Wednesday, April 6, 2011

GGT Price and Momentum are Lofty; Staying the (Long) Course

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Remember, I'm traveling today through Sunday in Knoxville.  Blogs/analysis will occur as time permits.  Due to my travels, there is NO face-to-face meeting this weekend.  Please log into one of the GGT Yahoo! groups and answer the poll to which day(s) are best for you to participate in an evening presentation.

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Summary

  • The GGT price index rose +0.29% on volume that was -5% below the 50d average.  << Yawn >>
  • The slopes of the 5d through 65d pricing moving averages are all positive and they are pointing upward, which is bullish for our bank accounts.
  • The Price Accumulator Oscillator moved from +4 to +6, indicating that we have more risk in the markets than the previous day by a slight amount.  Of larger concern to me is that we're incrementally creeping up, and the longer we stay at incremental change levels, the greater the chance of a larger move either way increases.  Since the oscillator is inching upwards, my hat is tipped towards a downside move, but of course, my crystal ball is as good as yours.  +6 is right at that threshhold where you don't want to enter new longs and new contra/new short positions start to become more attractive.  Remember, this is a SHORT-TERM (almost day-over-day) indicator.
  • The stocks in the database are about 80% of their strongest levels in terms of pricing and volume.  There still is room to move upward from here, e.g., there are a number of stocks that could move higher, causing this value to increase.
  • The short-term Long-Cash-Ratio Change Timer is indecisive, and is holding at LONG-CASH (0).  All it will take is one down day to trigger this to cash.  Conversely, an up day will most likely move it back LONG (+1), resetting it.  We're on the fence post with this one.
  • The intermediate-termed Elder Force Index Timer is LONG.  I intend to only purchase equities on the LONG side.
  • The slopes of the 5d through 65d LCR moving averages are all positive and are pointing upward, indicating that the database is converting to LONG-rated stocks faster than the bears can convert to CASH.  This too is bullish for our bank accounts, and indicates that we need to be on the long side of the market.
Conclusion:  Stay the present course on the long side.  As a whole, prices are moving upward and are accelerating, and on a day-over-day basis the GGT universe is converting more to LONG-rated stocks than it is converting to CASH-rated, which means it is easier to pick winners.

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Momentum

I don't normally discuss the following chart, but we're nearing such lofty levels that it warrants attention.  As with all my images, right-click on it to open in a new window or tab:



The chart shows the GGT price index in red, and something called the GGT momentum index in blue.  I've artificially colored the areas on the chart where momentum was decreasing from a local peak to a local minimum, to make it easier to see where different periods influenced price behavior.  Of course this is all done in hindsight.

The first thing that should be evident is that price momentum can be waining yet prices can continue to move higher.  This is because we can still be moving upwards in prices, but doing so on a slower, day-over-day basis.  Again, using an analogy from yesterday, if I throw a rock upwards, it is losing momentum as it nears the apex of the arc, but it is still moving upwards until it hits the apex.  Same concept here.

What I find interesting is that during periods of consolidation in price, momentum is waining.   The converse is not necessarily true, but if we see momentum falling, it certainly is a warning flag.  Presently, we are continuing our increase in momentum, which bodes well for the present market.

I've artificially colored a zone at the top of the figure yellow.  This represents an area that is between the two largest momentum peaks of the past, and while we certainly can move higher than the last peak, we're entering an area that we historically have reversed within a few weeks.  

I watch this indicator daily, and if I see a reversal in momentum, I would view this as bearish on the intermediate term.  It doesn't mean sell, it simply means that locking in profits with tighter stops, or taking some off the table would most likely be my most prudent path forward.

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GGT and Effective Volume Candidates

I received a number of notes yesterday about my methodology on using GGT and Pascal Willain's Effective Volume.  The short answer is that I screen for all GGT stocks with a LONG rating, then I apply EV screens from Pascal's "Pascal(A)" that he has on his web site.  I then look for the strongest active boundary, EV, LER, and thrust stocks that are common to GGT.  From here, I individually screen each for specific EV patterns on new accumulation, using both an 8d interval as well as 40d interval.  I use TradeStation, so I'm able to see very detailed, intra-day views of stocks.

Here's the dashboard watchlist for April 6th:



I've NOT screened this beyond what is described above; you'll need to do that work yourself.  As always, do your diligence, be responsible, and take ownership for your actions.

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Trading Plan for Wednesday

I'm traveling today so my trading will be limited to a few hours in the morning.  I wasn't as successful as I wanted to be yesterday in deploying capital.  By the time I was able to get to my desktop, the market had already dipped and moved higher than the open.  I don't chase signals, and yesterday is a good reason why I don't -- the markets gave up most of their gains by the end of the day, which would have resulted in losses across the board for me.

I'm holding positions in AA, CAT, DIS, FCG, GE, GUR, IDX, and KOL, and all are looking solid.  Given the present status of the Price Accumulator Oscillator (+6), I'll most likely NOT add to these positions today.

No further discussion required.  :o)

Good luck trading/investing for the remainder of the week!

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Regards,

pgd