Tuesday, November 30, 2010

Short Term Conditions Improving, Mid-Term Ugly, Longer-Term Subject to Interpretation ...

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Summary
  • The slope of the 5d EMA on the LCR has moved positive, the first time since 11/9/10.  This is a necessary requirement if we're to see any form of sustained bull leg (and not just trending).  All the other LCR slopes remain pointing downward, which is still bearish on those time frames.
  • Despite the ADV/DEC line at http://www.finviz.com showing favoritism to the bears, the LCR actually moved upward +13%.  This shows internal strength within the database that is deeper than just price action, and is bullish.
  • Because the LCR did not drop, the Short Term LCR Change Timer remains in Long-Cash (0).  Today's action is a pivot point -- if it is a strong drop the timer will move to CASH (-1), if it is a weak drop today will remain in the present state.  If today is a strong day it will move back to LONG (+1), else if it is a weak increase today it will remain in its present state.  Implications are simply that if we want to move back into IWM, UWM, QLD, UYG, VTI. or TNA on a short-term basis the option is open to us if the markets move higher
  • The Intermediate-Term Elder Force Index timer is still in CASH if we use a simple-moving average (SMA) calculation method.  Contrasting, if we use an exponential-moving average (EMA), the timer is LONG.  Since we're not confirming we're on the fence post and we can invest either way.
  • In terms of pricing, every EMA slope less than the 21d is still pointing downward.  This isn't bullish, and indicates that we need more bull action in terms of prices in order to move upward.
Given the above, my bias is slightly bullish, but we're too early to declare a breakout of the rangebound markets that we are in.

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The LCR

































As with all my images, right-click on it to open in a different tab or window.

On the left, the Long-Cash Ratio, which measures the performance of the universe with respect to price, volume, and rates of change, moved upward +13% on Monday.  This is bullish and indicates that there is internal strength in terms of price, volume, and/or pricing rates of change.

Next, we have the raw LCR value.  When this is getting negative on the time frames indicated, life is bearish.  Since they are all red life is bearish.  What causes them to be bearish is that despite the 1-day change in the LCR value above (+13% on Monday), overall, on the time frames indicated, the database is contracting day-over-day.  This is bearish.

In the middle of the figure we have the "slopes of EMAs".  "Rise over run" is the way to think about this.  If you take the various EMAs and plot them, look at the direction they point.  If they point up, the middle part of the figure is green.  If they point down the middle part of the figure is red.  With the exception of the 5d slope, everything is red.  This is bearish.  Until these start turning green (pointing up) the LCR EMAs on the left will continue to indicate red.  This too is bearish.

The fact that the slope of the 5d EMA has now pointed upward is bullish, but just barely.  We need the entire row to be green; right now it simply says that on a 5-day interval (but less than 8d, mind you) the database is starting to reverse the decline.  This is good, but early.

The right side of the figure shows the "slopes of the slopes".  This is hard to picture, so Ken Phillips has a way to describe it ...  if we have a car which is driving forward (middle part of graph green) or backward (middle part of graph red), the right side indicates if we are slowing in a given direction (foot on brake) or accelerating in a direction (foot on gas).  Since the middle part of the graph is red, we're driving backward.  Since the corresponding right part of the graph is green across the board, our foot is on the brake -- e.g., we are going less-negative day-over-day, which is necessary for the middle part of the graph to turn green.  So, since we've had three days of "green" on the right portion of the graph, we're working hard at turning the middle portion of the graph green (but it hasn't happened yet).  The bears are winning, but the bulls are getting stronger...

Conclusion:  life is really early to declare moving aggressively into the long side of the market.  The database is starting to expand on a 5-day window, but longer time frames are still bearish.  Hence, caution is advised.

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The Prices




































Prices actually fell in our world -0.19% on volume that was -17% below the 50d average volume.  This is not too worrisome, but certainly, is NOT a confirmation day of a bull, so don't bet the farm long just yet.  We *really* need to see a banner day on large volume, and until we do, risk is high.

The layout is exactly in the same order as the LCR presentation above.  Here, pricing is still very bullish, with all but the 8d above the 13d (e.g., the 13d *IS* above the 21d EMA, the 21d EMA > 34d, and the 34d > 55d).  This simply tells us where we are, not where we are going, so don't read too much into the green.

The middle portion of the graph shows that the slopes of the 5d through the 21d EMA on prices are pointing down.  You should interpret this as bearish.  The only saving grace here is that the 34d and the 55d are pointing upward, which is bullish.  SO, on longer, intermediate-termed scales, we are still in a bull market.  This is important.

Lastly, the stuff on the right side is the "slope of the slope", or which direction is the price car driving.  The answer is simply "it depends on what length the car is".  We see some cracks in the bear ice on the 5d and 8d periods, but anything longer than 8d is bearish.   SO, we are REALLY at mixed  points in the market, and things are out of sync:
  • As shown in the middle, the 5d slope and 8d slope are bearish, e.g., they are pointing down.  "The 5d/8d car is driving backwards".  On the right side we see that the change in slope is positive:  "The car is driving backwards but our foot is on the brake -- we'll be stopping the bleeding soon and will be driving forward shortly".  This is bullish on short time frames.
  • As shown in the middle for the 13d and 21d slopes, they too are bearish:  "The car is driving backwards".  Furthermore, as evidenced by the right side of the graph, the 13d and 21d slope of the slopes is DOWN, negative, bearish, whatever:  "the car is driving backwards and our foot is on the accelerator -- we're driving backwards faster on the 13d and 21d time scales".  This is bearish on these time frames.  Yuck.
  • Finally, as shown in the middle, the slopes are positive for the past 34d and 55d windows.  This is good and is to be considered bullish:  "the car is driving forward".  The problem here is that the right side of the figure shows that the slope of the slope is negative for each of these periods:  "the car is driving forward but our foot is on the brake -- if this continues, we'll be stopping".  Obviously, an ominous cloud on the horizon.
I really like all green bars ... that's a "Discovery, you're a go for throttle up".  Right now we don't have this, so the only interpretation is that we should be careful.

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Money Flow

Pascal Willain runs a paid site called Effective Volume (http://www.effectivevolume.eu).  Pick up a subscription and dig around; the concepts are intriguing.  One of the charts he presents there is as follows:





You can see that although we're not in a raging bull in terms of money flow by his indicators, money is tricking into the market as opposed to net out flow.  If you look at this in context of the time frames I presented above in the LCR and Pricing analysis, you can see that it all makes sense -- on the 5d and 8d windows, the slopes of the 20d Money Flow Strength has been positive, hence why we're seeing some underlying strength.  It all correlates on a shorter time scale in terms of bullishness, and it correlates well in terms of net outflow if you look at longer time frames (13d, 21d, 34d, 55d).

Simply some independent validation to the LCR and pricing charts ....  :)

Overall, on a short-time frame, we're just starting to emerge from a bearish period.  We are early, very early. Risk is high for a reversal at this point.  We need up days to be stronger than down days.  We need up days with confirming volume.  Until we see such behavior the risk takers can make their money -- I'm content to wait and do surgical strikes...

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The Timers






































As you can see above, the Short Term Timer is still with a value of 0.  An up day as far as the LCR will cause it (most likely) to stay at this value, and a strong up day will cause it to move back LONG.  The converse is true too, so we'll have to wait and see.

The GGT equity curve fell slightly on Monday, as did the VTI equity curve.  Nothing we can do there, but I will say we exited with small profits last week from this system, and I'm reluctant to chase it back long if it moves in that direction.  We'll see...

On the right side we have the Elder timer system.  Using simple moving average methods, the timer is in CASH.  Below is a presentation from HGSI that I built that shows a conflicting Elder condition:

























The graph above is of the GGT universe, viewed through the HGSI Elder lens.  Bottom line is that the top ribbon bar calculates the Elder timer state using the EMA method (showing bullish), and the middle ribbon calculates the Elder timer state using the SMA method (showing bearish).  GGT uses the SMA method, so the system is bearish.

Slopes for the GGT universe (about the middle of the figure) are flat but positive (the car is driving forward at a constant speed, our foot is neither on the gas nor is it on the brake).  STUDY the HGSI graph and ask questions if you don't understand what you are seeing -- the most important aspect above is that prices are flat.  

I like moving long when prices are in an uptrend, not when they are flat.  I like moving long when the Elder system confirms on both methods -- they are not confirming.  I like moving long when the slopes of the 13d and 34d EMAs are positive (they are) and are pointing upward (they are not).

Risky business indeed.

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Trading Plan for Tuesday

Surgical strikes.  I'll look at Elder and Contra Elder candidates, and if they look good in terms of price and Effective Volume cash inflow I'll place a limited order. 

I'm traveling for the rest of the week starting today around noon and will back Saturday morning (I hate red eyes from LA, but it is what it is).  Blog updates will be thinner the rest of the week.

Post your questions and comments below or in the GGT forum.

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

Regards,

pgd


Monday, November 29, 2010

ST Timer may move to CASH, Elder is in CASH, LCR Bearish, and EFU meets Entry Criteria

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It's 8 a.m. Monday morning and I've been watching the futures react to the Irish bailout.  Futures were up last evening, but the dollar was up more (Euro down almost 1%), so talk about a divergence!  Now, futures just slipped underwater and are down across the board, the dollar is up (Euro down), but now the metals are moving underwater ...

Treacherous times indeed...

Just a reminder -- I'm traveling this week starting Tuesday, and will not be back until Saturday morning.  Blog entries will be short and sweet (which may be an improvement?).

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Summary

  • The Long-Cash Ratio (LCR) remains incredibly bearish and consolidated
  • The Pricing system is more bullish, but definitely has cracks in the ice in terms of sustainability
  • The Short-Term LCR Change Timer is still on the fence, and a down day today will most likely cause it to move to CASH.  Aside from one QLD position, I'm in cash under this timer.
  • Elder's Force Index timer is in CASH.
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MSCI EAFE

I run another GGT strategy for Thrift-Savings Plan peeps (http://ggt-tsp.blogspot.com), and one of the funds there, the MSCI Europe Asia Far-East (EAFE) fund just confirmed a sell signal in the WEEKLY window.  This tells me that the EAFE is getting slammed, and I need to review it in terms of a contra position.

If you look at EFZ (-1x contra, non-leveraged) and EFU (-2x contra, leveraged), you'll see that indeed, they are looking good for long entry under the Elder system.  Here's the chart:































Here's the bull argument:
  • Both Bull AND Bear Power are positive, with Bull Power larger in magnitude than Bear Power.  
  • Both methods of calculating the Force Index (exponential moving average - EMA - and simple moving average - SMA -- are both positive (green).
  • The 2d Force Index is green, signaling entry if we continue higher.
  • MACD histogram is positive and increasing in magnitude
  • MACD and MACD signal lines are pointing upward and are moving from the lower half to the upper half
  • Both slopes of the 13d and 34d EMAs are positive
  • Both slopes of the 13d and 34 EMAs are pointing upward
  • The 8d EMA is above the 13d and 21d EMAs
Here's the bear argument:
  • %B is higher than I like for entry @ 0.8.  Still within range, but just on the upper end.
  • We are still far below the 160d EMA.  Overall, we are in a confirmed downtrend
  • We do not have proper alignment of the EMAs; only the 8d is above the 13d, but these are both below the 34, 40, and 160.  
Although not presented here, if you look at the global "Direxion -3x Bear Index" which I presented at last month's meeting, you'll see that we have a global "ok to enter contra ETF positions".  If you want a view of this let me know and I'll post in a subsequent blog entry.

EFU meets all conditions for entry under the Intermediate-Term Elder Force Index Timer, Contra ETF rules. 

So, rather than take a full position, I'm going to derate this position because of slightly higher risk  I'd like to be able to add more to this position if it confirms on the weekly as well as monthly time frames after we enter, as well as a full alignment of the 8, 13, 21 EMAs, so I'm going to enter with a 40% position.

10-day volume is low -- 41K shares, so this isn't as liquid as I'd like.  This being said, it's trading up in premarket at 8500 shares as I write this, so we've already met today's prorated volume requirement through 10:00 a.m.

I missed a premarket opportunity at $30.59, so we'll see how this behaves today and try to pick it up intraday.  It's going to gap up on the open, so I'll wait for it to relax a tad before entering.  My initial pickup level is at the premarket Volume-Weighted Average Price level of $30.60.

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

Regards,

pgd


Friday, November 26, 2010

Deja Vu: Short Term Timer May Move to Cash, Elder on Fence

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Summary

  • It doesn't matter how we cut it, the LCR indicators are all bearish.  The slopes of the LCR EMAs are all pointing down, telling us that we're losing available stocks to select on a day-over-day basis.  It's hard to make a case for the bulls when this is the situation.
  • The LCR EMAs are all inverted, which is simply a direct reflection of the status of the slopes (see above).  This action confirms that we should not be substantially long in equities right now.
  • Despite the status of the database LCRs, the  slopes of the pricing EMAs are still pointing upward (barely).  Since we bank prices and not slopes, there is hope for a bull from here, so keep practicing getting your shopping list ready ('tis the season, right?).
  • The Short Term LCR Change Timer is LONG but is in a LONG-CASH (0) condition.  Any failure of the LCR to be significantly on the side of the advancers today will cause us to sell our short-term positions.
  • The Intermediate-Term Elder Force Index Timer is on the fence, really.  From the perspective of the 13d Force Index calculation using EMAs, it is LONG.  From the perspective of the FI(13) calculation using SMAs, it is in CASH.  Hence, either we have a great buying opportunity, or we have a run-for-the-hills scenario.  
DISCLAIMER:  I am holding the following equities:  CHS*, DYP*, FXP*, ROVI (* indicates personal account)
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The LCR

Here's the LCR dashboard; as with all my images, right-click on the image to open in a new window:

































From all perspectives, the LCR is bearish.  On the left we see that the LCR moved upward 15% on Wednesday, ending the day at 0.809.  This is the only glimmer of bull-light in an otherwise dark playground.

Next from the left are the LCR EMAs.  These are all inverted, e.g., the 5d < 8d, 8d < 13d, 13d < 21d, 21d < 34d, and 34d < 55d.  The database is getting more bearish day-over-day, and picking good stocks from what is left (e.g., bullish) is getting harder to accomplish.

The next group, in the middle of the figure, is the most important group.  This area represents the slope of the EMAs, and while these slopes are pointing downward, we have no hope of a bull emerging.  We absolutely need this middle group to show green to reduce the risk of market entry at this time.

The last group, on the right, represents the "slope of the slopes", or in Ken Phillips' parlance, how fast the car is accelerating one direction or another.  The middle area of the graph represents the direction of the car (forward or backward) and the right area of the graph represents whether it is accelerating in that direction.  Wednesday's action tells us that we are going backwards (LCR dropping), yet our foot tapped the brakes on Wednesday (slowing, as evidenced by green across the board).  

If we get several days of green on the right side of the figure we have a reasonable expectation that the middle of the LCR presentation will start showing us some green.  If we see some green in the middle of the picture, we have a reasonable expectation that the left side will start showing green, which means the bull is here.

We're a long way from a broad bull.

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The Prices

Lest you think that the LCRs are all doom and gloom, take a view of the pricing dashboard:






































This presentation is much like the LCR presentation in terms of layout.  On Wednesday, the GGT database rose 1.78% on volume that was -24% below average, as expected for the day before a holiday.  Contrasting against the LCR EMAs, the pricing EMAs are properly aligned (5d > 8d, 8d > 13d, 13d > 21d, 21d > 34d, 34d > 55d). This is bullish, and is the primary reason why this is a terrible time to short the market vis-a'-vis the status of the LCR EMAs.

The middle of the figure shows the slopes of the pricing EMAs.  You can see that Wednesday's action caused them to be bullish across the board, and overall, this is good.  As long as the slopes of the pricing EMAs are pointing upward we can be assured that the pricing EMAs (left side of the figure) will continue to remain bullish.

The right side of the figure is a presentation of the "slope of the slopes".  This is the same "what direction is the car accelerating" discussion as above for the LCRs.  What we see above for the pricing EMAs is that we are bullish across the board, so in Ken's terminology, we are "driving forward with our foot on the gas".  Note that depending upon your time frame some of the time frames are moving faster than others ....

Overall, we have a divergence between the LCRs and the Pricing system.  The LCR system is not supportive of a bull market, but the pricing system continues to indicate that prices are intact and moving upward.  This means that fewer and fewer stocks are providing a disproportionate amount of the pricing gain within the database, and this is bad over the long haul.  Either of two things must occur in the next few weeks:  1) the pricing system reverses, reflecting the state and mood indicated by the LCR system, meaning the bears are in full control, or 2) the LCR system reverses, providing support to the appreciation of prices that we presently see, allowing the bulls to run.  Your crystal ball is as good as mine.

I'm choosing to sit on the sidelines until the divergence is eliminated.

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The Timers

Here's the timer dashboard:







































The Short Term LCR Change Timer is presently flashing a "yellow", which means the present LONG is in jeopardy.  If the markets are down today in terms of the LCR, then because of the internal settings of this timer (time constant less than a day), it goes to reason that this timer will move to CASH.

I exited my positions on Wednesday that were associated with this timer, all for a profit.  I did this because I hit profit targets on Wednesday, not because the timer indicated we exit.

I'm still holding a 40% position in QLD in this timer, and as I write this, it is under huge pressure but is up 1.41% since entry.  Most likely this will be closed today to lock in whatever remains in profit.

The Intermediate-Term Elder 13d Force Index Timer, as indicated above, is in CASH.  The reasoning behind this is that the FI(13) calculation, when performed using a simple moving average (SMA), shows a negative value for FI(13).  Contrasting, but not shown above, is that the FI(13) EMA calculation shows us barely long.   I'm showing the more conservative timer status because it reflects my  investing style.  The result is that the FI(13) timer is telling us to avoid intermediate-length positions in the market.  

I'm holding a sole-holdout in ROVI due to this timer.  It stubbornly has refused to go down and hit it's trailing stop loss, so today may be the day.  I'm content to lock in the gains that I presently have and sit on the sidelines.

Overall, the timers are not clear in their signals, so entering positions either on the LONG side or CONTRA side is risky business.

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Top 25

With the close of markets on Wednesday I generate a new Top 25 stock list.   Because of the market conditions this portfolio is 65% invested.  Here are the new stocks to be added to the list:

AZO
AMZN
DECK
ETN
MEE
MGA
NFG

Stocks to be removed from the portfolio are:

BBL
CLW
GYMB
LAMR
NVO
UNP

Stocks that moved upward in position from last week, including some new additions (meaning they were part of the top 100 but not all were in the top 25) are:

AZO
RL
CKH
FFIV
NOV
PH
MGA
NFG
WLL
DECK

I would consider these stocks the strongest stocks within the portfolio.

The stocks that moved down over the past week are:

NFLX
ABV
FCX
BIDU
DRQ
IBM
FOSL
PXD

These are to be considered the weakest stocks, but still strong out of a universe of over 2900+ equities that I looked at.

Stocks that are unchanged in their position over the past week are:

PCLN
CMG
MIDD
UFS

Interpret how you may... these are holding their own.  Since the close on Thursday of last week the portfolio is up 1.4%, and is up 0.3% since inception on October 31st, 2010.

I will make the changes in this portfolio today after the market stabilizes.

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Trading Plan for Friday, November 26th

Overall, I'm sitting on the sidelines.  I do not think that we have clear signals on which direction to move within the markets, so I'm not willing to commit my hard-earned dollars as well as my kid's college funds to the market right now.

Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your actions and please read the DISCLAIMER listed on the left side of this blog.

I hope that everybody had a nice Turkey Day.

Regards,

pgd

Wednesday, November 24, 2010

Short Term Timer May Move to CASH; Elder Timer in CASH

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Summary

  • The LCR EMAs, slopes of the LCR EMAs, and the "slopes of the slopes" are all telling us to run away from the market right now.
  • The Pricing EMAs, with the exception of the 8/13d pairs, are all still indicating bullish patterns
  • The 5d/8d/13d/21d slopes of the Pricing EMAs turned down with Tuesday's action.  This is bearish, but because the 34d and 55d slopes are still pointing upward, I'm not in panic mode (I'm never in panic mode by the way)
  • The "slope of the slopes" of the Pricing EMAs have all turned down, which is short-term bearish.  
  • The Short Term LCR Change Timer is LONG, and I have positions in IWM, QLD, UWM, UYG, and VTI.
  • The Elder Intermediate-Term Force Index, depending upon the method selected (SMA or EMA), is on the fence.  Yesterday's action pushed is back down into a CASH signal, but we're on the threshold.
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The LCR 

Here's the chart:

































As with all my images, right-click on the picture to open it in a new tab or window.

The presentation has changed a bit.  Over the weekend I talked about "slope of the slope", and have added the appropriate indicators to the right of the picture above.

As you can see above, the LCR fell on Tuesday, landing the day -17% below Monday's level of 0.846.  More stocks in the database are in CASH than are in LONG, and a falling LCR tells us that the number of stocks with a LONG status is getting thinner.

ALL of the LCR EMAs are inverted, meaning that the 5d < 8d, 8d < 13d, etc.  This means that the database is in a contraction mode, and that I need to be careful in stock selection.

I've been discussing the role of the slope of the LCR EMAs, and as you can see from above, the trend has been down since November 11th.  This means that the database is contracting, keeping the aforementioned LCR EMAs inverted.  Until we see some green here the database is getting smaller and smaller.

The inclusion of the "slope of the slope" (SoS) table simply tells me whether the slopes of the LCR are headed downward faster or slower.  With the across-the-board red values as shown, it's clear that we are accelerating to the downside with Tuesday's action.

The LCR dashboard is bearish.  Pay heed or pay with your equity.  'nuff said.  

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The Prices

The Pricing Dashboard follows:





































The GGT Price Index fell -1.35% on Tuesday on volume that was -7% lower than average.  We can consider this a distribution day, because prices fell on average volume.  

Only one of the pricing EMAs has me on the bearish side.  As you can see above, the 8d EMA is below the 13d, but all the others are properly aligned.  This means that the bull is still alive but because of the LCR's, it's food supply is getting thinner (as is the bull).  

The slope of the pricing EMAs started to head down with Tuesday's action, but note that the 34d and the 55d are pointing upward.  This is good for the bulls, and creates a mixed-signal concerning what we should be doing right now.  I personally am sitting on big pile of cash, simply because I don't like losing my cash.

The right-most view is the SoS of the pricing EMAs.  Since these are all red, we are accelerating downward on all time frames, and if the redness continues, the slopes of the pricing EMAs will all turn red.  If THAT continues, the pricing EMAs will all be inverted, and at that time, contra ETFs make really good sense (but not before).

The last column on the right is the GGT strength oscillator.  As you can see, it fell on Tuesday, which is no surprise, and as you can see with the red/green background on the oscillator, it's behavior closely follows the SoS of the pricing EMAs.  Note that the strength oscillator is much like the %B that my trading partner Hsin uses in his trading decisions.

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

Short-Term LCR Change Timer

The ST LCR Change Timer is LONG, but it transitioned to a LONG-CASH signal with the decrease in the LCR on Tuesday.  If the ADV/DEC line at www.finviz.com or other ADV/DEC line that you watch is negative by a substantial amount at the end of the day we have a high probability that this will transition to a CASH signal.

I'm modifying my playing of this timer -- I'm setting a price target based upon the entry and will exit 100% of the position when I hit the target.  Right now I'm using a 1% profit target for the 2x ETFs, and will adjust as more data becomes available.

Disclaimer:  At the time of this writing I am presently holding positions in IWM, QLD, UWM, UYG, and VTI.

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Elder Intermediate-Term Force Index Timer

The GGT System has the Elder Timer in CASH, and this is where I am positioned.  The 13d Force Index, via the SMA calculation method, is negative, which block entry into intermediate-term long positions.  Furthermore, the 13d pricing slope is NEGATIVE, which further violates my Elder Timer rule.  

I intend to pay heed, so I am not even screening for Elder candidates.

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

Top25 Stocks

The always-invested Top25 portfolio, which is new and is being forward-tested in real time, fell -1.2% on Tuesday.  Since inception on 10/28/10 the portfolio is down -1.1%.  This portfolio strives to maintain long positions and utilize between 65% and 100% of the available capital.  Presently, the portfolio is 69% invested in equities/31% invested in cash, due primarily to the Elder Intermediate-Term Timer Status.  A new top 25 list of stocks will be generated tonight with the close of markets today.

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Trading Plan for Wednesday, November 24th

Simple.  I intend to watch my ETFs hit their profit targets in the Short Term LCR Change Timer, watch them exit, and be happy with 1% gains.

I do not intend to purchase any substantial positions in equities at this time.

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Please read the disclaimer to the right of this entry.  You are responsible for your actions -- I am not.

Make it a great turkey day!

Regards,

pgd


Tuesday, November 23, 2010

Elder Intermediate Timer is LONG

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Summary

  • As of 7 a.m. Tuesday morning Yahoo! finance had not updated their database, so correspondingly, I can't update GGT.  The move to integrate Quotes Plus and GGT thus becomes reignited in earnest.
  • Leader action for the broad market continues to outpace the contra side of the market, with an important bullish reversal occurring during Monday's action.  
  • As anticipated, volume of the DOW, NASDAQ, and S&P indices was below average, reflecting the vacation week.
===============

A Bullish Bias

GGT has a bullish bias; here's my chart:


























As a universe, an argument can be made that we should continue to support the long side of the equation:
  1. Bull power is significantly bullish.  This is the distance between the high of the day and the 13d EMA.  When this is positive more than the bear power magnitude the bulls are in control.
  2. Both calculation methods of the 13d Elder Force Index (EMA and SMA) are very positive, which is bullish.
  3. The MACD histogram is improving (less negative day over day).
  4. The slopes of the 13d and 34d EMAs are positive as well as pointing upward.  This is strongly bullish.
  5. %B indicates that we are at 0.76, which suggests considerable upside room exists.
  6. Prices continue to close above all the primary EMAs, which is bullish.
Cautionary indicators are:
  1. Bear power is negative.  This is the distance between the low of the day and the 13d EMA.  When this is negative the bears are gaining ground. A resounding bull appears when both bull power and bear power are positive, and this is not the case right now.
  2. The MACD histogram is negative, which means that the MACD is below the MACD signal line.  This is inherently cautionary.
  3. The slopes of the MACD and MACD signal line are negative, which tells us that over these periods (8d, 25d) that we've not been a powerfully-supported up period.
  4. The slopes of the MACD and MACD signal line are in the upper half of the MACD window, which again, suggests that we have already run up significantly so gains on the order of what we have seen since early September are not likely.
  5. Volume is drying up.  Rising prices for an index, on lower volume, is a problem for me.  On the other hand, falling prices on lower volume means that selling simply is not going on.
Overall, I continue to have a bullish bias to the markets, but I'm not playing anything significantly long at this point.  I did make trades in the short-term LCR ETFs yesterday, and will continue to play those minor positions at least until that signal changes.

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

Short-Term LCR Change Timer

Because I cannot update the LCR, and cannot give an exact determination on the LCR.  Using my proxy, the www.finviz.com ADV/DEC indicator, I can guess that the LCR continued upward yesterday hence my entry into long positions should be a good bet.  I will continue to hold these positions despite the futures being significantly down as I write this.

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

Intermediate-Term Elder Force Index Timer

The chart above shows that Elder's methods still point us on the long side of the equation, and the magnitude of the 13d Force Index levels tells us that we have had a signal change.  GGT's Excel method has had this indicator as being in CASH; the difference lies in the way that GGT and HGSI calculate average price and average volume.  Nevertheless, I'm calling the timer long, independent of the GGT Excel method, hence we can look at stocks through this lens.

Elder candidates that require further screening in terms of effective volume, etc. are the following:

DMAN
LIZ
HAL
XTXI
MMR
HTHT
ELP
MOVE
PSS
LBY
SPPI
HMC
APD
MDR
HHS
JBHT
DOLE
GSK
IDXX
FCT
ZZ
WAVX
PACR
FRO
DNDN
AIB

As always, enter on strength, not on weakness.  Look for prices above yesterday's HIGH (not close) and on volume that is higher than the prorated volume I discuss (look for blog tag "Volume").

I'm sitting on the side lines for the most part, list notwithstanding.

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

Remember, you are responsible for your actions, and I am not. Please trade responsibly and of your own thought process.  I cannot possibly communicate all of my thoughts in written form, which places you at a disadvantage if you try to follow my moves ....

Regards,

pgd


Sunday, November 21, 2010

November 20th Weekend Update

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Pull up a comfortable chair and relax for an hour ... I'm in a writing mood ...

Summary
  • From the perspective of the 40d/160d EMA chart, we have a new bullish pattern emerging according to the slopes, but the levels of the price index, the 40d EMA, and the 160d EMA suggest that we are in historical reversal land, so caution is advised.
  • All the LCR EMAs are inverted, through the 55d EMA.  This is bearish overall.
  • All the slopes of the LCR EMAs are pointing downward.  The database is shrinking day-over-day in terms of available LONG stocks to choose from, and this is bearish.
  • Although the slopes of the LCR EMAs are pointing down, the ROCs of these LCR EMA slopes are actually becoming less negative day-over-day.  This is the first step in reversing the contraction of the database recommendations, and is a ray of bull-light in an otherwise dark bear-cave.
  • The pricing EMAs are all properly oriented for a continuation of a bull-run.  
  • The corresponding internal slopes of the pricing EMAs are all pointing upward, which is bullish.
  • Friday was an upside reversal day in terms of bull behavior, which is bullish.
  • My Short-Term LCR Change Timer has signaled a move LONG.  It is okay to purchase the VTI(150), IWM(150), QLD(200), TNA(200), UYG(185), UWM(200), where the number in the parenthesis is the days for the EMA threshold value (e.g, don't trade the VTI if the price is below that level determined by the 150d EMA).
  • My version of the Elder Force Index timer, which is an intermediate timing system, is in CASH.  I do not intend to move aggressively into long positions while this is the case.
  • Palladium looks compelling for a limited-position entry.
  • Heating oil has avoid written all over it for numerous reasons.
=============

HGSI's view of the GGT Universe

There obviously are a number of sites out there telling us that we have confirmed a down-leg in the markets and that we should avoid purchases of long stocks.  The question for me is whether I concur with all of these recommendations.

Let's start with my macro view of the universe, with a simple 40d and 160d EMA view.  Although I'm using the November 15th data file the implications are insignificant -- the universe does not change by more than 30 stocks or so on a week-to-week basis, which is about 1% of the total stocks evaluated.





What we see in the pricing window above is
  1. that prices are well above the 40d EMA, 
  2. the 40d EMA line is well above the 160d EMA line, and that the slopes of these two primary EMAs are positive in value;
  3. that the "slope of the slopes" are both pointing upward, letting us know that over the duration that these are moving upward that the database is accelerating upward in price, not just appreciating in price, and
  4. that the 40d slope has just crossed the 160d slope from below, which is typically a bullish indicator.
What is a bit more subtle is the amount that we are above the 160d EMA level.  If you look at the bottom of the figure you see a text bar; on the very right we see a value of -9.6%.  We are presently about 10% above the 160d level, and in the recent past when we've been at this level, it was not uncommon to see a downturn (e.g., on 5/4/10 we closed at the 40d and the level to the 160d EMA from the close was -9.1%, on 1/201/10 we closed at the 40d and the level to the 160d EMA from the close was -8.2%).  While the past does not predict the future we clearly are in the same zone as the past so we have to be vigilant.

So, from the perspective of the 40d/160d EMA chart, we have a new bullish pattern emerging according to the slopes, but the levels of the price index, the 40d EMA, and the 160d EMA suggest that we are in historical reversal land.

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

The LCR

So let's look at things with respect to some GGT tools.  Starting with the macro view of the LCR:







































The LCR moved up on Friday by +12% to 0.768, indicating that 1267 stocks are in some form of LONG status, and 1649 are in some form of CASH status.  Put another way, 43% of the database is bullish, 57% is bearish.

The LCR EMAs are all "inverted".  This means that the 5d < 8d, the 8d < 13d, the 13d < 21d, the 21d < 34d, and the 34d < 55d.  This is bad for a bull run -- period.

The LCR EMAs have no hope of realignment unless the slopes are pointing upward, so take a gander at the right side of the figure above.  Specifically, note that ALL the slopes -- 5d, 8d, 13d, 21d, 34d, 55d, and 65d are all pointing downward.  This means that day-over-day, the database of stocks with a LONG recommendation is getting smaller and smaller, and by inference, prices are going down in general within the database (remember that the movement from LONG to New Cash only requires a breakdown in prices, with no regard to volume).  More important is that until these slopes start pointing upward (turning green), we cannot have any hope of the LCR moving upward any significant amount.  This is dangerous for long positions.

This next graph is one of my favorite views:




























This chart plots the daily rate of change (ROC) for 3 EMAs of the long-cash ratio (LCR).  When the lines are in the upper half, the LCR is advancing upward (from any level), and when the lines are in the lower half (pink zone), the LCR is declining (from any level).  We are clearly in the lower half (losing ground) portion, which certainly confirms that the slopes of the EMAs on the LCR are all showing negative in the previous graph.

There is a subtlety though:  the three ROCs on the EMAs shown have reversed.  This is why I love this graph, or any type of slope analysis view of the GGT universe.  This is telling us the rate at which we are losing stocks to the CASH side of the universe is actually slowing, e.g., yes, we are still losing ground day-over-day, but the trend is slowing down.  The analogy (thanks to GGT, LLC member Ken Phillips) is that the "car is driving backwards and is slowing because your foot is on the brake".  When the car stops, the line will be crossing from the pink zone to the white area.

Now that you've seen the ROC chart, let's look again at a chart view that expands the normal LCR presentation:
























The right side of the chart above is new -- this is a presentation of the "slope of the slope" (SoS) of the EMAs on the LCR.  You can verify the SoS presentation with the ROC graph above -- we see that the 13/21/34 lines have been trending up for 3 days, and the ROC chart just presented.

The SoS data above shows us that the ice was thawing as early as Monday of this past week -- the 5d and 8d SOS values headed upward.  Tuesday saw them reverse, but on Wednesday the 5d-34d turned upward.  On Thursday the 55d and 65d also joined the party, and Friday confirmed the movement across the board.

You can see that in this market climate that the SoS LCR indicator is ultra sensitive to the market changes, so the longest streak of either all being bullish or all being bearish is about 6 or 7 days.

So the question becomes "So what?  So what that the LCR ROC is moving upward for multiple EMAs while being in the negative zone?  So what that the tabular SoS values are all green?"   Essentially, being in the pink zone tells us to be careful here, that as a whole, the database is losing stocks that have a LONG recommendation on a day-over day basis. The all-red nature of the LCR ROC chart tells us that ALL of the EMAs are pointing downward -- not a good thing for the bulls.  The green in the SoS table tells us that the rate that we're losing LONG stocks is decreasing -- which is good.  Eventually, the ROC of the LCR will become positive (green) -- the database will start expanding in terms of LONGS -- and we'll definitely be in a bull leg.

The ultimate question, as traders, is whether we should jump into the market right now.  The answer for me is "NO".  The LCR ROCs are all red, and this means the selection of good stocks at this point is really challenging because the pool of available GGT LONGS is shrinking.  This suggests that my ability to pick good stocks has to be perfect, and frankly, it is not.  I'm content to sit on the sidelines until we see some thawing in the LCR ROC presentation.

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

Friday's Behavior  - An Obvious Intra-day Reversal

Take a look at the following graph:



























I draw your eyes to the middle and lower plots.  The middle plot is the performance of the average of 10 long, 2x ETFs that span a good portion of the sectors of the market compared to their close 1 bar ago (in this case, 5-minute bars).  The bottom plot is the performance of the average of 10 contra 2x ETFs that span the same market space, e.g., the opposing side of the middle graph, which compares it's performance to the close 1 bar ago.

The middle graph shows that we opened weaker on the long side Friday morning, but that the contras were not correspondingly of the same magnitude in their opening strength.  This caused me some concern but the first 15 minutes of trading is generally a mess so I ignored it.

I've placed a blue arrow at the 9:55 a.m. point -- this is the peak weakness of the 2x longs, and the peak strength of the 2x contras.  What we have from here to the vertical line at about 12:55 p.m. is a battle that was eventually won by the bulls.  Once the afternoon session started the bulls came back in force, and this was a signal for me to close any contra positions that I opened in the previous two days -- EUO and FXP.  Well, I didn't see this behavior because I wasn't at my computer, hence I ran into the market close holding these two, which are presently underwater.  Is it any wonder?

So, new rule:  when opening new positions in the direction of market behavior, and the market reverses on the same day, so too should the new positions.

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

Everything Else GGT

Here's the balance of the GGT Dashboard:

































The GGT price index rose +0.8% on volume that was -14% lower than the 50d MA.  Considering that this was options expiration day, it is very odd that volume was so low.  Previously, options expiration days are very active.  Furthermore, three days of higher prices on lower volume is not a resounding "jump back into the long side of the market" signal.  Caution is advised.

Of particular interest is that the Slopes of the Pricing EMAs have all reversed and are now pointing upward.  This movement was of such magnitude that it caused all of the Pricing EMAs to resume their upward fan-pattern (8d > 13d, 13d > 21d, 21d > 34d and 34d > 55d).  This is inherently bullish and ultimately, since we put prices in our bank accounts, we have to pay attention to this.

Database strength increased from 0.604 to 0.634.  This means that internals on stocks improved, and this is short-term bullish.

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

20d Money Flow

This next section comes from http://www.effectivevolume.eu, run by Pascal Willain.  I'm a subscriber, and frankly, you should be too, because the content is spot-on and reinforces the genesis of GGT because of his treatment of volume and how it plays in the markets.

This is the present view of his system with respect to money flow (MF):





















Pascal observes that markets expand when the 20d MF is above the 0 line and markets contract when the 20d MF falls below the 0 line.  The behavior is consistent with GGT LCR behavior, which is another way to view money flow (if the GGT LCR is falling, stock prices are falling, hence demand is decreasing, e.g., money is being removed from equities).

The presentation shows that overall, money is flowing into the markets as a whole.  You'll need to subscribe to his web site in order to view which sectors.  The point here is that with the 20d MF now above the 0% line, we have a reasonable expectation of increasing prices within the markets.  This correlates well with the aforementioned GGT prices, pricing EMAs, and slopes of the pricing EMAs, so it is quite possible we could move up from here.

Overall, the markets have a bullish bias to them.  Despite this, we are and we have dove deep into bear territory, and I expect that due to the Thanksgiving week we will see range-bound behavior on lower volume.  Given the present condition of the LCR slopes (all negative) and the pricing slopes (all positive), I think that we are in a situation of cross currents so I'm content to sit on the side lines with the majority of my cash. 

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

Short-Term LCR Change Timer

The LCR Change Timer moved LONG with Friday's action, signalling that it is okay to move long into any/all of the following equities, provided they are above their moving average length (MA) as indicated in parenthesis:

  • VTI(150), 
  • IWM(150), 
  • QLD(200), 
  • TNA(200), 
  • UYG(185), 
  • UWM(200)
All are significantly above their MAs except UYG, which *just* finished closing above the 185d MA.

To play this timer, I'll enter positions early Monday morning.  We have four trading days this week, and historically, exiting into strength prior to the end of the week seems to be a good method to play the market.

For review, remember that small gains held over short periods of time give big annualized results if you are consistent in your performance.  Here's a table for your review:











I plan on setting an intra-day profit target consistent with my risk profile, and I'll be happy with any type of gain if it materializes.   

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

Intermediate-Term Elder Force Index Timer

Here's HGSI's view of the GGT Universe, using my Elder chart:




























Here's the argument for being bullish in terms of Elder's indicators:
  1. Bull Power is positive at 4.41
  2. Although Bear Power is negative at -2.58, the magnitude of this is smaller than Bull Power, giving the edge to the bulls
  3. The MACD histogram is moving in a positive direction
  4. The slope of the 13d EMA just moved positive at $0.038/day
  5. The slope of the 34d EMA is positive at $0.32/day
  6. Prices just closed above the highest EMA (close:  $279.24, 8d EMA = $277.07)
The argument for waiting to jump in to the markets (all the previous discussion not withstanding):
  1. Bear Power is negative.  This is not a resounding bull.  When Bear Power goes positive the bulls are firmly in control -- this is not the present case.
  2. The MACD and MACD signal lines are in the upper half of the chart.  This means we've already run a good distance, and are now in the process of pulling back.  Any bulls from this point are most likely short-lived and are not consistent with an intermediate-length timer.
  3. The slope of the 13d EMA is below the slope of the 34d EMA.  Until the 13d crosses the 34d from below, we are early.  Period.
Furthermore, GGT's method of calculating the 13d Force Index has the raw value of the FI(13) as negative by 21,000.  This is so close to the 0-line that the ambiguity suggests that I play it safe as far as longer-termed holdings.  Hence, I'm content to sit on the sidelines with the majority of my intermediate-term cash.

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

GGT Top 25 Stock Portfolio

This is a new portfolio that I am forward testing in real-time that is always invested between 65% and 100%.  Because the LCR slopes are all pointing down the portfolio is presently 31% cash.  Stocks are updated every Thursday morning and depend upon their ranking within the GGT universe as of the close of the markets on Wednesday.  Stocks are ranked by a combination of their 65-day performance (65 days = 13 weeks = 1 quarter), the consistency of this performance (high performance but high variance is NOT rewarded well, high performance and low variance is rewarded quite well), and the status of their GGT recommendation as of the close of markets Wednesday night (only New Long, Affirmed Long, or Long positions are eligible).  Right now the portfolio can hold up to 25 positions, although I am doing some testing to determine whether holding a number less than 25 improves the Calmar Ratio, Mathematical Expectation, and Pessimistic Return Ratio.   I'm also starting the same process in an ETF portfolio using the same methodologies, but because of the availability of contra ETFs, we may see a better or worse performance.  Time will tell.

For the prior week the portfolio increased +0.59%, and from inception on 10/28/10 the portfolio is down -0.63%.  I will continue to manage this portfolio in real-time and after we get 30+ trades or so we'll see where we lie, e.g., whether this should play a core role within our GGT, LLC "put our money where our mouth is" portfolio, which started trading November 5th, 2010.

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

Palladium

The only ETF that I can find that involves palladium is PALL, which is an ETF that holds physical palladium.  The chart is compelling:





























Reasons that I am considering a position in palladium at this time:
  1. Bull power is very positive
  2. Bear power is positive, which is bad for the bears
  3. The magnitude of bull power exceeds the magnitude of bear power, so the balance is clearly in the direction of the bulls
  4. Elder's 13d Force Index (both EMA and SMA methods) are clearly positive
  5. The MACD histogram is moving more positive
  6. The slopes of the 13d and 34d pricing EMAs are clearly positive
  7. The slopes of the slopes of the 13d and 34d pricing EMAs are pointing upward (accelerating upward)
  8. The closing price on Friday was above the strongest price EMA
  9. The ETF is fairly liquid at $24M*share levels
Reasons to back off on a 100% position in PALL are:
  1. The MACD and MACD signal line are in the upper half of the MACD chart, and they are falling (reduce position 50%)
  2. The MACD histogram is negative in value (reduce position another 25%)
  3. The slope of the 13d EMA is below the slope of the 34d EMA, but they are closing with any strength
Given this, I'm going to wait for the 2d Force Index value to move negative, then I will enter PALL with a 25% position provided that the day of entry is on strength.  Monday is not the day, simply because the 2d Force Index is clearly positive.

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

Heating Oil

In general, the $*Volume level of the UHN ETF (the only heating oil ETF that I can find) is very low at $227K*shares, which is far below my $1M*share threshold and far below other's $3M*share levels.  While I'll not present the chart, here's the rationale for avoiding this ETF:
  1. Bull Power is negative
  2. Bear Power is negative, and more so than bull power.  The bears are firmly in control.
  3. Elder's FI(13), both methods, are both below 0.
  4. The MACD histogram is heading more negative day-over-day
  5. The slopes of the 13d and 34d EMAs are both 0 and pointing downward
  6. Prices closed below the 40d EMA

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

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

Regards,

pgd


Friday, November 19, 2010

Contra China Looks Appealing, LCR Indicates Further Problems with Bull Picture

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Summary

  • Despite the advance of the markets on Thursday, the Elder Force Index timer is still in CASH.  This is bearish.
  • Through the magic of averages, ALL of the LCR EMAs are inverted with respect to their next higher-length EMA.  This is bearish.
  • All of the slopes of the EMAs on the LCR are negative, e.g., they are all pointing down.  Until these start pointing upward we're going to have fewer stocks to pick from.
  • As you would expect, the slopes of the pricing EMAs changed somewhat yesterday.  The 5d is pointing up, as is the 34d and 55d.  We need the 13d and the 34d to reverse too, and until they do, caution is advised.
  • Contra China is appealing.
=================

The Dashboard





















As with all my images, right-click on the figure to open it in another window or tab.

The GGT price index moved up +1.66% on Thursday on volume that was par with the 50d MA of volume.  Majorly rising prices on normal volume isn't a perfect situation -- I'll be looking for another rally day here by Wednesday of next week (Thanksgiving anybody?) to give us some view that we've bounced and are resuming some upward-march to nowhere.

The 8d/13d pricing EMAs are inverted; all the longer ones are still aligned for a bull.  This is tempered somewhat by the slopes of the pricing EMAs -- while the 8d started pointing upward on Thursday, the 13d and 21d are still stubbornly pointing downward, which isn't good for a bull leg.  We're not out of the woods yet.

The database strength moved upward from 0.249 to 0.604, indicating that a great number of internals gained steam on Thursday.  The strength calculation weights "rate of change" of price, and as many of you know, we saw a major jump upward in many stocks, resulting in the ROC flag.  We're in a fair-value zone now -- neither overbought nor oversold, so the database can go where it may with about equal probability.

The LCR system is decidedly bearish -- in fact, ALL of the LCR EMAs are now inverted, which hasn't occurred since August 20th.  This is a problem for a bull leg from here.  With respect to the LCR slopes, they are all still pointing downward, which is telling us that we are in a correction of some sort, and have been since  November 11th.  Trying to pick long stocks for the intermediate-term, until these start turning green (rightmost side of the figure above), is simply fool-hearty.

Futures are down as I write this, partially due to China raising the required reserve ratios to 18.5% for big banks, which incidently, is an all-time high.  This has the impact of slowing down the Chinese economy, which should reduce the chances of inflation within that nation.  It means demand goes down, which hurts our production output, reducing revenues but increasing idle capacity.

The other reason Futures are down is that Europe is bailing on holding stocks across the weekend, hardly a vote for a bull market.  Lots of uncertainty, and because of this, I am very light in my holdings.  In fact, I hold two stocks:  DYP, because they have the equivalent of $3 of cash on hand and the price right now is discounted to $2.78 due to a messed-up management team (a purely speculative play that Hsin talked me into), and EUO, because I feel that the euro is topped out and the downward motion of the currency is highly likely.

I'm not overly excited about jumping into the market right now, but the complete inversion of the LCR EMAs suggests that I need to position myself on the contra side of the world.  Perhaps.

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

Short-Term LCR Change Timer

This timer remains in cash, and has been here since November 10th.  It did transition to CASH-LONG (0) with Thursday's action, and barring some weird internal bull run with the LCR today (watch the ADV/DEC line at FinViz), I anticipate it falling back to CASH (-1) with today's action.  This being said, it is quite possible that it will move long if the aforementioned ADV/DEC ratio significantly favors the ADV side of the equation, so pay heed near the end of the day and act accordingly.  Acting accordingly is simply purchasing a position in the VTI(150), IWM(150), QLD(200), TNA(200), UYG(185), UWM(200) if they are above their EMAs as indicated by the number following the symbol.  I'll leave it to you to do your homework in determining whether these positions are actually above or below the indicated EMA.

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

Elder Intermediate-Term Force Index Timer

My GGT system is indicating that the raw Force Index for the GGT system is at +2,382.  Putting this in perspective, this value is normally in the x00,000 range, and there is no ambiguity.  Any weakness in volume OR prices today will cause this value to move back under water, keeping the raw Force Index below 0 and confirming the other Elder indicators.

Problematic here for the bulls is that the slope of the 13d EMA is pointing downward.  In my world this negates the Elder Timer, hence we are in CASH as far as Elder is concerned.  

The point here is that the Elder system is right on the edge of the cliff -- it's subjective in terms of interpretation as to whether we move into stocks long at this point or continue on the contra beat -- right now, the bias is down, hence contras win.

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

GGT Top 25

As an exercise in forward testing, I'm testing the GGT Top 25 strategy in a walk-forward basis.  I started this strategy on 10/28/10, and in this time it has risen as high as +2.2% and has fallen as low as -3.2%.  Yesterday saw this portfolio rise 1.6% with a 65% investment level, but it is underwater by -1.0% since inception 3 weeks ago.

This is an always-long strategy, and the only variable that I can play with is the cash level on hand.  During times where the LCR 65d slope is pointing downward I can drop to as low as 65% invested, but when the LCR 65d slope points up I intend to be 100% invested. 

The stocks that are presently held were presented yesterday, and these will change every Thursday morning (with the close of the markets on Wednesday).  Right now I simply drop the stocks that are not in the top 25 list and purchase those stocks that are newly appearing.  Rotation within the top 25 is less than you think -- while a stock may move from the number 2 position to the number 14 position, it still is within the portfolio and is being held.

Selection of the top 25 is based on whether the stock is a GGT LONG, the overall strength of the stock, and how it has performed over the last 65 trading days.  If the upward-slope is good, the variance is small (e.g., not wildly volatile), and if it has some form of LONG status, then it goes into the top 100 list.  From here I look at historical GGT strengths and trends and pick those with the most consistent strength over the last 65 days.  "I do the work so you don't have to."

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

China

My HGSI index of China stocks is challenged on the long side.  Bull power is negative, Elder's 13d Force Index is negative for several days, the MACD histogram is negative, and the slopes of the 13d and 34d EMAs are negative.  Furthermore, the 8d EMA is below the 13d EMA and both are pointing downward.  Going long on China is not advised.

On the contra-China side, I like to start with the Direxion -3x leveraged contra CZI.  Here's the chart:































Here's what I like about the -3x contra position on China:
  • Bull power is positive (bullish)
  • Bear power is positive (very bullish)
  • The magnitude of bull power is > magnitude of bear power (bullish)
  • Both Elder 13d Force Index methods (EMA, SMA) are both positive
  • The Elder 2d Force Index is negative.  This establishes entry today if we move up on strength.
  • The MACD histogram is positive
  • Both the MACD and the MACD signal line are in the lower half of the window, enabling a 100% position
  • %B is 0.62, suggesting considerable upside room
  • The slopes of the 13d EMA of price and the 34d EMA are both positive
  • The slope of the 34d EMA is pointing upward, so we are gaining profit on this time scale (acceleration)
  • The 8d EMA on price has closed above the 13d on price
  • Price has closed above the lowest price EMA (13d)
  • Volume is improving day-over-day
On the negative side, here is what I don't like about the -3x contra position on China:
  • All the EMAs are below the 160d EMA, which is early.  This suggests that we reduce a 100% position by at least 50%
  • We've only had 1 crossing of EMAs from below, the 8d and the 13d.  We need further confirmation, so this further confirms the 100% reduction to 50%.
  • Volume is very low.  @ 40K shares, the $*Vol level is only $697K-shares, which is far below the radar for the "whales".
Because of this latter point (the $*Vol level), I'll not consider the -3x, but will look at FXP, the -2x Contra ETF.

FXP has a $*Vol level of $15M-shares.  This is a good candidate for institutionals.  Here's the chart:































This chart closely resembles the -3x CZI chart that I presented above.  The methodology presented above for CZI applies here, and because the dollar-volume is significant, I think that this is worthy of my hard-earned dollars.

The high yesterday for FXP was $28.47.  Premarket is already trading at $28.90, so I will pick up a 50% position in FXP in premarket.

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Copper

Copper, as measured by the ETF CU and the ETN JJC, is underwater.  Perform the analysis above and the first person to post their rationale for avoiding copper (and is correct) wins my praise for the day.  :)

To my knowledge there is no way to play copper on the contra side in the US; if this is incorrect please let me know.


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The Pound

FXB is the only way that I know how to play the British Pound.  Presently, it's in quasi-bull/bear land, with a slightly positive bull power, a slight negative bear power, negative Elder 13d FIs, negative MACD histogram but a histogram that is improving, and slopes that are negative but are starting to trend up.  

Until we get a clear bull signal from FXB, I'm avoiding.

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

Regards,

pgd

Thursday, November 18, 2010

Bearish Price/Strength and Price/LCR Divergence

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Summary
  • Rising prices but falling strength index does not point to a healthy bull market.  This is our current situation.
  • Because of rising prices, we see that the slope of the 55d EMA on price has turned up.  This is necessary for a bull run to resume, but note, all the EMAs below the 55d are still pointing downward.  This effectively will continue to kill the bull if these do not reverse.
  •  The LCR continues to fall despite the increase in prices, giving us another bearish divergence.  The synchronization of the LCR and the strength index presents a bearish bias to the market, futures up nearly 1% as I write this notwithstanding.
  • I'm going to let the divergences work themselves out before I commit substantial monies to the market.
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Let's start with the dashboard:





















As with all my images, right-click on the pictures to open in a different tab or window.

The GGT price index rose +0.43% on Wednesday on volume that was -11% below the 50d MA.  Rising prices on lower volume does not make for a raging bull, but -11% is within the standard deviation of being normal, so read into this what you may.  I don't think it is a great sign.

The pricing EMAs are intact, with only the 8d < 13d.  This means that the decline that we have experienced (nearly 10% in GGT prices) is still not enough to cause these EMAs to invert, which overall is bullish.

Wednesday saw a bit of recovery in the pricing slopes, with the 55d pricing slope turning upward.  Hence, although we are still pointing down on the 8d, 13d, 21d, and 34d, this drop over the last week or so has not been severe enough to persist when we have an up day.  I take this as a crack in the bear ice and we need to be ready to play the markets to the upside, should the indicators point us that way.

Despite the increase in prices, the underlying strength of the database fell -5.9% on Wednesday, which means that we have a divergence, and in this case, a bearish one.  Strength is a function of a number of things -- prices, volume, and rates of change -- whereas price is simply that.  A falling strength means that the underlying number of stocks in the database is not supportive of the increase in price, volume, and/or rate of change, and this generally is not a good thing.  Either 1) GGT prices must fall to align themselves with the falling strength, or 2) strength must improve in order to support the increase in prices.  Only time will tell.  This is a bad sign though, because the strength index is broad and deep, whereas price is simply broad.

Note that the strength index is at 0.249, which is the lowest value it has been at since July 2010.  This does suggest that we could see upside movement, as a number of stocks have "reset".

The Long-Cash Ratio (LCR) fell an additional -9% on Wednesday, aligning with the fall in the strength index, but giving us a bearish divergence against the rising price index.  The final value of 0.585 indicates that we have 1076 stocks that have some form of LONG status and 1838 stocks with some form of CASH status.  Put another way, 37% of the database is LONG.  The bearish divergence between the LCR and price cannot be sustained, much like the price/strength divergence.  Either we will see 1) GGT prices fall to align themselves with the falling LCR, or 2) the LCR must reverse and move upward to support the increase in price.  The fact that LCR and strength are working in synchronization tells me that we have a sustained bearish bias in the markets, futures being up nearly 1% notwithstanding.

Overall, the bias is downward, but with the GM IPO today, the govern't need to save face in view of the GM IPO (if the GM IPO fails Joe-Taxpayer will NEVER allow the government to bail out any company going forward, giving the market no reason to move up because a safety net will have been removed).  Hence, today is a sucker's rally, as there is too much news to play.  I will be content to sit on the sidelines and watch. I need these divergences to work themselves out before I commit substantial cash to the market.

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Short-Term LCR Change Timer

The timer is now in it's 6th day of being in CASH.  The GGT index has fallen nearly -9.3% in this time, so I suppose that this is a good timer to watch.  I plan to stay the course for my short-term investments.

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Intermediate-Term Elder Force Index Timer

This timer has been in CASH for the past 4 days, with two days confirming out of this 4, and is telling us that it is NOT prudent to play positions for the intermediate-term.  Hence, I'm not playing positions.

Nevertheless, I run an internal portfolio of Elder candidates that are showing strength in light of existing market conditions.  Here's the list of candidates going into Thursday's action:

PETS
AHS
FALC
STRA
AIB

Note that AIB is early, as the slope of the 34d EMA is negative but will cross into positive territory if the stock moves up.  Note that with all the noise about Europe and the PIIGS, you may want to avoid this equity.

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Top 25

We've had a major rotation in the Top 25 since last Wednesday.  Here's the new list:


ABV
AZO
BBL
BIDU
CKH
CLW
CMG
DRQ
FCX
FFIV
FOSL
GYMB
IBM
LNN
MIDD
NFLX
NOV
NVO
PCLN
PH
PXD
RL
UFS
UNP
WLL

I launched this portfolio a couple of weeks ago (probably not a great time to launch a new concept), and we have fallen -2.7% since that time.  Note that CLW and MIDD are new additions to the Top 100 source list, as they were New Longs or Affirmed Longs within the last week and have maintained this status.  All other stocks have moved up in the leader's list, which I find interesting.  Under the rules of this test portfolio I will purchase equal-weighted positions with available cash, and will sell everything not on this list.

The Top 25 does not use any form of Elder criteria to enter/exit.  It is purely managed once per week.

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India

In general, India's long stock market, as measured by the ETFs FNI, EPI, PIN, INDY, INR, INP, and ICN is moving downward:

  • Bull power is negative
  • Elder Force Index is negative, both methods
  • MACD histogram is negative and trending downward
  • The slopes of the 13d and 34d EMA on price are pointing downward and the 13d slope is below 0 (losing money day over day)
  • The 8d EMA on price just crossed the 13d EMA from above, which is bearish.
I see no compelling reason to do anything with India at the present time.

INDZ is the Direxion -2x leveraged contra ETF for India.  While it looks compelling for entry, the volume is very low -- 7300 shares on 50d MA of 4442 shares -- it simply isn't liquid enough for me.  But I'll keep checking it week over week...

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Platinum

Platimum has reversed off of it's peak on 11/9 and is plunging, preventing any form of long entry.  Here's the setup:

  • Bull power is negative
  • Elder Force Index is negative, both methods
  • MACD histogram is negative and trending downward
  • The slopes of the 13d and 34d EMA on price are pointing downward and both are below 0 (both are losing money day over day)
  • The 8d EMA on price just crossed the 13d EMA from above, which is bearish.
I'm avoiding any long position in platinum.

Although PTD is the -1x contra ETF for platinum, there is no volume to speak of.

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Natural Gas

My NatGas index, formed with UNG, GAZ, FCG, and UNL, has just moved long.  Here's the composite chart:






























The challenge here is that it's been long, moved to cash per Elder with Tuesday's action, and has just moved long again.  On the positive side it seems to beholding the 40d MA with the close Wednesday, so we may see it move up from here.  On the negative side Bull Power is barely positive, the MACD histogram just moved negative, and both the slopes of the 13d and 34d EMAs are negative and pointing down.

I plan to avoid NatGas for now.

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The Yen

The Long Yen, as measured by the FXY and the JYF, continues to collapse, so there is no change here.  I plan to avoid the Yen.

The YCS is the -2x leveraged contra ETF of the Yen, and it looks interesting:




































Of significance here is:

  • Bull power is positive
  • Both Elder Force Index methods are positive
  • MACD histogram is positive
  • %B is 0.78, suggesting more upside room exists
  • The slopes of the EMAs are positive and pointing upward.
  • 8d EMA of price just crossed above all the other EMAs, which is a very bullish indicator.
  • Volume looks good overall.
Here's what GGT has to say about YCS:




Correspondingly, I will pick up a position in YCS if it continues to show strength today.

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Remember, you are responsible for your own investment choices, not I.  Please take ownership for your work.

Regards,

pgd