ago but it has gone nowhere.  Further, my position is down -2.06% and the Elder FI(13) just moved negative, hence I'll put a 1% TSL on the position and cast it to fate.

FXI is another position that I'm cutting lose today.  I purchased back in September and have a gain of 7.6%, but the MACD Histogram just moved negative with yesterday's action and with the interest rate increase in China last week, I don't see this one continuing upward from here.  We also have dropping slopes on the 13d and 34d EMAs, which is not good and indicates a complete loss of momentum.

My have 11 open positions at the present time.  Due to a order-entry error on my part, I have two positions in SKS in two different accounts.  SKS is doing the best, up +5.73%, and VXX is doing the worse, down -4.15%.    Here's the scorecard:

SKS, +5.73%
FXI, +7.60%
SKS, +2.95%
VVC, +0.86%
TBT, +0.72%
TMV, +0.97%
PLXS, +0.4%
WEC, +0.09%
SNDA, -2.06%
AGCO, -3.32%
VXX, -4.15%

VXX has been my hedge and I anticipate that it will move northward as the market consolidates.  I've only a small position in it and will add another 20% position on strength today.

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Here's the dashboard:




Our price index dropped from $26.38 to $26.35, so it is barely worth noting.  Volume was constant relative to Monday as well as the 50d MA, so once again, we could state that we're churning.  Either this is a new base or it is going to drop from here.

Voltatility continues to drop, and I generally like to see this occuring when prices are actively moving higher.  I would not be surprised of a retest of support levels from here if volatility continues to drop, as more people will begin to acquire protection in the form of options since the prices will be so low.  We'll see.

The Long-Cash Ratio (LCR) dropped a slight amount on Tuesday, and our strength index dropped also.  Hence, we have a slight weakening across the board on normal volume, so we are seeing a bit of consolidation occuring in general.

I've been presenting the "slope of the LCR EMAs" over the past few days; no changes there.  We are continuing to see negative slopes in the LCR EMAs, and this means that we are decreasing the size of the pool of stocks to choose from that are moving up.  Your stock picking skills must improve when this occurs, so venture forth as your risk profile dictates.  I'm watching the contra ETF world carefully.

Early candidates that are showing price and volume accumulation in the leveraged contra world are:

DTO
DZZ
GLL
BZQ
DUG
ZSL

Disclaimer:  I purchased 20% positions in ZSL and GLL in premarket trading.

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Short-Term LCR Change Timer

Because the LCR did not advance higher, we are sitting at CASH-LONG (0).  If the LCR drops today (watch http://www.finviz.com/, the ADV/DEC ratio) then this will reset to CASH (-1).  If the LCR moves upward today then this will transition to LONG (+1).

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Elder Force Index Intermediate Timer

Elder continues to indicate that we can purchase stocks long, the continued weakening in the LCR notwithstanding.  Here's my list:

APKT
AIXG
AWF
LNT
ALY
ARBA
AWI
APL
FRA
BKT
CSL
CI
CLWR
RNP
DIOD
ENS
ERES
ERIC
EXPE
HITT
MU
NSM
POWI
SANM
SWI
STM
SNCR
SVR
TRGT
TITN
UTEK
V
XRX

Ensure that you have volume and price entry above yesterday's high before moving on anything in this list.

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

Regards,

pgd

Tuesday, October 26, 2010

Elder FI(13) Long + LCR EMAs Pointing Down = Mixed Signals

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Good morning from Dallas-Ft. Worth.  Let's get a view of the GGT universe:


The price index moved upward +0.57% on Monday on normal volume that was +4% above the 50d MA.  As far as the close was concerned it was a ho-hum day, but if you look at the intraday, you see that we gave up much of the gains of the morning.  An up day is an up day, so we should have seen our portfolio rise.  My personal portfolio rose +0.17%, the lower amount than the GGT price index simply because I'm mostly in cash.

The Long-Cash Ratio rose yesterday, moving upward +12%.  The LCR is at 1.889 and indicates that more stocks in the database are LONG than with a CASH recommendation.  This rise in the LCR broke a 7-day streak of falling, so we'll see today if the trend continues.  Here is a detailed snapshot of the LCR status:



The left area shows us that the 8d EMA of the LCR is below the 13d EMA of the LCR, which is bearish.  The remainder of the EMAs are aligned properly (13d  > 21d > 34d > 55d) which is bullish.

The right area above shows us that across the board, from the 5d to the 65d EMA, that the slopes of these EMAs are all pointing downward.  This is very bearish for stocks in general and until we see this reverse, I'm remaining mostly in cash.  We need a significant up day to reverse the right side of this graph, and with futures down mildly as I write this, I don't think it will happen today.

Back to the primary dashboard.  The 6th column is the strength index, and like price and the LCR, it moved upward from 0.641 to 0.759.  This is bullish for the day and shows why we moved up overall in the price index.

Hence, overall, we are experiencing mixed signals.  We have a solid increase in the price index, the LCR, and the strength index.  This occured on normal volume, so we can lable the day as bullish.  We have a head-wind though, and with the slopes of the LCR EMAs all falling, we're definately in trouble in terms of bleeding within the database.  With history on my side I am choosing to remain mostly in cash until we get these LCR slopes turning green.

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Short-Term LCR Change Timer

The timer has transitioned from CASH (-1) to CASH-LONG (0), so if today is an up day, as measured by the ADV/DEC line at http://www.finviz.com/ at 3:30-3:45-ish, moving into short-term holdings could be a good move.  I note that the VTI has been in cash since September 23rd, and on this date the price of the VTI was $57.60.  Yesterday's closing price was $60.77, or an increase of 5.5%.  Aside from the waffling within the normal LCR Change Timer, the internals simply have not been in sync with the VTI, preventing us from entering.  Frustrating, but I intend to stay with my timer.

If today is up significantly, at least in a ratio of 14/10 as measured by the ADV/DEC value at http://www.finviz.com/ then I will most likely take a position in VTI, QLD, and/or UWM.

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Intermediate-Term Elder Force Index

Columns 12 -16 of the dashboard address the Elder 13d Force Index.  It presently is positive, which is the primary gate for entry into stocks from the long side.  The slope of the FI(13) is positive (column 13), which shows strength in general within the database.  The slopes of the 13d EMA and 34d EMA on price are both pointing upward, which also is showing strength in the database.  When we wrap all this together we have green flags waving to move into the market from the long side.

Of course, Elder makes no use of the slopes of the LCR, so these two signals are beating against each other.  This should cause you to pause at jumping in with both feet.  This being said, here's my list for intermediate-term entry:

AEL
KELYA
MNTA
VVTV
EGP
LMT
EXP
NCV
PNC
FCT
COL
S
MKC
DHR
SO
MRVL
IDG
AGCO
COT

If you look at this list, ensure that you have volume AND price appreciation before entry.

===================

Remember, you are responsible for your decisions, not me.  Please take ownership for your actions.

Regards,

pgd

Monday, October 25, 2010

Short Term Bounce Likely, but it is Raining in LCR-land...

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Greetings from Blacksburg, Virginia, where VT put a hurting on Duke Saturday, 44-7.  It was a great day for football, and any day I can watch my Hokies with my family is a special day. 

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Overall, we have to be careful in the markets.  It's hard to make this arguement convincing to you when the futures are pointing upward, but remember, my time frame is much longer than a day. 

Let's start with the dashboard:



Our price index moved up a large amount on Friday, +1.16%, on volume that was significantly lower by -16% than what we've been experiencing.  Although this volume is still within a standard deviation of normal volume, it does give me a great deal of pause to see such a surge in prices on what I consider really poor volume.  If you doubt this, wouldn't you rather see the gain in prices on volume that was knock-the-ball-out-of-the-park?  Thus my point.

Consider this cautionary signal #1 from Friday.

The Long-Cash Ratio continues to fall, which is bearish.  A question came up between Hsin and myself on Friday about what the LCR really is telling us.  Let's look at how the LCR is constructed so that everybody has the same reference point:

Every stock in the database has one of 6 classifications, and 3 of these classifications fall onto the LONG half of the court, and the other 3 fall onto the CASH half.  If a stock has LONG classification (New Long, Affirmed Long, Long) then it is trading above an optimized threshold that was determined by looking at price and volume over some time frame in the past.  Conversely, when a stock has a CASH classification (New Cash, Affirmed Cash, Cash) then it is trading BELOW an optimized threshold that was determined by LOOKING AT PRICE ONLY.   Hence, we have a gate-process:  we need to have large price+volume to move into a LONG position, but we only need a breakdown in price to move to CASH.  This ensures that we have demand for a stock when we see price move upward.

When the LCR continues to fall, the database stocks are losing in price value, triggering a move from LONG to CASH.  This means that your ability to pick winning stocks MUST IMPROVE, because the numbers are against you.  We have had 7 consecutive days of falling LCR -- how many of your stocks that you have purchased in this time frame have gained in value?  How many have moved sideways?  How many have lost ground?

So enter the present status of the LCR.  Refer to the figure below:



I've posted the figure above a couple of times this past week.  The left columns show whether a specific EMA of the LCR is above the next longer EMA.  Shown is the fact that since 10/20/10 the 8d EMA has been below the 13d EMA, which is bearish, but the remainder of the long EMAs are above their next adjacent EMAs, which is bullish.

Creating more of a problem is the slope of the EMAs, which is shown in the 6 rightmost columns.  These start with the 5d and include the 65d, so I'm covering many different time frames.  As you can see, all of these have been pointing downward since 10/19/10, and the 5d actually started back on the 15th.

What is significant about this is that if I use just the 65d EMA slope signal and the daily change of the GGT as an index, here is what I get
  • 9/1/10 - 10/18/10:  Bullish Period,  Gain = +12.834%
  • 8/11/10 - 8/31/10:  Bearish Period, Gain = -9.509%
  • 7/8/10 - 8/10/10:  Bullish Period, Gain = +11.76%
  • 6/29/10 - 7/7/10: Bearish Period, Gain = -4.214%
  • 6/15/10 - 6/28/10: Bullish Period, Gain = -1.762%
  • 4/27/10 - 6/14/10: Bearish Period, Gain = -9.327%
You get the idea.  This trend holds quite well and can be improved with some tweaking, but the raw results are shown above. I conclude that fighting the markets with attempts to go long during bearish periods would have been extremely dangerous to your portfolio value.

Now look at the figure again.  We've been bearish across the board with declining slopes since 10/19/10.  Do you think you should be long right now?

The concept of time frames is very important when we look at the market.  I've established above that the LCR is falling across the board, measured from a 5d EMA to a 65d EMA.  How do we determine a local bounce?  Take a look at the next graph:



The figure above shows us that on the three time frames indicated that we are losing ground in terms of the slopes of the LCR EMAs -- they are all in the pink zone, so the slopes are down, e.g., more stocks are moving to cash.

Note though that on a shorter time frame that we have a recovery upward from the huge drop in LCR values that occurred last week -- we are moving upward on the 13d time scale -- the slope of the slope is positive.  So while the LCR is dropping (pink zone), it is doing less rapidly day-over-day, which points us towards a local bounce.  On a short-term basis we are bouncing upward in terms of the rate that stocks are bleeding from LONG to CASH -- fewer are moving to CASH day-over-day than did after the spike down last Tuesday.  This is short-term bullish but note:  WE ARE STILL LOSING GROUND IN THE NUMBER OF STOCKS TO CHOOSE FROM.

================

Back to the dashboard.  The GGT strength index, which is made up of a number of items related to price, volume, and rate of change, appears to have found a local bottom at 0.641.  This is an oscillator that moves between 0 (extremely oversold) and 1 (extremely overbought).  The present value is telling us that we have considerable upside room available, but it also indicates that we have a large amount of downside room that could appear.  This has been rising for the last 3 days and is a bit of a divergence from the LCR, so again, we must take heed and try to understand what is occuring.

I note with interest that although the strength index has been rising for the past three days, the GGT Price Index has gone nowhere -- it is only up +0.15%.  Again, because the LCR has been dropping, it's more difficult to find stocks that are moving upward. 

Here's a plot of the Strength Oscillator with the GGT Price Index:




As you can see above, we've certainly had an upward-trend in the strength index as measured by the lows when we have reversed.  Because this is an oscillator and we are bound by a value of "1" on the top we have an upward sloping wedge, so penetration of this wedge from above could only be considered bearish.  We'll have to wait and see but certainly the graph supports that we could have a local run-up from here.

==================

Short-Term LCR Change Timer

Because the LCR fell on Friday the LCR Change Timer has remained in CASH.  Hence, on a short-term basis, I too will remain in cash.

==================

Intermediate-Term Elder Force Index Timer

Columns 12-16 of the dashboard focus on the Elder system.  Right now, the Elder Force Index (13 EMA) is positive, indicating that we can go long in stocks.  The slope is downward, but only for the past day, so this could be a good buying opportunity across the board.  Both the 13d and 34d EMAs on prices have slopes that are pointing upward, so we have a bullish indicator there too.  This timer is telling us that across the board, and falling LCR not withstanding, that we can move long into stocks.

Here's my list of Elder candidates for today:

AYR
AEP
AMMD
NLY
LFC
DCT
TMV
FGP
FIS
GVA
JEF
LPX
MAC
MFC
MCY
MET
NABI
NUVA
TBT
QGEN
RBC
SNDA
TIN
VVR

Note that these all have upward-trending 34d EMA slope lines, and they all are in some form of LONG status as far as GGT is concerned.

Note that FGP and SNDA are both "Affirmed Longs" so these are signaling strong performance as of Friday's action.

My holdings have been getting thinner and thinner over the past few days.  As I indicated last week, I moved my wife's TSP account completely into cash.  Here's the scorecard:

EWO +8.66%
FXI +6.43%
VVC +0.08%
SKS +0.04%
WEC -0.09%
AGCO -0.48%
PLXS -1.24%
TBT -1.55%
SKS -2.59% (2nd position in this stock)
TMV -2.62%
VXX -4.81%

For the week my invested portfolio fell -1.26%, which is disappointing.  In the big picture, I lost less than 0.05% in total net worth, so hardly worth worrying about.  I simply hate taking losses though.

====================

Trading Plan for Monday

Today is a travel day to the Dallas/Ft. Worth area, where I will be the rest of the week.  I'll attempt to review the stocks above, and with futures up strongly as I write this, many should launch out of the starting blocks with strength.  The falling LCR has me worried though that this is a short-term sucker's rally, so I will pick my entries carefully.

I'll most likely sell my positions above on strength, or at least place a 1% TSL on those positions after they rise today (e.g., place the TSLs on the gainers tonight).  As far as the losers, especially the VXX position which is my hedge, I may try to add another 5-10% position in VXX at the end of the day if we are showing strength throughout the day.

===================

Remember, you are responsible for your trading decisions, not me.  Please do your diligence.

Regards,

pgd

Friday, October 22, 2010

LCR Falling, Elder still LONG, Contra ETFs Stirring

.
The GGT price index fell -0.12% on volume that was 13% above the 50d MA.  The level of the fall in price is within the normal market noise, so I don't think we can read too much into it.  Further, it wasn't at the bottom nor the top of the range, so neither the bulls nor bears were winning at the end of the day.

More of the same ...

The Long-Cash Ratio continued to drop, landing at 1.719 and indicating that we have 1846 stocks on the LONG side and 1074 stocks on the CASH side.  The trend for the LCR is downward, and has been for the last 5 trading days.

I draw your eye to the following chart:



Note that ALL of the primary EMAs on the LCR are pointing downward.  Independent of Elder or other intermediate timers, investing long right now for an intermediate-term investment is risky.  This is a dangerous trading environment, and you are clearly swimming upstream if you think you can hold positions for any duration of more than a few days against the current of the database losing intrinsic value.

I moved a substantial amount of my wife's funds to cash two days ago and this appears to have been a good call given the chart above.

Can we bounce from here?  Sure.  We are already starting, according to this next chart:



This chart is determined by looking at the daily difference of various EMAs on the LCR.  This is my favorite "slope of the EMAs" chart, and when the points are in the pink area, we're losing ground.

The chart above indicates, because all the points are in the pink area, that on a day-over-day basis, stocks are bleeding in terms of having a LONG call prior and now having a CASH recommendation.  The RATE of BLEEDING is slowing and reversing, which is a necessary condition for another up leg.  Hence, if you are short term AND you have a few-day horizon, this could be a good entry environment.  This being said, we could play in this area for a really long time -- simply look at the points in the May 2010 area to understand what I'm saying.  "Venture ye at your own peril ..."

=================

Short-Term LCR Change Timer

The LCR fell on Thursday, resulting in the timer remaining in CASH.  Hence, I'm in cash and will remain here with my short-term holdings.

=================

Intermediate-Term Elder Force Index Timer

A picture is worth a 1000 words ...



On the bullish side:
  1. Bear Power is strongly positive
  2. The Elder FI(13), both EMA and SMA methods, is positive
  3. The Elder FI(2) is indicating a good entry point for stocks
  4. The slopes of the 13d and 34d EMAs are positive, so on these time scales, we are in an up trend
  5. Prices are above the 13d EMA
  6. Volume is above the 50d SMA of Volume
On the bearish side:
  1. The MACD Histogram is 2days now with a negative value.  We are losing momentum across the board
  2. The slope of the 13d EMA is below the slope of the 34d EMA.  Both are pointing downward.  We are accelerating DOWN, not up, across the entire database.  Yuck.
  3. We have several down days on higher volume.
The indicators say that we can buy Elder stocks long, so here's the list of the most strong:

MBLX
TWER
URZ
KSU
CFFN
DB
BMO
CYOU
NTLS
BF
OPTR
OFC
DPZ
CLMT
DCT
CL
NNN
LNT
XLU
WTR
FIS
AMRN
WOR
CRIS
IGI
ASTM

Note that I think entering these with no consideration of the falling LCR EMAs is a very risky proposition, but your crystal ball is as good as mine.

[Side note:  In watching pre-market action this morning, one of my holdings, FXI, the Xinhua 25 ETF, has seen a large transaction -- 1.5M shares in a quick series of trades:




That is an amazing volume for pre-market.  FYI only. ]

===============

Contra ETF Watch

It's hard to ignore the contras right now.  Although they are struggling to move upward, they are getting closer and closer to signaling entry across the board.  In support of this statement I provide the following:



The figure above shows what GGT has to say about various contras in the database.  As you can see, many of these are good on volume and have been signalling strength (look at the Affirmed Longs -- I hold TBT).

Here's what the index is doing in general:



We're very early on Contra ETFs, but I believe we need to watch this group like a hawk.  Here's why:
  1. Bull power is -0.04 and is within reach of moving positive.  This is a requirement for any major long positions in contra ETFs.
  2. The MACD Histogram is positive now, for the past 3 days.  THIS is really important, as it shows that the group is picking up momentum.
  3. The slopes of the 13d EMA and 34d EMAs have crossed from below, and this means that we have upward momentum as a group.  DESPITE this, the values of these slopes are negative, so overall, we are losing money on these time frames, but are now doing it with less bleeding day-over-day.  THis is bullish.
We are early in Contra ETFs, and here is the case why we're early:
  1. Both FI(13) calculations (EMA and SMA) are negative.  We want these positive.
  2. The value of the slopes of the 13d EMA and 34d EMA are negative, as stated above.  We are losing real dollars in this index at the rate of -$0.09/day for the 13d EMA and -$0.20/day for the 34d EMA.
  3. Price of the group is trading below the 13d EMA, which is below the 34d EMA.
All this being said, watch the following contras:

SKF
EUO
EDZ

==========================

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

Regards,

pgd

Thursday, October 21, 2010

LCR - Price/Strength Divergence, Bulls Resuming Control?

.
Let's start with the facts ...


GGT Price increased on Wednesday by +1.13%, ending the day at $25.96.  Volume was up 15% over the 50d MA.  Rising prices on higher volume is bullish, as we all know.

The Long-Cash Ratio (LCR) FELL -2% despite the price and volume increase, which is a divergence.  Because volume is not considered in the move from LONG --> CASH this tells us that while the average price of the database increased +1.13%, the number of stocks that performed worse than their historical, optimized price levels increased.  It is possible to have a stock rise in price but not meet the optimized threshold level, thus moving it to a CASH recommendation.  This appears to be the case for numerous stocks, and points to a weak day.

The price/LCR divergence is problematic for a sustained, healthy bull, and while my crystal ball is only as good as yours, this needs to be rectified for us to continue higher.  Either we'll see LCR reverse and march lock-step with rising prices (bullish, healthy), or we'll see prices reverse and fall with a decreasing LCR.  I don't predict the future, I only watch that occurs, so stay tuned.

Despite the move upward yesterday in price, the slopes on the LCR EMAs did not move up.  Here's the status:




Note that the 8d EMA on the LCR is now below the 13d EMA.  This crossing from above is bearish for stocks on the long side and is a loud shot across the bow of USS InvestLong.  Furthermore, note that despite the large increase in prices on higher volume, that ALL of the slopes of the LCRs, from 5d to 55d are pointing downward.  OUCH.  While this may be a good entry point, it could also be a good jumping-off point.  Time will tell...

The GGT strength index moved upward from 0.528 to 0.636 on Wednesday.  This value is comprised of price, volume, and price rate of change, and the increase is in sync with prices, which I consider bullish and healthy.  The present value certainly suggests that we could move upward from here, as there is plenty of stocks to fuel a move higher, so while this is not a probability, it does say the odds are better than 50/50 that we'll move upward on a relatively short-term basis.


I haven't posted the above chart in some time -- it shows the GGT price series with the strength index.  As you can see, it's been some time since we've been below the 0.4 level, and failure of the markets to drop enough to cause this to occur suggests that there is still gas in the tank.

So, we have a divergence.  Price and strength went up on above-average volume, yet the venable LCR dropped.  We need the LCR to rejoin the direction of price/strength in order to have any confidence in the markets, so I'm still calling this a dead-cat bounce and we need to watch carefully before committing large sums of money to the long side.

=================

Short-Term LCR Change Timer

Yesterday saw the markets advance in the ADV/DEC line at http://www.finviz.com/ at a 4778/1473 ratio, which is very bullish.  The ST LCR change timer uses the LCR, not the ADV/DEC data, and despite the fall in LCR, transitioned from CASH (-1) to CASH-LONG (0).  It did this because the magnitude of the change in LCR was -2%, and coupled with an adaptive filter, it moved upward.

If today is an up day as far as the ADV/DEC line is concerned at 3:30-3:45-ish it could be prudent to move into a long position in VTI, QLD, or UWM.  Note though that with the divergence in LCR and price/strength this move is more risky, as these three need to work themselves out and synchronize.

=================

Intermediate-Term Elder Force Index Timer

FI(13) continues to be positive (column 12), which is bullish.  The slope of the FI(13) is upward, so it too is growing in magnitude away from the 0-crossing, which is bullish.  The slopes of the 13d and 34d price series are upward, which also is bullish.  Correspondingly, we have had a whipsaw in the Elder FI timer and we are fully long again.  While tempered by the aforementioned divergence and the fact that the LCR slopes are all pointing downward (database is not as healthy as we would like), we must believe our indicators and we must search for long positions to enter. 

67 securities meet the initial Elder screening criteria.  Here are the strongest ones:

DSW
EBS
TSI
UBSI

Not a very compelling list.

Here are a couple of special candidates with some commentary:

SKS -- interesting in that if it can continue upward above $10.70+, we could continue nicely.  Note that there is no engulfing pattern to the prior few days, so no apparent resistance.

LANC -- There is nothing preventing this one from moving upward as far as I can see, and it is building a nice right side to a base.

DSW, despite the double Doji the last two days we've seen some good consolidation.  I'm looking for volume higher than 700K and a positive change to enter.

RGR needs to clear $15.79 on solid volume, but watch for this one.

I'm watching PEET to move higher than $37.75 on solid volume... again, building a right side to a base.

XIDE above $5.70 on good volume looks interesting too.  The right side of the cup-and-handle is clearly visible and while we've not consolidated in the handle, we have been consolidating in terms of volume.

=================

The Contra Watch

With the close of TUEDAY's markets, contras signaled
  1. an early FI(13) EMA moving positive,
  2. a crossing of the slope of the 13d and 34d EMA lines from below,
  3. a new MACD histogram going positive, and
  4. a closure in the contra index price above the 13d EMA line. 
Wednesday's market action undid much of this.  Here's the chart:



This appears to be a false breakout:
  • Bull power has moved negative.  The contra bears (a.k.a long bulls) are regaining control
  • Both FI(13)'s are now negative
  • Index price closed below the 13d EMA, which is bearish for contras (bullish for longs)
I note though that the slope of the 13d EMA is above the slope of the 34d, so we are still bullish for contras.  The MAGNITUDE of these slopes is negative, which means we're losing money in contras day-over-day, but we're doing so less fast. 

I also note that the MACD histogram is still positive.

Contra positions should be avoided, but note, they are firmly establishing a floor.  Don't lose sight of this because once the floor is in, there is no place to go except upward, and I plan to make some coin on this as it unfolds.

=====================

Trading Plan for Thursday

With respect to the short-term LCR Change Timer, I'll be watching the markets about 3:45 at FinViz.com and may enter VTI if we look strong in the last hour.

With respect to Elder, you see my candidates.  I'll be watching them throughout the day for price and volume entry thresholds.

I'm shying away from contras at the present moment.

I have a number of positions with 1% TSLs, GTC, that have been riding for the last two days.  I will most likely remove these TSLs.

Note, I have moved my wife's TSP funds (http://ggt-tsp.blogspot.com/) to cash, as we had some signals to do so.  While this may get reversed over the next day or two, it is prudent to protect the 6%/month gains that we've achieved.

====================

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

Regards,

pgd

Wednesday, October 20, 2010

@ Crossroads, Potential Buying Opportunity, Potential Dead Cat Bounce

.
The dashboard:


The GGT price index fell on Tuesday by -2.02% on volume that was 28% higher than the 50d MA.  Falling prices on higher volume is the definition of a distribution day, to steal from William O'Neil's dictionary.   Looking back down columns 2 and 3, you can see that 10/14 and 10/15 could be classified as distribution days, but not as severe.  Three of these days within a week or so is problematic for our current portfolio, although I can't call this bull leg dead yet.

This next graph shows a nail in the bull-leg coffin:



The graph above is created by taking the daily change in the pricing EMAs (13, 21, 34) and taking the difference from day to day.  This allows us to see the slope of the EMAs on different time scales.  When the result is in the white area -- above the pink zone -- then the EMAs are gaining day-over-day, which is good for our portfolio.  When they move to the pink zone our portfolio isn't doing so well if we're in the market.

As you can see, the 13d signal has just crossed into the pink zone.  This means that the 13d EMA of price is losing value day over day, so any stocks purchased within the last 13 days are probably under pressure if they behave like the GGT database as a whole.  This is problematic to the net worth of our holdings, and indicates that shorter-termed holdings should probably be dropped if the trend continues.

This next graph shows another nail in the coffin of the bull-leg:


This graph is created by taking the 65d EMA of the GGT price series, then taking the day-to-day difference of this EMA, then doing this one more time.  Confusing?  Could be if you're not used to thinking this way, but the 65d EMA is really the perfomance over 13 weeks or 1 quarter of time.  When we take the daily difference, we get the slope of this longer-term behavior, and the units become $/day.  Hence $/day tells us the slope of the change over a 13 week period.  When we take the daily difference of THAT series, we get the SLOPE OF THE SLOPE, or whether we are accelerating upward in price or downward on the timeframe used (in this case 65 days in length).

The analogy in the mechanical world is this:  if we equate dollars as distance, then a stock is to a car as the price of the stock is to the distance a car can travel.  It's a snapshot in time.  If we then take the dollars/day value of the stock (the change in price day over day, e.g. slope of the price series day over day), we also can relate this to miles per hour of the car (the change in distance per unit time, e.g. slope of how fast the car is going or speed of the car).   If we take the rate of change of dollars per day we have a metric that tells us how fast the price series is moving upward or downward in dollars/day/day -- and if we do this for a car we have acceleration or the result of pushing the accelerator pedal, often stated in miles/hour/second.

Hence, the graph above tells us that on a 65-day basis, the price of the GGT database is decelerating because it is in the pink zone, telling us that if this trend continues, we will be in trouble on an intermediate-term (13-week) basis.  Correspondingly, any stocks purchased in this time frame will be under significant pressure.

I do not like this line to be in the pink zone, and I especially do not like this line to be lower than the previous test of the pink zone.  We are losing steam as shown by lower highs and lower lows

==============

The LCR continues to fall, as shown in columns 4 & 5 of the dashboard.  The new value is 1.827 (there was an error and the value in the dashboard shown is incorrect -- this error has been fixed but the image has not been updated but will be in tomorrow's post), and tells us that we have 1887 stocks with some form of LONG status and 1033 stocks with some form of CASH status.  This is a huge drop in one day -- nearly 50% of the stocks in the database moved to CASH with yesterday's action.

Although out-of-order on the dashboard, I point your attention to the right-most area of the figure, which I've highlighted below:



The left columns show the status of the LCR EMAs relative to each other ... we're still in alignment in that the 8d > 13d > 21d > 34d > 55d -- the world is whole.

What we have as a problem is the right columns -- the slopes of every one of these EMAs are pointing downward.  This means that IF THIS TREND CONTINUES, then we'll have the left columns turning red because the shorter EMAs will start to intersect the longer EMAs from above, nailing the coffin shut one by one.  This is bad for long positions.

All we can do is watch.

So here is the conclusion to all of this:  if you have long positions that were purchased within the last 13 days of trading, you're probably close to being underwater.  If this trend continues then there is a good chance they will never recover and you'll sell at a loss.  Conversely, if the trend reverses on a short-term basis, e.g., dead-cat bounce, then you may be able to exit for a small profit.  If the trend reverses and moves up dramatically from here (very possible, as there is a bit of money on the sidelines), then holding these positions would be good.

I personally hate taking a loss on a position once it has shown gains.  I typically exit weaker positions when we get to markets such as we are in now -- I set my target to cover my round-trip commissions and get out on the weaker, shorter-termed holdings.  For the longer-termed holdings, I let Elder and other metrics tell me what to do.

As a fairly conservative investor, I am exiting many of my longs, as I've held them less than 34 trading days. It simply isn't worth letting them take a loss at this point in my performance.

===================

Short-Term LCR Change Timer

Yesterday's action continues to confirm this timer and it is in CASH.  'nuff said.

===================

Intermediate-Term LCR Change Timer

Given all of the above discussion, this is where it gets interesting.  Do we enter positions or not?

The short answer is that we need to take a close look at the Elder system.

The Elder FI(13) signal is postive for the database, indicating that overall, we are okay for holding long positions (column 12). 

This being said, the SLOPE of the FI(13) is down, so the magic transition level of 0 is within reach if the trend continues (column 13). FOUR DAYS of DOWNWARD ELDER FI(13) SLOPE is deadly, and we're in day 2.

The slope of the 13d EMA on price is pointing DOWN.  For conservative investors, this would block entry into new positions.  For aggressive investors, because this 13d EMA is above the 34d value, we could use this pullback as an entry point.  The choice is yours (not mine).

There are ALOT of candidates that meet Elder's FI criteria (positive 13d FI, negative 2d FI, 13d slope positive, 50d slope positive).  Here is a list of the stronger ones:

NBIX
AKRX
FIRE
AAPL
NWY
KFY
POM
DSW
FSLR
CNL
WEC
EQR
FINL
RGR
LO
VVC
HCP
POR
ICE
PGE
WRI
EIX
TPC
CRR
ARE
PLXS
FSP
ALE
RYN
WOR
GLT
TWC
STT
WSH
SWY
OFC
TASR
NDAQ
MANT
CSL
SUPG
MCY
NYX
SONE
AMTD
LPX
RBC
ONXX
OXPS
IBKC
RTN
PLCM
SF
WCBO
GVA
GFRE
USB
MET
HPQ
LYV
AEIS
KCG
PKY
PNX
DB
CPF
ERII
CVO
GXDX
UTA
NEE

Before you yell at me and say the list is too long, simply copy and paste the list into a watchlist that you can update in real time and watch for the stocks that are up on the day on good volume.  If you are aggressive, any stock breaking above yesterday's high could be a good candidate for entry for intermediate positions.

And to really confuse you, take a look at the contra ETF composite:



I note the following with respect to contra ETFs as a group:
  • Bull power just turned positive.  This is bullish for contra ETFs
  • The Elder FI(13) EMA signal just turned positive, but the Elder FI(13) SMA signal is still negative.  This is a mixed signal, but because of bull power, the bias is to the bullish side for contra ETFs.
  • The MACD histogram just moved positive.  This is very bullish for contra ETFs
  • The slope of the 13d EMA just crossed the slope of the 34d EMA from below.  Although both of these levels are negative (the car is driving backwards), the fact that they are pointing upward tells us the car is driving less fast day-over-day than a few days ago.  Yes, contras, as a group, are still losing money on the 13d and 34d time scales, but they are doing so less fast.
  • The price index of this contra basket has closed above the 13d EMA.  This is bullish for contras.
While we may see a dead-cat bounce today (Wednesday), contra ETFs are showing life.  The strongest ones can be determined from the GGT universe posted daily:



While many of these are thinly traded, you can see some powerhouses.  The base on these appears to be in so hedging your long positions may not be a bad strategy.

My leveraged / inverse ETF watchlist is as follows:

TMV - meets all of Elder's criteria
EDZ - early
ERY - early
FAZ - early
DTO
DZZ
TBF- meets all of Elder's criteria

DOG
SH
TBT - meets all of Elder's criteria

SMN - early
SCO - early
DXD - early
EUO
GLL
SKF - early
MZZ - early
BZQ - early
EEV
EPV - early
DUG - early
TWM - early
ZSL - early


==================

Trading Plan for Wednesday

With respect to the short-term timer, I am doing nothing as it is in cash.

With respect to Elder, I like many on the list I provided to the long side.  If they move aggressively upward today on substantial volume I may enter.

With respect to Contra ETFs, we are still very early as a group, but on an individual basis, many look very attractive.  I may add 20% positions of the strongest contra ETFs if they show any strength today.

=================

Remember, you are responsible for your trading decisions, not me.  Please do your homework and do not rely upon me.

Regards,

pgd

Tuesday, October 19, 2010

Head's Up: LCR Diverging from Price and Volume

.
Let's start with the dashboard.



GGT Price rose +0.5% on Monday on volume that was +6% over the 50d MA.  Rising prices on solid volume is bullish, although we've only had 5 days of up volume.

The Long-Cash Ratio (LCR) moved against the price action, which is a divergence.  The LCR is the ratio of the number of stocks in the database with a LONG recommendation to those with a CASH recommendation.  A stock gets a LONG recommendation if the price AND volume are above a historical, optimized level for the individual stock.  A stock gets a CASH recommendation if the price falls below this historical, optimized level for the individual stock (I ignore volume for CASH recommendations).  Hence, the GGT database rose on price by +0.5%, but the LCR fell, indicating that while prices rose, that many of these stocks are right at threshhold.  This is a decreasing margin between the GGT price index and this magical threshhold level, and it's not good. 

When we have a divergence, one of two things MUST happen in relatively short order:

1) price action must follow the long-cash ratio.   Since the LCR is dropping, price must drop.
2) the long-cash ratio must follow price action.  Since the price action is moving up, LCR must reverse.

As sustained divergence simply isn't possible.  Obviously, if 1) is the path, then we'll need to close our long positions.

The GGT strength index fell from 0.796 to 0.771.  Not a great decline, but it does indicate that there is underlying "relaxation" or "resetting" of the stocks in terms of price, volume, and rate-of-change (ROC).  While we certainly could go up from here, the lack of the strength index being in sync with the price movement tells me that there is more validity in the strength and LCR directions than the database movement.  I think we need to be very prudent in our money management at this time.

================

Short-Term LCR Change Timer.

The LCR dropped, confirming the movement of the short-term LCR Change Timer.  Correspondingly, we are in cash, and because investment in the VTI is linked to this timer, we are in cash.

I intend to do nothing with the short-term timer.

================

Intermediate-Term Elder Force Index Timer.

The Elder FI(13) is positive (column 12).  The slope is upward (column 13).  The slopes of the 13d EMA and 34d EMAs are pointing upward.  According to this timer, we are LONG in the market (column 16). 

I consider the following risky trades, but they meet my Elder criteria so I feel obligated to post:

CNAM
STV
CREE
EMC
MCCC
UEPS
RDC
TEVA
TLR
ZEP

Out of 137 possible candidates, these are the only ones that have a positive-sloping 13d and 34d EMA.  This is a very low number.

It is important to note that the contra ETFs that I watch are continuing to show preliminary strength in terms of the "slowing of the bleeding".  Early, but certainly worth watching:



Note how the 13d and 34d slope lines have just crossed, which is an initial requirement for strength.  Prices are trading below the actual 13d and 34d EMAs, which is bearish, but overall "we're driving backwards but the car has just hit maximum reverse speed". 

Candidates here are:

SKF
DTO
SCO
FAZ
SH
DOG

TBF (meets Elder's criteria)
TMV (meets Elder's criteria)

====================

Trading Plan for Tuesday

I will continue to protect my gains and my holdings that are within 1-2% of break even will have a 1% TSL placed, GTC.

I intend to do nothing on a short-term basis, as this timer is in cash.

I intend to do nothing on the long-stock side with Elder, simply because of the price/LCR/strength divergence I wrote about above.  Too dangerous at this point.

I will set a stop-loss entry on the ETF positions above, so that if we move above yesterday's high I will enter a 20% position.

======================

Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your work and decisions.

Regards,

pgd

Saturday, October 16, 2010

Weekend Update, Part 1, and Part 2

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I've been watching the Contra ETFs lately -- those are the ETFs that move inversely to whatever the opposing long side is doing.  There are 83 of these in my GGT Universe, and as you would expect, they've been bleeding for some time.  Despite this, we now have 6 of the 83 that have some form of long status, and this number has grown by 5 ETFs this past week.  We should understand what and why. 

 
Here's what the GGT method has to say about them, through the close of last evening:

 
 
Three new ones appeared Friday:  SKF, TYO, and TBF.  TBT and TMV flipped earlier in the week (Tuesday), and with the solid "L" in each of the blocks since they flipped, they keep reaffirming their call to the long side. SMB has been long for some time and trades within a very narrow price range, hence it's hard to make any money with that one.  Let's look at each of the other ones through my Elder lens:

 
SKF:

 
 
GGT has signaled New Long for SKF, the ProShares UltraShort Financials, and sure enough, this is also validated by the following:
  1. the Elder FI(13) (EMA and SMA) moving positive on both Thursday and Friday. 
  2. the MACD histogram is now positive as of Friday's close, also showing that this could have strength. 
  3. In the 13d/34d EMA slope pane we see that the 13d EMA slope has just crossed the 34d EMA slope from below, which also is bullish.
  4. Dropping to the bottom, we see that we've had two days where the volume has been above the 50d SMA of volume.
On the negative side for SKF, we are early.  Very early.  This breakout has no internal confirmations.  For example:
  1. In the pricing pane we see that the 13d EMA on price is well below the 34d EMA on price.  This is early and entering now is far more risky.
  2. In the pricing pane we see that the price has just crossed above the 13d EMA but is still below the 34d EMA
  3. If we look at the raw value of the slope of the 13d and 34d EMAs, we see that the raw slopes are still -$0.02/day and -$0.04/day respectively.  We are still losing money on these time frames.
TYO:

 
Given the analysis above, I'll provide a screen shot for your review.  If you have HGSI, you should build this screen, as I find it very useful and full of good information:

 

 
 
Please post your analysis of TYO at our Yahoo! forum by sending an email to GreekGodTrading@yahoogroups.com if you are a member, or first by subscribing by sending a message with an intro to GreekGodTrading-subscribe@yahoogroups.com. Let's see if you've been following along ...

 
TBF:

 
Next in line is TBF:

 

 
 
 
Like TYO, please post your analysis of TBF at our Yahoo! forum by sending an email to GreekGodTrading@yahoogroups.com if you are a member, or first by subscribing by sending a message with an intro to GreekGodTrading-subscribe@yahoogroups.com.

 

 
TBT:

 

 
 
Like TYO and TBF, please post your analysis at our Yahoo! forum by sending an email to GreekGodTrading@yahoogroups.com if you are a member, or first by subscribing by sending a message with an intro to GreekGodTrading-subscribe@yahoogroups.com.

 

 

 
TMV:

 

 
 
 
There's obviously a theme here:  with the exception of SKF, all of these are contra on the long bonds, and what is notable, is that they are all flashing long. 

 
In order to play these I plan to wait for the Elder FI(2) signal to go negative, and then enter as the price clears the previous day's high AFTER the FI(2) goes negative.  For me, it's hard to ignore that the 13d EMA of price is about to cross the 34d EMA of price from below, and for TBF, TBT, and TMV, we already have positive slope values that are trending higher.  This certainly is bullish.

 
Again, your analysis is solicited.  Please post your comments in our GGT Yahoo! forum.

 
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Part 2, The Macro View and What to Do About It.

Let's start with the familiar dashboard:



For the past two days the GGT Price Index has slipped, finishing Friday at $26.07.  The peak of the week was achieved on Wednesday at $26.19.

Volume has been extraordinarily high the last three days, which for me has piqued my interest.  Wednesday was 26% above the 50d MA, Thursday was 23% above, and Friday was 33% above. 

Falling prices on higher volume gives me pause, and it should do the same for you.  If nothing else, it is time to start paying attention.  Continued failure to hit higher prices while volume is high is a major warning sign and indicates churning.

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The Long-Cash Ratio (LCR) fell -10% on Thursday to 4.237 and -9% on Friday, ending at 3.852 (columns 4 and 5).  2319 stocks are in some form of long status and 602 stocks have some form of cash status.  It is refreshing to see that the price index and LCR are in sync, e.g., they both are falling at the same time.  Aside from the significantly increased volume I consider two down days in price and LCR as normal behavior for the markets.

I draw your attention to the following graph:



Take a piece of paper and scan left to right, covering the information to the right.  Pull the paper to the right.  As you uncover new highs in the LCR index, you see that we typically pull back after the local peak.  Not always within a few days mind you, but generally this is true. 

We *just* hit an all-time high of the LCR, compared to the entire GGT history from 9/9/2008.  We have had two days of successive pullback in the LCR.  While the graph suggests that it may take a week or two to significantly reduce the LCR from the previous peak, it generally always occurs.

Of course, your crystal ball is as good as mine.  But given past market psychology at and after LCR peaks, and given that we just hit an all-time high in the LCR, I think it prudent that we watch for a significant pull-back.

How will we know we're starting a pullback, significant or not?

I draw your attention to the next graph:



The graph above is the daily change in value of the 13d, 21d, and 34d EMAs.  It is constructed by taking the data series (in this case the LCR), taking the 13d, 21d, and 34d EMAs, then calculating the daily difference in each of the EMAs.  When this daily difference is positive we are not in the pink zone above, and whatever we're measuring is going up on those 13d, 21d, and 34d time frames.  Conversely, when it is negative, we're in the pink zone, and we're dropping in whatever we're measuring on those same time frames.

This latest bull leg is characterized on the above graph by all the ROCs moving from the pink area to the white area on or about 9/1 - 9/2.  We've had two dips of the 13d below 0 into the pink zone, but because the 21d and 34d did not confirm, these actually became great buying opportunities (there is a lesson here that we should note).

Of particular note is that when the ROCs are falling, prices typically fall.  After peaking on Wednesday, the ROCs have been falling for two consecutive days.  I would expect a bounce to a lower high in LCR, then a continuation of a drop if we are losing steam across the board.  

Hence, I think that the LCR ROC graph will give us some insight as to the strength of any rally from here.

Finally, here is another graph which I think is important:




The above graph is simply all the major Fib EMAs of the LCR plotted together.  Note that we are at an all-time high in the 13d and 21d EMAs -- but the 34d and 55d are below other peaks.  We've risen fast this time, and while we could go further, we could also pull back a bit.

Note that the above graph is related to the LCR ROC graph that is above it -- the ROC graph shows the daily difference in the LCR EMAs above.  We clearly peaked two days ago in the ROC graph, and in terms of the graph above, this means that we're peaking now.  Since the ROC graph is in the white area -- positive -- the LCR EMAs will continue upward, but as long as the ROC graph points downward, the peak in the LCR EMAs will start to top out and eventually fall once the ROC graph transistions to the pink area.

If this isn't clear then please ask, as I think this relationship is important in order to understand the underlying database.

One final graph/table pertaining to the LCR:



The data above generally appears in the dashboard, but I rarely draw attention to it.  The first 4 leftmost colored columns show whether a particular EMA is above the next longer Fib EMA, e.g., is the 8d > 13d, 13d > 21d, etc.  You can see that as of Friday we're all green, which is intermediate-term bullish.

The next columns are related to the slopes of the LCR EMAs -- are they pointing upward or downward.  As you can see, the slopes of the 5d, 8d, and 13d have lead the crossing of the LCR EMAs, giving us a further "early warning" system.

The 5d has developed a dowward slope, so we must watch this.  I will report on the slopes of the LCR daily until we have all red or all green back in our world.

Bottom Line:  The LCR bull is getting tired, although it is still advancing.  We need to watch for it reversing, and this ability to determine when this occurs is clearly indicated by the two graphs and the GGT dashboard above.

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Short-Term LCR Change Timer

Alas, we whipsawed again with Friday's close, this time from cash to long and now back to cash.  THE SHORT-TERM LCR CHANGE TIMER IS IN CASH (-1).  The impact on our test GGT portfolio was a drop in equity from $1.5971 to $1.5838, so not too severe.  Note that we peaked on 9/20 at $1.6333 so we've dropped -3.0% if we followed this timer.

Contrasting, the VTI, which is based on the signal generated with the GGT price index, has been in cash since 9/23, where it was worth $1.5564.  This equity curve peaked too on 9/20 at $1.5821, so the loss is -1.0%.  The VTI signal is in CASH.

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Intermediate-Term Elder Force Index Timer

Refer to the GGT dashboard.  
  • The Elder Force Index 13 day EMA -- FI(13) -- is above 0 and this is LONG (column 12). 
  • The slope of the FI(13) has been downward for the past two days (column 13).  Two days is not a dangerous occurance, as we are significantly above 0.
  • As I indicated above, the 13d and 34d slopes are positive, which is bullish.
The Intermediate-Term timer is LONG, but with the caveats above.

My actual portfolio performance is as follows:

EWO, +8.5%
FXI, +7.67%
BKF, +7.37%
EWH, +7.32%
GXC, +5.68%
PID, +4.65%
SATC, +2.24%
KOL, +2.06%
IAU, +1.48%
XLB, +1.13%
IGE, +0.54%
GMO, +0.28%
AES, +0.19%
XME, -0.27%
JASO, -4.33%

JASO, which was purchased on 10/11, simply has not worked for me.  Furthermore, the Elder FI(13) EMA has transitioned NEGATIVE, which is an automatic sell signal.  I have placed a 1% Trailing Stop Loss (TSL) on this equity, Good til Cancelled (GTC), and cast it to the wind.  Here's the chart:



You can see in the figure above (JASO) that the top red/green ribbon is now red, indicating that the FI(13) is negative.  Even though the price may hold off the 13d EMA, this is a clear sell.  Also note that the MACD histogram is virtually zero, so there is nothing here to hold onto.

  • AES is struggling and values below $12.21 on higher 10d volume are problematic.  The highs of Thursday and Friday have failed to close above Wednesday's high, which is translating to a loss of momentum.  Furthermore, we've had three consecutive days of lower lows, which makes this a marginal hold.
  • EWH is another one that is on my watch list, and values below $18.91 on above-average volume could cause me to dump.  We had a doji on Tuesday, a new high on Wednesday, and again, we've had three consecutive days of lower lows.
  • IGE seems incapable of clearing $36.91 and hence values below $36.23 on higher volume may cause me to close.  Again, we've had three consecutive days of lower lows.
  • XLB is showing the same weakness, and the slope of the 34d EMA is in the single-digits and pointing downward.  Again, a marginal hold, and higher volume with prices below $34.13 could be a good reason to dump.
  • XME had a huge volume day on Friday; unfortunately, it was on a significantly down day.  With three lower days of lows the only redeeming value here is that it closed above the 13d EMA, but the tail is below.  Values below $55.16 are problematic.
As I alluded to above in Part 1, the Contra Treasuries are signalling entry.  I gravitate towards the leveraged ETFs, and TBT is calling me.  I'll wait for the FI(2) to open up so that I can enter.

For those of you who are more risk tolerant, give a look-see at the following:

AMZN
CMCSA
TWO
MON
DGP
VWO
CDNS
FXA
FTR
LINE

I simply think that we're too toppy in equities and I'm looking to protect my profits at this time, although I may move on something within the list if it rockets out of the starting blocks.

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Please note that you are responsible for your own trades, not me.  Please do your own diligence and please understand the logic of what you are reading above before you commit real monies to trading or investing.

 
Regards,

 
pgd