Monday, April 11, 2011

Continue to hold long positions; add on strength

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Summary

  • Our price index fell W-Th-F, dropping on slightly-lower but average volume.  I consider this neutral to bullish, as the selling is not attracting higher volume.
  • The slopes of the 5d and 8d pricing EMAs have turned negative, which is a short-term shot across the bow.  However, everything longer than the 8d is still positive going into Monday's action, which is bullish for the market.
  • The pricing accumulator change tool is indicating a value of -14, which means that on a short-term basis, it is favorable to enter stocks on the long side.
  • Database strength has fallen to 51%, which is an incredibly low value for a bull leg.  Typically, we need to see movement up towards 70% in short order to continue to have a bullish outlook.
  • The short-term Long-Cash Ratio (LCR) Change timer has transitioned to CASH with Friday's close.  If you're holding a position in the VTI, now is the time to close it.  You're looking at a 2.21% gain if you close at or above Friday's ending price.
  • The Elder 13d Force Index timer, which is an intermediate-termed timer, is LONG.  Having said this, it isn't long by much, and any continued weakness in the markets would cause it to transition.  We're at a critical crossroads in terms of the Elder timer.
  • The Long-Cash Ratio has dropped significantly the past two days, falling -10% on Thursday and -22% on Friday, ending the week at 1.695.  This means that for every stock that has a cash recommendation, we have 1.7 stocks with a LONG recommendation.  The raw value isn't as important as the trend direction, so watch for continued weakness in the LCR.
  • The slopes of the 5d and 8d LCR moving averages have turned negative, which shows that the database is losing steam.  More importantly, the direction of ALL slope lines is pointing down, which is bearish.  We need these to point upwards soon for a sustained number of days if we are to continue this advance.
Conclusion:  We have mixed indicators, so we need to see some strong price + volume action this week else I think we'll pull back.  This being said, there is nothing in my crystal ball which definitively says that we should not deploy capital, so I will continue to do so.

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Pricing Slopes

Take a moving average of a price.  Is it pointing upward?  If yes, the slope is positive and you're on the right side of the market.  Is it pointing upward more than yesterday?  If yes, you're making money today faster than yesterday.

This is the concept behind the following table:



On the left we have slopes of various-length moving averages, and on the right we have a measurement if the slope is gaining or losing momentum.  You can see that this Friday caused us to bleed on our sea of green -- two of our shortest-length slopes moved negative, which historically is a warning shot.  On the right you see the "slope of the slope", e.g., is the slope moving upward faster (green) or moving downward faster (red), on a day-over-day basis.  You see more red than green, so ALL of the pricing moving averages are under some serious pressure on the down side.

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Long-Cash Ratio Slopes

The equivalent analysis can be performed on the database in terms of stocks that are "healthy" (price and volume above historical levels) or "sickly" (price and volume below historical levels).



Of particular significance here is that we are seeing the same warning signs that we saw with the pricing table -- the 5d and 8d moving averages have turned negative.  The right side of the table tells us why:  the daily change in the slopes has been negative for three days running with these moving averages, hence they are breaking down.  Unless we see some reversal, this is not a good intermediate-termed condition.

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Price Accumulator Oscillator

The following graph shows us that buying when the oscillator is in the "green zone" can give us a better chance of entry and price appreciation.  Conversely, buying contra ETFs when the oscillator is at the top of the "red zone" can also have a good impact on our portfolio.



We are presently well within the green zone, and if the markets intend to move higher, this is a good time to buy stocks.  This being said, this indicator cannot be used in a vacuum, so I intend to enter stocks only if they are breaking out and the broader market is doing the same.

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Candidate Stocks

Given that we're in a buy zone for stocks, we have to be prepared to enter candidates if they move higher.  The following is my RAW watchlist for Monday; I have not screened these to meet further entry requirements, so you'll have to do your own work there:



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

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Trading Plan for Monday, April 11th

I'm presently holding AA, BAC, CAT, DIS, FCG, GE, GUR, HD, IBM, IDX, JPM, KOL, SLV, and XOM.  Here's a short view of what I'm seeing with these; note that ALL are in some form of GGT-long status:
  1. AA reports after the close tonight, and traditionally kicks off earnings season.  Effective volume looks good on the 8d and 40d scales, and overall price action has been bullish in this breakout.  Total volume is slowing though, so it bears watching.  It has typically held the 8d MA since this breakout occurred so I'm looking so see this maintained.  Adding to the position could be prudent if it clears Friday's high of $18.47.  
  2. BAC is struggling in terms of effective volume, and I may not tolerate any downside movement in this at all.  In review I should have never entered this position, as it is not performing to my standards.  I will exit the position today at $13.53 or above.
  3. CAT has just pulled back to the 17d and is on probation, and EV is holding relatively poor on the short-term scales as well as the longer-term scales.  What is does surrounding the 17d MA is important from here.  CAT reports in 18 days.
  4. DIS just closed below it's 17d and 50d for two consecutive days, which is not a good sign.  Longer-termed LEV is poor.  I will most likely unload it if it continues to break down.
  5. My buy point with GE was poor, but overall, I like how this one is performing.  I'd like to see LEV continue to increase from here.
  6. HD is gaining slowly but has poor LEV characteristics.  I'd like to see it move aggressively up from here, but it is not showing any strength. 
  7. IBM cleared a Darvas box that closed on 3/29 but hasn't moved upward since then.  It's very close to my mental stop loss of $162.74.  Volume appears to be waning, and LEV sponsorship is poor.
  8. JPM looks solid on may fronts and is a keeper.
  9. XOM looks solid in price and volume action, although LEV is relatively poor. I'll most likely unload it and wait for LEV to support the price movement.
  10. I hold SLV in a separate account and it is performing well, setting new highs daily and showing increasing volume.  Institutional support seems to be decreasing and retail support increasing, so my stop loss will keep moving up on this.  $37.26 is my floor.
  11. FCG continues to perform well in terms of price, and institutional support is growing.  A warning sign is that volume is dropping off, so this one bears watching.
  12. GUR continues to perform well on all fronts.
  13. IDX continues to perform well, but volatility is increasing, which is a warning sign.
  14. KOL has great institutional support and is pulling back to it's 17d MA.  I'd like to see it hold the MA and keep the LEV support; we'll see what happens.
If I see any breakouts that have good LEV support, I'll most likely move 25% into one of those positions.

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

Regards,

pgd