Monday, October 3, 2011

Weekend Update - October 1st, 2011

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(You can find my daily blogs at http://www.effectivevolume.com, in the GGT forum.  You must register (which is free) to review content on the site.)

Overview

For the most part, I'm out of the markets for intermediate/long-term trades and am currently a surgical day trader or high-probability swing trader.  I do have positions in place concerning the Effective Volume robots (a subscription service), but these are not hugely committed positions in terms of available working capital.  My wife's Thrift Savings Plan (http://ggt-tsp.blogspot.com) is mostly in cash and bonds, with simple trial balloons in the equity funds.  I intend to stay the present course and mostly away from equities, as I think nimbleness will prevail for the immediate future over buy and hold.

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Price Slope Model

The GGT Price Slope Model continues it's path on the bearish side:


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

Of significance is the unanimous row of "bearish" values on the left side of the table -- these are the slope values and they tell me that on a 2d to 65d basis that the database is losing money in [$/day].

The right side of the table is also wishy-washy, with no short-term trend being established.  Specifically, the last 4 trading days have seen a complete reversal / whipsaw from "slopes pointing up on all time frames" to pointing down to up to down again.  We need GREEN on the right side of the table before we can have any expectation of the left side turning green, and we're not seeing it.

Until the former conditions are met the trend continues to be down.

On a longer-termed basis, the next graph shows the trouble we are in on the long side:


Here, I've plotted the slope of the 65d EMA on price of the database, along with the GGTprice index.  The slope values are tied to the right side of the graph, and the large pink zone shows the area where the slope is negative.

A couple of observations:

1) the slope has had a difficult time moving into positive territory since mid-summer, when it was positive but on a down trend.  June 2011 was the last "hope" we had for any attempt at a sustained bull run.
2) the GGT price index has made new lows compared to previous lows this summer.  This does not instill confidence on the long side.  Remember:  GGT is a universe of stocks that are more liquid and of higher value than many of the stocks on exchanges, so the fact that these "quality" stocks are getting hammered does not bode well.

The only positive sign that I see at the present time is the fact that we are oversold in terms of a broad market:



I've circled our present location, and you can see that when we get into the "green zone" we typically reverse. Not immediately, but we typically reverse and move out of the green zone.  I expect that our time down in this area is relatively short, but as you can see, we *can* go much lower, and there is pain associated with moving lower.

I know this may be counter-intuitive, but now is when you should be considering long positions in terms of mean-reversion trades.  Connor's strategies can be helpful here, but note, there are few of his base ETFs to pick down here, as most are below their 200d MA or are still only in day 2 of a 4-day down-draft requirement.  This being said, I'm watching QQQ, EWZ, XLB, USD, YINN, and TYH at these levels for entry into the long side.

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The GGT Long-Cash Ratio (LCR) Slope Model is not faring much better or appearing any more optimistic:


The LCR major trend has been down all last week, and as you can see, the database has been contracting (the red on the left side of the table, spanning all moving average time frames) and not expanding.  The right side of the table has been showing the same whipsawing that we see with the Price Slope Model and this tells me there is great choppiness / indecision in the markets and we should not be considering any form of intermediate or long-termed trades.

The markets simply are not in our long-favor, but the short-term markets are still quite attractive.

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For the upcoming week I'm looking to sit on the sidelines except for surgical trades.  "Surgical" means

1) playing the Effective Volume robots as they develop
2) playing IWM, SPY, and QQQ using their cumulative tick variants

If I hold any positions overnight, they most likely will be unleveraged, although I do intend to use leveraged instruments (UWM, TWM, TNA, TZA) in my margin accounts for day-trading.

Regards,

pgd