Wednesday, May 4, 2011

Elder Force Index has moved to CASH, storm clouds on GGT horizon

.
There is a meeting on March 14 at the Great Falls Public Library in Great Falls Virginia.  Starting time is 10:15, although doors open at 10:00.  I will make every attempt to provide content via WebEx, but I do not presently know about the quality of the connection from this library.

=====================

Summary

  • The GGT price index fell -0.67% on Monday and another -1.17% on Tuesday on volume that is within the normal bell-curve of 50d MA volume.  The drop of 2600 stocks with an average over 1% is significant and we need to pay attention right now.
  • The slopes of the pricing moving averages are now BEARISH through the 34d time frame, which is not good for the bulls.
  • The "slope of the slopes" of the pricing moving averages has been downward for the last three days (through 5/3), indicating that not only are the aforementioned price/day changes negative, they are accelerating in this downward value, losing more and more each day.  This is not good for our portfolios.
  • The Short-Term VTI timer has signaled a move to CASH.
  • The intermediate-termed Elder Force Index timer that I apply to the entire database has signaled a move to CASH as of the close of 5/3.  This has been confirmed using both exponential and simple moving averages.  Initiating new long positions on an intermediate-termed basis is not advised at this time.
  • Over the last two days, the Long-Cash Ratio (LCR), which is a measure of the number of stocks in the database with a LONG rating compared to those that are recommended CASH, has dropped -11% on Monday and another -28% on Tuesday.  The present value is now 1.517, indicating that 1616 stocks have a long recommendation and 1065 have a cash recommendation.  The low point for cash-rated stocks was 803 which occurred on 4/29, so we have a significant increase in the numbers.
  • More ominous is that the slopes on the LCR are starting to turn negative, with all slopes below 21d being negative.  We want the database to be expanding (positive, green) during a pullback to give us confidence to enter, and right now, we are not seeing this trend continue.
Conclusions:  I think that the confluence of indicators showing a breakdown in price, price+volume, and long/cash recommendations suggests that we need to 1) not enter new long positions, and 2) employ good money management techniques if our long positions do not sustain their gains.

====================

Slope Analysis

The table below is a summary view of the GGT price index moving averages, all with a length of 5d through 65d.  On the left side of the figure, when the respective value is "green", we have a slope that is positive, e.g., the dollars gained per day is positive, and when it is red, we have a slope that is negative, e.g., we are losing dollars per day.



The left side of the table shows that we started to break down as far as the 5d and 8d moving averages this past Friday, this carried into Monday, and with Tuesday's close, we are testing the same waters as we have done many times in the recent past.  As you can see, we are at a critical level in this table -- we've not violated an uptrending 55d moving average since 11/16/10 (not shown), and the most recent instance of the 65d moving average being negative was when it transitioned from down to up on 9/7/10.  That's a long bull leg.

The right side of the table simply shows the "slope of the slope", or the rate of change of the left side of the table.  Hence, if we have green on the right, we are gaining dollars per day faster than yesterday.  Conversely, if we have red, we are losing dollars per day faster than the previous day.  As you can see, the most recent bearishness started on THURSDAY, 4/28, and has been solid and broad since that time.  

Because we put prices in our bank accounts, we must be cautious at this time.

==============

This next table is of the Long-Cash Ratio system.  Stocks in the GGT universe have two broad classifications -- LONG, which means price and volume are above historical optimized levels (it is outperforming compared to the last year), and CASH, which means that price (only) is underperforming the last year.  The ratio of these two classifications tells me the trend of the market from a deep-internal perspective.



The major crack in the bull ice right now is that the slopes of the 5d, 8d, and 13d moving averages are all negative.  On these time scales we are losing more stocks to the CASH side than we are gaining on the LONG side -- we are bleeding.  Investing long at this point is dangerous -- you are clearly swimming up stream against the current.

I can prove this assertion on the right side of the table.  We see that as far as the database is concerned, Monday and Tuesday have seen a greater outflow of stocks to the CASH side than an inflow of stocks to the LONG side, day-over-day.  The bleeding is increasing day-over-day, and this means that fewer stocks with a long rating are available today, and even fewer will be available tomorrow.  

Only buy stocks long when the right side of the table is green, which shows that we are moving upward in the number of stocks that are participating in the rally.  

===================

This last chart is one that I've kept my eye on for the past few months, and it has been a good tell of momentum in this POMO-driven environment.



This chart shows the GGT price index (red) compared to an accumulator of slope movement within the database (blue trace).  As you can see, historically, when we have entered areas near the yellow zone, we have been turned back.  With all indicators, this one could certainly fail going forward, but also, it has worked the last three times we have hit this zone.

Somewhat disconcerting is that it suggests that we could pull back to a level of $32 from our present level of $33.66, so we'll have to keep an eye on this as well as the other pivot levels of the S&P to see if we're violating any support.  I am somewhat concerned though, so again, no new long positions.

=======================

GGT + EV  (Effective Volume)

While I do not intend to move into new long positions, it is always good to review which stocks are meeting the GGT and EV screens:



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

The list is the intersection of GGT-above averaged ranked stocks with those that are experiencing improving institutional support as measured by EV.  All the stocks listed have a rating above 80.

Notable is that NOT ONE of the GGT stocks has a recommendation above Long -- this means that they are all experiencing some form of downdraft in price, but are holding above historical levels where they start to perform poorly.  Another notable is that we see buying continuing/surging for most, even though prices are dropping.  This is positive, and I suggest that you review each stock's LEV pattern to discern which ones have favorable (bullish diverging LEV pattern compared to the SmEV pattern.).

I'll leave that bit for you to work out.

====================

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