Wednesday, March 16, 2011

Caution is Advised, but Stock Candidates are Growing

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Summary

  • Since the 2/18 high, the GGT price index has fallen -4.6%.  In the big (intermediate-termed) picture, this is a minor pullback.
  • The GGT price index fell -0.92% on volume that was 22% higher than normal.  1 standard deviation is 24%, so this is notable and certainly can be called a distribution day.  This being said, we've only had three of these days that pushed 1 standard deviation since our peak on 2/18, so as far as I'm concerned, the sky isn't falling on the intermediate trend.  Under pressure, yes, collapse, no.
  • Price slopes continue to erode (see yesterday's blog), and we now have all EMA slopes less than 22 days in length under water and falling.  This is moving my sentiment towards an intermediate-termed bear but I'll need to see the 34d and 65d slopes underwater before I'm there.
  • Database strength is indicating that we are very oversold, and I expect a bounce here any day.
  • All short-term timers are in CASH, and if you have a time frame of a couple of days, you should be too.
  • The Elder intermediate-termed Force Index timer, which operates on 13d and 34d intervals, is clearly in CASH using two different calculation methods.  Historically, when this timer has moved to CASH you should not have intermediate-termed stocks on the long side within the market.
  • LCR slopes (again, see yesterday's blog) continue to erode and are completely bearish.  The relative change in these slopes is negative, so more stocks are moving to cash on a day-over-day basis than the opposite.  This means that the pool of stocks that you can choose from is getting thinner, with obvious implications.
  • You would have thought that the price change indicator that I use to determine short-term (couple of days only) reward/risk levels would have slammed against the negative rail yesterday, indicating that the reward/risk level was good for entry into stocks on a short-termed basis.  Not so.  The value moved from netural (0) to just under neutral (-4), giving a slight edge to the bullish side, but not by much.  I wouldn't get trigger happy on either side (bullish or bearish) at this point -- the upside on either longs or shorts is more-or-less balanced.  Given the oversold nature of the database strength, I'd err on closing shorts / contra ETF positions and securing those gains, and wait for a rally to re-enter shorts/contras.
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Intraday Performance of 2x ETFs

While we saw a steady recovery of the S&P500 yesterday from the initial sell-off at the open, the broader market did NOT participate.  This is worrisome for me, as I would have liked to see the trend spread across all sectors.  Here's the chart:



I explained this figure yesterday, but for a quick recap, the top trace is the SSO, which is a levered 2x ETF on the S&P500, the middle trace is an average of 9, 2x ETFs, subtracted from the performace of the SSO (e.g., we'd see green if the 9, 2x ETFs were outperforming the SSO), and the bottom trace is an average of 10, -2x contra ETFs, the latter average subtracting the performance of the SSO (e.g., we'd see green if the 2x contra ETFs outperform the SSO, which obviously, it did).

Here's how I interpret the figure, which gives me a view into market internals.
  • The middle graph started out bearish, with the broad (long) market significantly underperforming the SSO, which was also deep underwater.  You can see this as red in the middle graph.  We also see that the broad contra market (think of this as shorts on the normal market) were outperforming the SSO, and this can be seen by the huge green levels on the lower graph.
  • As the morning progressed, buyers stepped in or shorts covered, causing the broad market to move towards parity with respect to the SSO.  By noon EDT the broad markets were even with the SSO, which is when a few bars of "green" started appearing on the middle graph.  Hence, while the SSO was down on the day, all the markets were performing equally.
  • The gradual decline in the strength of the contra ETFs, shown in the lower graph, shows that the markets were becoming more rational, and simply that the SSO was clawing back, slowing gaining on the day.  The fact that we still had a significantly green level at noon EDT simply shows that on the day, we were net negative for long positions and net positive for contra ETF positions.
  • Where things started to diverge is after 1:30 EDT or so.  We see that the SSO, and the broader markets in general, more-or-less held their range until this time.  We see the flatness of this reflected in the SSO, the 2x ETFs, and the -2x ETFs.  After about 1:30 EDT the SSO started to march upward again, while the long ETFs lagged, this latter observation coming from the middle graph as it actually decreases in value while the SSO continues to increase.  This is a divergence that shows that the broad market was not participating at the rate that the SSO was moving upward, and it shows that not everybody is on board.  This is a warning shot.
  • After about 2:30 the SSO continued it's upward march, and the broad markets started to improve until about 3:45 EDT.  After about 3:45 the longs started selling, and contra positions started buying, so the mood at the market close was clearly one of bearishness, not hopefulness.
The "so what" in all of this is that we're not out of the woods.  Committing to either side at this point in time is not prudent, and with the uncertainty in the nuclear situation overseas, any bad news could send the markets heading south.

I personally will use any form of rally to move back towards contra positions.

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GGT - Effective Volume Stock Watch List

The following stocks are GGT long-rated stocks with favorable EV setups.
  1. PCP fell a significant amount yesterday but EV has held steadily on long and short time frames.  It seems to have a resistance line at the 50d, but if it closes above the 50d, this could be a good candidate.
  2. APKT saw a significant amount of buying with the overreaction of price downward at yesterday's open, and LEV held up nicely all day.  I see resistance at the 17d MA, but the 50d is strong and price is well above the 50d.
  3. CHKP is newly emerging on the longer time frame as far as accumulation is concerned, so this is early. This being said, it is respecting it's 50d very well, and within the last few days accumulation has increased.
  4. WAT has been under steady accumulation which accelerated yesterday.  On the down side, this one violdated its 17d, which is well above the 50d, so while it could drop a significant amount, risk/reward seems to be quantifiable.
  5. SUN continues to show steady accumulation on short and long-term time frames.  It's now well above the 17d, so I'd wait for a pullback to the 50.
  6. MDR didn't budge a bit to the downside in terms of LEV yesterday, while prices obviously sold off.
  7. NYX is seeing significant buying on the LEV side and distribution on the SmEV side.  This is relatively new, and stems from the hostile takeover rumors that are circulating.  Nevertheless, folks are moving into this stock aggressively, and it obeyed it's 50d well.
  8. FFIV continues to see accumulation on long and short time frames, and has tested the 200d twice and held.
  9. TEX is obeying it's 50d, more or less, and is seeing newly-emerging accumulation while the longer-termed accumulation is solid.
  10. GWW is at a confluence of the 17d and 50d, and yesterday's action caused it some problems, although it closed above this area.  Accumulation has been steady.
  11. Surprisingly to me, M has been under longer-termed accumulation and short-term is starting to take off.  I see though that the 50d downtrend mimics the price behavior, and now with the 17d and 50d converging, we need a close above the convergence point.  Watch this, as it's very liquid, but a wedge is forming.
  12. DLTR is holding up well and although it is well above the 17d, it seems well behaved despite recent downdrafts.
  13. WFMI is holding up relatively well and is well above the 50d.  Accumulation is relatively solid, although there was a bit of selling at the close yesterday.
  14. CAB has been on the list for days and I like it.  It is respecting the 50d, and LEV has been solid despite the recent selloff.
  15. I know semis are in trouble, but LSI has been doing well and needs to be on your list.
  16. MPEL is compelling, although it broke it's 50d yesterday.
  17. DUK has sold off, partly because it's got a number of permits pending, but overall, this is a good company. Disclaimer -- I work in this industry and know this company well.  It violated its 50d yesterday, and is a volatile stock, but LEV is solid on multiple time frames.
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Elder Market Cap Favoritism Candidates w/ Favorable Effective Volume

The following stocks meet Elder entry criteria that fits the rules within GGT, LLC and have favorable EV on short and long-term time frames:
  1. BIDU
  2. CHSI
  3. FDO
  4. CRDN, but this is a newly emergent breakout in terms of LEV
  5. TBL
  6. SJM
  7. SKS
  8. PCLN
  9. SWI
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Trading Plan for Wednesday
  • I'm biased to the down side for swing trading.
  • I'll consider entering Elder candidates if they show strength while the market falls, and they meet entry criteria, while the market appears to stabilize.
  • I'll consider entering GGT+EV stocks at 25% positions with well-defined stop losses, if they continue to show LEV stability while prices drop.
  • If the markets rally, I'll most likely enter contra ETF positions.
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Remember, you are responsible for your trading/investment decisions, and I am not.  Please do your diligence and please take ownership for your actions.

Regards,

pgd

Position disclaimer:  as of this writing I am long in EFA and IWM, which are Connor's TPS trades.