Wednesday, February 23, 2011

Elder Intermediate Timer is Sending Mixed Signals

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Summary

  • Macro indicator:  the GGT/Elder Force Index, calculated using a simple moving average, is quite long.  Conversely, the same indicator, calculated using an exponential moving average, which weights the most recent action heavier compared to the oldest information, has moved to CASH.  Successive down days of this indicator (EMA method) has historically been bearish.
  • Macro indicator:  the long-cash ratio (LCR) of the database dropped the 4th highest amount in 560 trading days (2.5 years).  This is significant as downward spikes such as this were typically followed by change in sentiment within two-three weeks.
  • We are now oversold, as a database.  I determine this by the average of database strength, which I calculate on each stock/ETF.  Given this oversold reading, I am expecting a bounce upward from here, but who knows how long it will last.  Any stock that breaks out above yesterday's high and that meets other selection criteria should be a good candidate for entry.
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The Carnage

There were 17 New Long recommendations in the stock groups yesterday, compared to 399 New Cash recommendations.  Obviously, the bears won the battle.  Of the 17, many of which are of lower $-volume, I can only find three that have been under any form of accumulation:
  • GBCI is a thinner stock, trading near $5.6Msh average.  It has seen significant price and volume action the past few days, ending yesterday higher on volume that was 83% above average.  The LEV pattern is one of accumulation by larger groups.
  • GIS held up well yesterday, finishing up on the day.  Furthermore, the stock has seen significant buying at the close and open of each day, and I would expect this pattern to continue. LEV is diverging from the small EV lines, showing continued accumulation.  The stock traded at 56% above average volume.
  • IVR has been under continued accumulation over the past 4 days, and it held up relatively well under yesterday's pressure.  Volume was lighter yesterday, but this was offset by accumulation as prices dropped, which I consider a positive divergence.
A number of ETFs popped into New Long status yesterday, and while a few of them are contras, most of them are not -- they're in the precious metals and energy complex.  I note with particular interest that almost all of the oil and precious metals ETFs are being unloaded, according to LEV, at these price levels.
  • VXX -- the short-term ETF on the VIX, the volatility indicator, moved higher throughout the day on volume that was 89% above normal.  LEV largely ignored this one until the afternoon, then all the price movement was due to institutional or big-lot buying.
  • FXP is the contra China ETF, and someone was bold enough to pick up over 300K shares @ $32 just after opening yesterday.  Total volume on the day was very high, exceeding 167% of average.
  • BND, the Vanguard bond fund, saw a tremendous amount of buying in the latter part of the day, forcing total volume up over 100% of average.  Contrasting, BSV, which is a short-term bond ETF, actually saw LEV distribution throughout the day on higher prices, so I'd avoid BSV in favor of BND.
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Trading Plan for Wednesday

I picked up positions in GLD, SLV, and SSRI yesterday, and will continue to hold onto them if they don't get crazy and drop in terms of breaking through a floor.  My position in HPQ is severely underwater, so I need to keep an eye on this and see what it's going to do.

One day does not a market make, and today should be a good buying opportunity for stocks that have sponsorship, so this is what I'm looking to focus upon.

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

Regards,

pgd