Thursday, April 14, 2011

We are close to a sell signal, but are not there yet...

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Summary

  • I conducted a seminar yesterday for High Growth Stock Investing; the video can be found here.  In the video I present evidence of why the markets are rolling over and why we should not initiate new long positions.
  • The Elder Intermediate-Termed Force Index Timer, when applied to the GGT universe of stocks, is 0.1% above the sell line using a simple moving average (SMA) method.  The exponential moving average (EMA) method has already been in CASH since close of business Monday.  If today's action is negative (futures are down -0.25% as I write this), we will have a confirmed sell of the long portfolio.
  • Effective Volume (EV) Money Flow (MF), which can be found here if you are a subscriber, is confirming a move to cash as of the close of April 11th (Monday), and if today's behavior is down, will move to a SHORT mode.
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Damage Control

I'm presently holding AA, CAT, DIS, FCG, GE, IYR, JPM, KOL, SLV and XLI.

IYR and XLI are Connors TPS trades and are performing as expected.

FCG and KOL are remainders of the Optimized ETF portfolio, and are both underwater.  FCG is down -4.18% into this morning's action, and KOL is down -2.39%.  FCG is within a Darvas box with a floor at $21.84, so it is not an outright sell on this metric alone.  Of course, the Elder and EV timers indicate that this should be unloaded.  EV on FCG has been deteriorating, so I'm seriously considering selling any intra-day bounce or the floor of the Darvas box, whichever comes first.

KOL is also within a Darvas box with a floor at $47.95, and it bounced off the floor two days ago.  Again, the timer models indicate sell, but the behavior in the box isn't a panic pattern.  Further, the EV charts, while showing some short-term selling, are showing longer-termed LEV support from institutionals.  I'm not as inclined to sell this position today unless it drops through the floor of the box and stays there on the 39m charts.

AA is being punished for "missing" sales, but in general, it's a solid stock on many fronts.  Short-termed EV has been selling, but overall, it still has considerable support over the past 40 days.  My sell price is $16.13, which is the top of the box that concluded on 3/18

CAT is another stock that is a great performer, but is being hit by perception that Japan will slow purchasing of CAT products, which is exactly BACKWARDS of what is anticipated within CAT.  It's bouncing around within a box with a floor at $97, but I can't let it fall that amount due to other money management rules that I have.  Hence, if it falls much further from the -5.51% loss that I presently hold I most likely will unload, e.g., if it falls and closes below the 50d MA on the daily it's time to unload.

DIS is a solid company that is performing well on the long term, but is not doing much of anything on the short term.  It's rattling around in a box with a floor at $41.25, which it has tested 3x, so unless it falls through the floor, I intend to hold.

GE has EV support but closed below the floor of my box yesterday, the floor being at $20.07.  Given this, I have to say goodbye to GE today.

JPM is a quality stock with a good dividend, but it got hit yesterday when Mr. D. made it public that we shouldn't look for an increase in the dividend any time soon.  Despite EV holding well, the stock closed below my sell point of $46.32, so I will say goodbye to JPM today.

I hold SLV in a speculative account and am up 12% since entry.  It appears that EV support is mostly from retail traders now, as the large folks are exiting and locking in their profits.  I will continue to hold, and my sell point is a close below $37.26.

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Contra ETFs and Shorting

I discussed contra ETFs in my video yesterday, and concluded that a few of them look attractive here, but only for trading and surgical strikes, not for any form of intermediate-length holding.

With last night's data, this position has not changed.

 Further, take a look at the following chart, which shows the VIX combined with a number of moving averages:



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

The figure shows the candles of the VIX and various moving averages.  I've placed vertical lines showing the dates when the VIX has closed above or below the ribbon.  Furthermore, you see the candles are colored red, blue, and green, which is Elder's system for buying/selling based on price action.

You can see that volatility is really low.  The VIX continues to close within a range, and overall, is not indicating a mass anticipation of increasing volatility.  This is BULLISH for the markets, NOT bearish.

I use the above chart as follows:
  1. When the VIX closes above the ribbon for the first time after having been long in the markets, ensure long positions are CLOSED.  We're not there yet.
  2. When the VIX closes below the ribbon for the first time after having been short in the makets, ensure that short positions are CLOSED.  Again, not applicable to our situation.
  3. The color of the candles influences my decisions.  A transition from a blue candle to a green candle typically will cause me to place trial entries in contra ETFs.    A transition from a blue candle to a red candle will cause me to lock in some profits, but keep the position open.
The chart is telling me to continue to hold my longs and not enter contra ETF or short positions.

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Trading Plan for Thursday

I intend to enter Connors TPS trades as the market makes new local lows.  I intend to unload GE and JPM.  I intend to sit pat on everything else unless my mental stops are hit.

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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