Tuesday, March 29, 2011

Stay the Course on the Long Side

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Summary

  • The GGT price index fell -0.35% on Monday on volume that was -20% below the 50d average.  There was no conviction in the selling so I am not concerned at this point.
  • All of the pricing moving averages are gaining on a day-over-day basis.  This is bullish for prices.
  • The GGT Price Accumulator, which guides me on entry of new stocks/ETFs, remains at a value of 0 which is dead-smack-right-in-the-middle-of-the-scale, e.g. neutral.  The markets can go either way on us, and the risk/reward profile for entry of new positions is balanced.
  • Database strength fell on Monday to 69%, and indicates that we have a considerable amount of fuel in the tank should the markets want to go higher.
  • The short-term timers are all still LONG, although they gave up some ground yesterday.  The earliest these timers could move to CASH would be with the close of markets on Wednesday, and both days would have to be Long-Cash Ratio down days.
  • The intermediate-termed Elder Force Index timer is solidly LONG, and has been for 3 consecutive days. This is bullish for stocks.
  • Despite the GGT price index falling, the Long-Cash Ratio (LCR) INCREASED yesterday, showing underlying strength in the database.  Granted, the change in the LCR was only +5%, but an increasing LCR when prices are falling on poor volume is bullish for stocks.
  • The LCR moving averages are more-or-less unchanged from yesterday (see yesterday's blog).
Overall, I'm bullish on the short-term market, given the data through the close of Monday, March 28th.

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Holdings

I'm presently holding AZO, CAT, DOG (laughing out loud right now ... "CAT", "DOG", get it?), FXP, OPEN, PCLN, SH, and SJM.  I received a note over night asking how I'm managing my positions so here's a blow-by-blow accounting of my thought process for each:
  • All the non-ETF positions are rated as GGT LONGs.  There is no reason to sell from GGT's perspective.
  • AZO came under pressure yesterday, but Effective Volume (EV) remained constant/somewhat increased on the day, giving me confidence to hang in there.  AZO cleared a Darvas box on 3/24 and made a new 52w high on 3/25 on increasing volume.  17d, 50d, and 200d moving averages are all in an uptrend.  My price target for AZO is presently 8.1% over my purchase price, or about $295.  The reward/risk level with AZO is lower than I like (presently 0.479), but it has consistently beat earnings since 2008 so is a quality company.  I'm trying to get to a 15% position in my portfolios in AZO.
  • CAT has been falling out of favor in terms of institutional sponsorship as of late, making the recent series of new 52w highs somewhat tenuous.  The stock has solid 50d moving average support and is well above the 17d line.  Volume has been steadily increasing for a couple of weeks, despite the lack of institutional buying.  CAT recently issued earnings guidance that beats estimates, which is a good sign.  CAT has consistently beat earnings estimates since April 2009.  My reward/risk ratio for CAT is better than AZO at 0.896, but with a dividend yield of 1.61% we're near my ideal consideration point of 1.0.  My price target is about $114. I'm trying to get to a 39% position in CAT.
  • DOG is the inverse ETF on the DJ30 and all I'm trying to do here is hedge the top of the markets right now.  I'm down -2.22% on the position since entry, but EV has been steadily increasing, as has average volume on both the 8d and 40d time frames, so I am not alone in my thinking that a hedge is a good place to be right now.  I have removed my stop loss on the position(s), simply because I hate stop losses. If it closes below $41.39, which is the floor of the Darvas box that it is operating within, I will have to seriously evaluate exiting the position early the following day.
  • FXP is the inverse ETF on the Xinhua 25 exchange in China, and it is presently down -4.44% since my entry.  Volume has been increasing with this one, and someone liked it enough on 3/23 to purchase 354K shares in a 1-minute block.  It's still operating within a Darvas box with a ceiling of ~$31.16 and a floor of ~$27.31, so there is no reason to exit at the present time.  Of course, a close below the floor of the Darvas box will cause me to reconsider.
  • OPEN has short-term institutional support, as determined by an 8d EV window, but the 40d is relatively poor but is increasing.  OPEN has beat earnings estimates every quarter since it went public in 2009.    The stock broke out of a Darvas box on 3/22 and hasn't looked back since, making 52w highs nearly day-over-day (except yesterday).  17d, 50d, and 200d moving averages are all upward-trending.  Again, the reward/risk ratio is a bit low for my liking at 0.573, but it is performing nicely at the present time.  It is nearing it's upside target of $104 so I may be exiting soon (I should have exited yesterday at my profit target but I was away from the PC and omitted setting a stop target).  I'm presently a bit overweight in OPEN, with a target of 2%.
  • PCLN has good EV and good 50d support.  It has consistently beat earnings every quarter since 2007.  It is presently guiding in-line for the next quarter, to be released ~ May 10th.  The stock made a new 52w high on 3/24 and it continues to push higher, with the 17d, 50d, and 200d all pointing upward.  A bit of a warning sign is that while EV is good, average volume is decreasing, giving me pause to the higher prices.  The reward/risk ratio is 0.582, again lower than I like.  My price target on PCLN is ~$540, and my position weight is 10%, which is my target.
  • SH is the contra ETF on the S&P500, and it is down -1.63% since my entry.  Effective volume has been increasing steadily on this one as the price has fallen, so many people are flocking to this as a hedge.  Average volume has been decreasing though, and overall, it's not a good long-term core holding.  It just fell outside of the lower corner of a Darvas box so I'm in conflict -- it should be sold if it closes below $42 (which it did last night), but the steadily increasing EV shows good institutional support, effectively putting a floor in.  I intend to hold SH as a hedge unless it breaks down in EV.
  • SJM has great institutional support and continues to experience significant buying, independent of price.  The stock is experiencing a bit of declining average up-volume, so as we make new highs, this is somewhat worrisome.  It broke out of a Darvas box on 3/21 and has been bouncing around against a new 52w high since then.  The 17d, 50d, and 200d moving averages are all in an up trend.  It is presently above my price target and if I see EV break down in any regard, I will sell it.  Note that every time the price dips that Large EV moves upward, showing increasing institutional support.  SJM has beat EPS estimates every quarter since August 2008.   I'm significantly under my target position weight of 34%, and given that we're above my price target, I will NOT be adding to the position in the short-term.
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Trading Plan for Tuesday

I'm more or less sitting pat today.  Stocks are bouncing around as of 10.a.m.  I moved 100% of my wife's TSP into stocks yesterday, so it will be interesting to see how that experiment works with a good chunk of change.  I've got a solid watch list of stocks for consideration, all with above-average reward/risk profiles, so we'll see how they perform throughout the day.

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

Regards,

pgd