Sunday, June 26, 2011

June 24th Weekend Update - Trendless & Difficult


GGT Price Slope Model

A review of the GGT macro indicators shows that there was damage done on Friday. The GGT price index fell -0.78% on above average volume of +28%, but the volume was due (in part) to re-balancing of the Russell indices more than a broad sell off. This being said, the Price Slope Model has completely reset:

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As you can see on the left side of the figure, we've lost all pricing momentum to the upside. The left side is measured in [$/day], and when the cells on the left are red, $/day is negative. Correspondingly, on all measured time frames out to the 65d period, we're not making money. 65d = 13w = 1 quarter and I'd like to hear if anybody holding for this period has capital appreciation in their accounts (on the long side, of course).

The right side of the table also is showing red, and the units on this side of the table are [change in $ / day]. When this value is negative, we're moving the wrong way -- the change in $/day is more negative than it was yesterday. This is the case for Friday, and as you look back, there is far more red than green -- the net impact is that we're slipping further into bearish territory.

Since we put $ in the bank and nothing else, this model is telling us that our exposure to equities that typically benefit on the long side should be limited. There simply is little trend to follow.


GGT LCR Slope Model

The LCR Slope Model shows a pause, but no breakdown, which is encouraging:

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On the very left I am showing the Elder Intermediate-Length Force Index timer -- it has moved from a mixed/cautionary stance to bearish. Taken alone, we should not be long in equities for any intermediate-termed duration.

Next from the left is the raw LCR value, which shows about a 1:2 Long:Cash ratio within the database. Things are quite bearish, and Friday's action caused some upward momentum to fade, allowing the LCR to slip back to Wednesday's level. The absolute value of the LCR is not nearly as important as the direction it is moving -- although 1-day-down is not a cause for concern, we would like strength here, not weakness, in the LCR value.

The slopes of the LCR model are holding steady -- those that were bullish are remaining so, and those that were bearish are doing likewise. As long as this model does not slip backwards we may see a floor being established.

Unfortunately, the right side of the table shows that we've had increasing bearishness the past few days, with all of the "slope of the slopes" pointing downward. The result is important -- this is a leading indicator to the left side of the table and if we continue to see more red here, red will dominate on the left side of the table. This isn't good for the short-term future.


Conclusions: 3 steps forward, 3-steps back. This is a difficult market that is not showing any trending capabilities, and as such, playing the long side (or short side) should only be done with a very surgical methodology. When the tables above reset, we're experiencing a shock to our equity, and since volatility is increasing, the risk is greater and reward is difficult to quantify. 

Only play those strategies that you know have defined risk/reward levels.


IBD50 with Effective Volume and GGT

Here's the latest snapshot of the IBD50:

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Here's an Excel file that you can manipulate:

Relatively unimpressive set of 50 stocks, in my opinion. There are diamonds in the coal that are near support levels, which is encouraging IF the support levels hold, but if support fails then this list will turn further downward.

If this week window dresses well, before you leap:

  • review the movie that I created and which Pascal Willain has made available on his site, which discusses using buy sectors and stocks within those buy sectors
  • check the sector/group EV, and ensure that you're seeing an influx of money flow to the sector/group
  • check the AB % level in the individual chart that Pascal provides. If the AB level is not increasing (becoming less negative), e.g., if a short-term slope is not pointing upward, then pass on the stock.
  • check the 2d thrust, and ensure that money flow into the stock is positive, not negative
Some testing that I do, that is not discussed here, is showing that on rallies, that the market is favoring stocks with poor GGT ratings as well as poor EV ratings, ostensibly due to short covering and shorting the rallies. Keep a list of IBD stocks that are getting pummeled, as well as those that are holding up well.

Let's hope for a good week due to anticipated window dressing of the month, quarter, and semiannual periods.