Wednesday, April 27, 2011

Broad Participation Underlying the Database; Be Aware of Potential Profit Taking on Bernanke News

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Summary

  • The GGT price index rose 0.67% on volume that was -4% below the 50d moving average.  -4% is within the "noise" of the market, so this was a good day in terms of prices.
  • The slopes of the pricing moving averages, which range from 5d in length to 65d, have now been positive for 4 consecutive days, with three of those days pointing upwards to "more positive" readings.  This is net bullish on the market.
  • The price change oscillator, which is a tool I use to determine overbought/oversold conditions, is unchanged at a value of 0.  This indicates that there is equal probability of a move up, as well as a move down, from this point (same as yesterday by the way).  Put another way, moving into stocks on the long side could have favorable risk/reward characteristics.
  • The GGT database strength indicator, which is an oscillator that moves between 0 and 1 and indicates stock participation in terms of prices and volume, has just moved to +0.862 from 0.695.  This is a large change for a single day and values above 0.8 are typically indicating overbought, so some caution at entering on the long side is advised.
  • The Intermediate-termed Elder Force Index timer is still in mixed mode.  Volume has not been high overall and as a volume-based timer, this one is not confirming the market in terms of price-volume.  December 2010 showed us that we can move upwards a significant amount without volume, so this is a datapoint more than a driver.
  • The slopes of the Long-Cash Ratio, which range from 5d in length to 65d, have now been positive for 2 consecutive days, with the last 5 consecutive days all pointing upward.  This indicates that the underlying database is participating in terms of volume and price, compared to historical levels, and that we should be moving long into the market.
Conclusions:  markets climb a wall of worry, and The Bernanke will be speaking, which will create volatility.  Overall, while we have some indications of a potential pullback, as of last night's data nothing suggests that this bull leg is in trouble.  I intend to buy the breakout off of a pullback, and I'm long VXX in the interim.

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Momentum

As a market timer, I'm interested in momentum.  One of the indicators that I've developed shows me overall momentum, relative to past history.  Here's the view:



As with all my charts/figures, right-click on the image to open in a new window or tab.

The chart shows that we are clearly in an upward trend according to the entire GGT database, measured in terms of prices and volume moving above historical thresholds where the stock price moved upward.  This is bullish, and while we certainly can reverse at any time, participation on the up legs has historically been healthy to our bank accounts.

Pricing Slopes

We're clearly bullish on time scales out to the 65d EMA on GGT price:



As you can see on the left side of the figure, we've been "green", which indicates a positive slope for the moving averages, for the last 4 days.  This means that on average, the prices of the database are moving upwards on multiple time scales.  This is important.

The right side shows us the "slope of the slope", e.g., whether the positive slope line is pointing upward or downward.  Out of the past 5 days you can see that we've been pointing upward 4 of the 5, which means that there is a net acceleration upward in day-over-day prices on multiple time scales.  This is important -- and it is bullish through last night's data.

Long-Cash Ratio Slope

The same presentation can be applied to the LCR, which gives us a combined view of price and volume behavior within the entire GGT universe:



Of particular interest is that we are green-green-green on multiple time frames -- this is bullish.

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GGT + Effective Volume

A number of stocks continually are meeting this screen, jumping up and down, waving their arms.  According to the Active Boundary numbers they are still showing good value.  Here's the output of the screen:










 
These stocks have been performing well overall for the last few days.  Give them a careful eye.

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

Regards,

pgd