Sunday, January 30, 2011

1/28 Weekend Update

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I'm traveling all week on the west coast so entries will be brief this week.  I will attempt to run the updates nightly and post by market open the following morning.

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Summary

  • The Long-Cash Ratio (LCR), which is a measure of how many stocks in the database are ranked LONG to those that are ranked CASH, attempted to thaw and move long on the 26th and 27th.  This was met by the events in Egypt on Friday, resulting in a refreeze.  It is possible we'll get a number of stocks to move upward on Monday if the tensions relax by market time.
  • The LCR moved down 33% on Friday.  Out of 548 datapoints, this one ranks as the 23rd largest one-day drop on record.  Major selloffs in the market of this magnitude are typically followed by buying opportunities.
  • The Pricing system is still very bullish, and indicates that this short-term pullback should be used to enter those stocks that have "reset".
  • The short-term LCR Change Timer is LONG, but is showing signs of moving to CASH with any weakening of the markets.  
  • The Elder Force Index timer is LONG, and a major selloff notwithstanding, is several days from issuing any form of a CASH signal.  
  • The Contra ETF system, while showing signs of life and bullishness, is still too early.  Shorting stocks here for any intermediate-termed play would be risky.
  • GGT New Long candidates are favoring a couple of Contra ETFs as well as many oil service stocks.  Give a look!

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The LCR System

Here is the present view of the LCR system.  As with all my images, click on the figure to open in a separate window or tab:


I draw your eye to the middle of the figure, specifically the bottom.  The middle of the figure tracks the status of the slopes of various length EMAs, specifically from the 5d EMA through the 65d EMA.  As you can see, we were experiencing some "thawing" on Wednesday and Thursday of this past week of the 5d EMA -- this means that investments made within this period probably were working out for you, as the database was expanding with New Longs within this period.    This bullishness is also evident on the right side of the figure, which plots the "slope of the slopes".  Here's how to think about all of this slope stuff, thanks to GGT, LLC member Ken Phillips:

  • We can equate the slope of an EMA as to whether a car is driving forward (slope pointing upward or positive) or if the car is driving backward (slope pointing downward).  We know nothing about the speed of the car -- we simply know if it is moving forward or backwards.  This is the thrust of the middle of the figure.
  • Now, "slope of the slopes" tells us whether our foot is on the accelerator or brake.  When we have our foot on the accelerator the right side of the figure will be green; when we have our foot on the brake the right side of the figure will be red.
  • Of course, we can be moving forward (middle of figure is green) and our foot is on the accelerator (right of figure is green).  12/3/11 is an example of this.  For the most part, for the period 12/3 through 12/7, we were driving forward and we were accelerating to the upside.  On 12/8 we put our foot on the brake (right of figure is red), but the car was still rolling forward (middle of figure is still green).   You can see that on 12/15 the car started moving backwards (middle of figure turned red).  On 12/17 we were on the fringe, as our foot was on the accelerator and we started moving forward, and on 12/21 we moved forward into Xmas.


Why is this important?

The Long-Cash Ratio (LCR) is a measure of the expansion and contraction of the GGT database in terms of Longs and Cash - rated stocks.  When the database is shrinking (car moving in reverse), this very fact tells us that we have to be better at picking stocks that are going up because as a whole, the market is consolidating.  The converse is true too -- when the database is expanding (car moving forward), we're going "with the flow" and the database is giving us more stocks to choose from.  This is very important because we want to pick stocks and enter the market when the database transitions from the "car is rolling in reverse" to the "car is rolling forward".  Indeed, picking and entering stocks when the car is rolling forward AND the car has been accelerating forward for several days is probably not a wise choice over the long haul.

So, as you can see, we've been "rolling in reverse" for some time, and Friday's action just pushed us faster in reverse (rolling in reverse going down a hill?).  We've had caution signals all over the place, so nobody should have been caught off guard with the events in Egypt triggering a mass sell-off.  If you were caught with your drawers down and found yourself getting spanked you need to read this blog a bit more often.

Take a look back up at the 12/1 period.  Note the thawing of ice on 11/29 for the slope of the 5d EMA, then  the gradual transition of the 5d, 8d, and 13d to "green" on 12/1, the addition of the 21d and 34d on 12/2, and then the "all in" signal on 12/3 told us to participate.  Note though that the right side of the figure had been green for some time, and as frequent readers of my blog know, the right side rarely has a string of greens for more than 4-5 days.  Hence, the downward movement of the markets on 12/8, 12/9, and possibly the 13th gave us good entry opportunities.

We had a thawing of the ice occurring the 26th and 27th of January, a slam this past Friday with everything red, and now, I'm expecting a relief rally in the next day or two.

Of course, your crystal ball is as good as mine as to whether this one will continue upward or will be a brief event...

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The Pricing System

Whereas the LCR System tells us the aggregate ratio of LONG:CASH within the database, the Pricing System tells us what the database price is doing.  This is a equal-weighted price index of about 2656 stocks.  Here's the dashboard:



The layout is the same as the LCR presentation -- the middle of the graph shows the slopes of various EMAs, and the right side shows us the "slopes of the slopes".

The first thing that should catch your eye is the "sea of green".

The next thing that should catch your eye is that Friday's action, while bad for many people, didn't nail the GGT system as bad as the DJ30, NASDAQ, and S&P500 were hammered.  In fact, the GGT price index only fell -0.40%, which is remarkable (far left column).  Volume was significant -- +41% higher than the 50d MA -- but overall, not a terrible day compared to others.

Despite the status of the LCR -- the database shrinking day-over-day, and the apparent disconnect in the GGT price -- increasing day-over-day as the number of stocks to fuel the database higher gets smaller and smaller, we are still clearly in a bull market until proven otherwise.  One day of a downdraft does not make a bear market.  Correspondingly, I think it prudent to buy the dips, but ensure that your exit strategies are quite intact, and I would not commit any more than 50 of capital, if that much.

Major warning signs will be the middle of the Pricing System figure turning red -- we're not there yet.  There have been so many comparisons in the market of this recent behavior to that of the Feb-April 2010 run I think it illustrative to show that snapshot, just so you know what we're looking for:



Note how red starts creeping into the figure from the bottom ... this clearly was telling us to be careful.  Although not shown, the LCR system flashed all red as early as 4/27/10 and stayed that way until mid-July.  Note that the present pricing system looks to be more-or-less the same presentation as that near the end of April, 2010.

Certainly, we must pay attention to see if we can watch the train wreck in front of us ...

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Timing Systems

The Short-Term LCR Change Timer system is in LONG-CASH (0), which means that if Monday is a down day as far as the LCR is concerned (determined after market close), then it will transition to CASH (-1).  Watch the ADV/DEC values at http://www.finviz.com near the end of the market and if it favors the DEC side, you know that this timer will transition to CASH.

I am not presently holding the VTI, which is my proxy for the GGT Price, so for me this signal is moot.

The Elder Force Index on the GGT system is presently LONG, and at an average decline rate of $43Ksh/day, we are still 2-3 days from either the simple moving average (SMA) or exponential moving average (EMA) methods flashing a sell signal.  Of course, one big down day in price on higher volume would take this out, but I think we have some time on our hands to experience a bounce.  We'll see.  Nevertheless, this timer is telling us that we should play the LONG side, and not be shorting stocks.

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Contra Watch

My mouth is drooling at the opportunity to move into contra positions.  We may have such an opportunity, the Elder signal notwithstanding.  Here's a composite, equal-weighted view of my contra index:



The first thing that you should note is that we're too early to jump with both feet onto contra ETFs.  Here's my interpretation in support of this statement:

  • While Bull Power is positive (high's are above the 13d MA which is bullish), Bear Power is more negative (low's are below the 13d MA which is bearish for contra ETFs).  Ideally, we want both of these to be positive.
  • The 13d and 34d slopes of these EMAs on the composite price index are both below $0/day.  We had a brief opportunity that this was going to reverse last week, with the 13d closing firmly above this level, but it failed Wed-Thurs-Fri.  Ideally, we want both of these closing above the $0/day line.  Note that we're close -- the 13d is at -$0.027/day and the 34d is at -$0.070/day.
  • The proverbial "slopes of the slopes", at least as far as the 13d and 34d are concerned, are pointing lower, not higher.  This shows a loss of momentum to the upside for contra ETFs.
  • All the EMAs are inverted, with the 8d < 13d < 34d < 40d < 160d.  Ideally, we want some (if not all) of these to have the shorter one cross the longer one from below as we march through time. This is not occurring.  
Again, one day of negativity (Friday, 1/28) does not make a bear market.  If you short from here I think you'll be covering sooner than you want, and most likely for a loss.  The mood in the market is still with the bulls, albeit ones who are skating on thin ice.


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GGT New Longs -- ETFs

A number of GGT New Longs in the ETFs are worth watching.  These ETFs are experiencing a net inflow of monies over the last 40 days, and over the last 8, are seeing some preliminary accumulation, so purchasing limited positions on dips probably will not go against you if the market continues south (my discussion of Contras notwithstanding).  None of these listed ETFs "sold off" in the last 30 minutes of Friday's action, which I consider more bullish (e.g., they are not pure day-trades):

SDS
TWM
PSQ  (nice accumulation pattern on Friday)
SHM

BZQ also fired as a New Long, and certainly, over the last 2 days, accumulation has been very strong.  In general though smart money is avoiding this one (lower $-Vol makes this statement obvious).

I note that of the GGT New Long ETFs that were bond related, only SHM shows accumulation -- all the others sold off near the end of the day.  Hence, AGG, BSV, BIV, and CFT are all "AVOID".

GGT Affirmed Longs - ETFs

These are ETFs which were already long and basically said "buy me because everybody else is":

OIH
XOP (strong accumulation over last 8 days)
VNM (don't ask me why, but this looks good over the past 40 as well as 8 days)
FXP (strong accumulation in last hour on Friday, but 40d is mixed and about even)
EEV (poor accumulation prior to Friday, but complete intra-day reversal on an 8-day time frame.  40 looks promising)
EDZ -- day trading vehicle my tail... this has been in a general distribution but knocked the skin off the ball on Friday.  Note that someone picked up 500K shares at just before 13:10 @ $22.90, which is a big hunka change.
EUM -- solid accumulation at the end of the day is noteworthy

GGT New Longs -- Stocks

I think there was leakage on the Massey deal -- HUGE accumulation in the last 30 minutes.  Here's the chart:



VRSN -- impressive LEV accumulation last 30 minutes
TSO -- nice, steady accumulation for the past 8 days but 40 days has been lacking.  We could be seeing rotation occur right before our eyes.
DNR -- major jump just before 1/25 close, then impressive buying mid-day Friday.
WNR -- couple spots of $1M buying on Friday mid-day, more than one.  In general not a barn burner on the accumulation radar
SFY -- huge, I mean HUGE LEV run-up in the last 30 minutes of Friday's action.  Good 8-day accumulation but poor 40-day, see my note for TSO, as it applies here too.
LUFK -- nice accumulation for both 8d and 40d period.  Not much movement on Friday, indicating that smart money is already in this one.

Although there were a few semiconductor ETFs and stocks that appeared as New Longs, they are all in distribution so I would avoid.

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Trading Plan for Monday

Travel day starting at 3 pm, so I'll move into selected New Longs provided they meet Elder criteria, etc.  I'm certainly not getting very deep here though, as I think we are on thin ice.  But, I need to play something ...

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Remember, you are responsible for your own trading decisions, and I am not.  Please take ownership for your actions.

Regards,

pgd

Wednesday, January 26, 2011

Bullish signals are here, by the thinnest of margins...

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Summary
  • The GGT LCR rose +4%, causing the short-term LCR change timer to move to LONG.  I did not move into VTI at the close, as the ADV/DEC values were nearly 1:1 at the close, making the ability to predict the LCR change for the day very difficult.  Moving into VTI, QLD, UWM, etc. early in the day would be allowed under this system.  +4% is a thin margin of increase; I would have liked to see a much higher change.
  • The GGT Price Index FELL -0.07% on Tuesday, another slim margin, showing just how close to walking the line we are overall.  We'll need a significant follow-through day, in terms of alignment of the LCR and the price index, to convince me we're out of the woods.
  • I did not chase DTO yeterday, as it kept moving upward.  In fact, all the contras I watched for entry moved against my buy-limit ceiling, preventing me from entering.  Today looks to be an up day on the markets, allowing the price to come back down in range.  If the markets rally and then pullback, the contras will dip then move higher, and this could present a great entry opportunity.
  • We are still very early on Contra ETFs, but there are a number that are moving upward.  A simple Elder Force Index (13d) scan will help you identify these opportunities; here are the ones that I am watching:
  • EUM
  • EDZ
  • DDP
  • EEV
  • DTO
  • SZO
  • SCO
  • BOM
  • ZSL
  • GLL
  • BOS
  • DZZ
  • DGZ
I'm on a plane most of the day today from the west coast, so my ability to trade will be severely curtailed.

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Remember, you are responsible for your own trading decisions, and I am not.  Please do your own work and take responsibility for your actions.

Regards,

pgd

Tuesday, January 25, 2011

Watching the Contra ETF space

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Summary
  • The slopes of the EMAs on the long-cash ratio are all pointing downward.  The database is contracting, which means the number of stocks that are favorable is getting fewer day over day.  This makes stock selection difficult, as you have to choose wisely.
  • The slopes of the EMAs on the pricing index have all turned up, effectively erasing the warnings in terms of prices that I wrote about this past weekend.  We have a sustained divergence -- prices moved upward, but fewer stocks are achieving these higher prices on higher volume, resulting in the dropping LCR values. 
  • The daily long-cash ratio rose a small amount on Monday, moving our short-term timer from Cash (-1) to Cash-Long (0).  If the markets are up today, according to the LCR and as viewed by a good difference in the ADV/DEC values on the indexes, the signal to move long into VTI and our other Short-Term LCR Change Timer ETFs will be triggered. 
  •  The Intermediate-Termed Elder Force Index timer, which simply calculates the Force Index on the GGT price/volume series, is long according to both the simple moving average as well as exponential moving average methods.  This is telling us that we should be looking at the long side, and investing in contra ETFs or shorting should be avoided.
  • Contra ETFs are still early as a group.  All of the slopes of various EMAs through the 65d are negative in value (losing money on those time frames), BUT, the "slopes of the slopes" are all pointing upward, and now, we have the slopes of the 8d > 13d > 21d > 34d > 65d, which is an early - stage bullish signal.
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The Contra ETF Watch

Here's a chart for your review:



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

The chart shows my contra index, which is comprised of most of the liquid ETFs that are considered -1x, -2x, or -3x instruments.  If you don't know what this means simply ask by posting a note.

The bottom pane shows the 160d EMA (blue) and the 40d EMA (red), along with the index price.  You can see that as a group, we have been in a downward move for a considerable amount of time.

The top pane plots the various slopes of several EMAs of this index.  Think about this:  take the EMA of the price series, then take the slope of that EMA and plot it.  What the top pane plots is the 2d, 8d, 13d, 21d and 34d.  The scale on the right of the top pane is $/day, and as you can see, most of these slopes are indicating a loss in value/day of between -$0.10 to -$0.14/day, on an index price of about $49.

What is important to see in this group is that it is becoming LESS NEGATIVE, or put another way, more positive that it was yesterday.  Of particular importance is the relative alignment of the slopes of the EMAs -- the 2d > 8d > 13d > 21d > 34d.  This is a necessary and sufficient condition for the group to cross above 0, indicating that contra ETFs are solid trading vehicle.  In fact, for the most aggressive, careful selection of contra ETFs at this point, with limited position sizes, could be rewarded.  I typically require that the specific ETF price be above the 17d EMA before I move into the specific equity.

At this point I like DTO, which is a double short of oil.  The price of DTO closed solidly above the 17d MA yesterday, and all of the slope EMAs are properly aligned, albeit all are negative.  Here's the chart:



As you can see in the chart above, we have a favorable setup for entry on DTO if you review the earlier criteria.  I do consider this early, to be sure, but compelling.

If we look at effective volume, unfortunately, Pascal's website does not have data for DTO, but he has informed me that DTO will be added tomorrow.  As an alternative, I use the site at www.monest.net/charts to get a quick view.  I remind my readers that one of my members of my group has noted discrepancies between the Monest site and Pascal's site in terms of EV, and since Pascal is the creator and author of Effective Volume, we must place his results above all others.

Here is the chart from the Monest site; note that it confirms my TradeStation analysis:



I note with significant interest in the accumulation of this ETF prior to the rise in price.  For me, this is a lower-risked purchase.

DTO meets Elder strategy requirements, so if we see a pullback today, entry on the reversal of the pullback could be expected in the GGT, LLC account, as well as my personal accounts.

I'm also keeping an eye on ZSL and EEV, which also are setting up the same as DTO.

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Trading Plan for Tuesday

My strategy overall is the following:

I am predominately in cash.  Last month I have moved 100% of my wife's Thrift Savings Plan (TSP) into cash and it is very happy there.  All of my retirement IRAs are presently in cash, as I sold the last of my positions into strength yesterday for a small gain.  The GGT, LLC account is about 30% invested, and I'll move these positions to cash as their individual systems indicate (one is an Elder trade that is hanging in there, the other is a Connors TPS trade).

Today, I'll most likely move into VTI near the end of the business day if the LCR appears that it will move upward.  I'll use the ADV/DEC values at www.finviz.com to make that determination.

I also plan to closely watch the contra ETFs listed, as these are setting up nicely.

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Remember, you are responsible for your own trading decisions, and I am not.  Please do your diligence and take ownership for your actions.

Regards,

pgd

Sunday, January 23, 2011

Stepping Back for the Macro View

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I always consider myself fortunate when I have the opportunity to stand in front of folks more experienced than I at this thing we call trading/investing.  Even though I was on the podium, I always feel that I learn more from the membership than I impart, and I am thankful for the time and attention paid by my audience.

Thank you for the wonderful support shown yesterday by the local AAII Computerized Investing group here in NoVA -- and specifically to Bob Bigrigg for the invite.

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I always have to step back and review the bigger picture when I'm preparing for a presentation, and in doing so, I'm always, without exception, playing catchup to the fundamentals of my process.  My fundamentals are quite simple:

  • Big Picture Analysis
  • Opportunity Analysis
The idea of standing in front of people, most of whom are far more skilled than I, puts a fear of the unknown in me and forces me to be at the top of my game.  Whether I actually *was* at the top of my game is a subjective answer that eludes positive identification, but nevertheless, the preparation always makes me more confident in my convictions and is the equivalent of "sharpening the saw".

Let's start with the Big Picture.

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The Big Picture

I rely almost exclusively on my GGT system for information.  Recall that the stock database is comprised of what I think is a baseline of quality stocks:
  • The stocks must have a share price of greater than $1, determined weekly at the close of Friday's market;
  • The stocks must have a volume of greater than 100,000 shares, again determined weekly at the close of Friday's market;
  • The stocks must trade on any of the three primary exchanges, e.g., I omit OTC:BB and pink-sheet stocks
The choice of Friday evaluation is nothing specific -- it simply aligns with the weekend which is when I have more time to devote to analysis.  Of recent importance here is the gradual introduction of a $-volume criteria; I'm forward running a screening criteria that drops any stock with less than $700Ksh value, determined weekly at the close of Friday's market.  This will gradually be increased and performance of the database in terms of price action as well as the overall long-cash ratio (LCR, more on this later) behavior.  Fundamentally, I'd like to see the $-volume criteria move upwards north of $5Msh, nearly 7x where it is now, but I'll let the performance of the database dictate the ultimate cutoff.  The introduction of this criteria is simply to weed-out thinly-traded issues and ultimately, I envision it replacing the 100,000-share cutoff requirement.

Fundamentally, there are two systems within the GGT universe that I pay attention to:
  1. The Long-Cash Ratio system, which looks at the overall database in terms of the number of stocks that have a "Long" rating (meaning that it is okay to be holding these stocks), compared to the number of stocks with a "Cash" rating (meaning that if you are presently holding these stocks you're losing money).
  2. The Pricing System, which looks at the overall database in terms of aggregate stock value (closing prices of the individual securities).
The instantaneous value of these two systems is largely irrelevant; what is more relevant is the change that each of these systems is presently experiencing.  For example, knowing that a car is traveling at 60 MPH doesn't tell us about the anticipated road conditions in the near future.  If it's accelerating through 60 MPH, we have a reasonable expectation that the road is dry and that there are no curves ahead; if it is constant at 60 MPH we have a reasonable expectation that the road is straight but we may have some hills/valleys, or if  it's decelerating through 60 MPH, we have a reasonable expectation that the road conditions are changing, perhaps due to rain, curves, or simply being in uncharted territory.

I view the LCR and Pricing systems from this perspective. So, let's start there, specifically a view of history to date.

The LCR System

In the GGT universe, stocks get classified into two primary buckets:  
  1. Long, which simply indicates that the stock is outperforming the past with respect to some moving averages, and 
  2. Cash, which means that it is underperforming the past with respect to the same moving averages.  
How I derive these classifications is a topic for a different time, so for now, simply push the "I believe" button and know that we have over 2600 stocks that are either in a LONG status or a CASH status.

When I sum the stocks in each bucket, then take the ratio of Long:Cash, I have the raw LCR value.  Here is a plot of the LCR value since I started publishing the data back on September 11, 2008:



With all my graphs, right-click on the image to open in a new window or tab.

I've also superimposed the GGT Price index, which behaves very much like a broad index (its behavior is very close to the ETF Vanguard Total Index, or VTI).  I do this so that you can see the correlation between the LCR and the gains/losses of the price index.

I've artificially colored the LCR region below 1.0 in light red -- this doesn't mean that we should avoid trading in this area, it is simply to draw attention to the fact that more stocks within the database have a CASH ranking when the LCR is in this area.  If you look closely, you'll see that many a good move have started from within this zone, so establishing some rule that said you cannot invest when the LCR < 1 would be a terrible mistake.

What is important to note is that the instantaneous view of this snapshot shows that we just entered  the pink zone from above.  The Friday-close value of the LCR was 0.751, and indicates that 1083 stocks are LONG and 1443 stocks are recommended in CASH.  YOUR EYE catches the fact that we are falling into the pink zone, but what does this mean?

This next graph smooths the LCR using a 11-day exponential moving average:




Compare the chart above to the first chart in this blog entry -- you'll see that this simple 11-day smoothing of the raw LCR value gives us an easier view of visually correlating the performance of the GGT database to the GGT LCR.


What is important to me is that when the 11d LCR value starts and upward move, the database price typically moves upward too.  When the 11d LCR value reverses, the database price typically moves horizontally or downward.  It is the start of these upward moves which signify opportunities to invest on the long side, and presently, as you can see with the falling 11d EMA of the LCR, right now is not a good time to move into any long positions.

Where we "start" the next LCR run-up from in terms of real value of the LCR is important too.  Look closely at the figure above -- when we start a run from the pink area, we typically advance for 6-8 weeks before any pullback.  Yes, sometimes this fails, but generally, it has worked well as a confirming point.  Note that when we start a rally from above 1.0 we generally only last 3-6 weeks at best, and sometimes much shorter than this.

The most recent rally, which started on 11/30 or 12/1 (depending upon perspective), started from a 9d EMA value of the LCR of 0.999.  The waveform of the LCR performance after this date is not one of health, has certainly not occurred in the history of GGT, and does not confirm the continually-climbing prices.

The concept of units on LCR comes up from time to time -- people wonder what the units of LCR should be.  Recall that the LCR is a ratio -- the number of stocks that are LONG to the number of stocks that are in CASH.  A LCR value of 0.751 is the same as writing 1083:1443, or by stating that for every stock that has a long rating, we have 1/0.751 = 1.3324 stocks have a CASH rating.  The units are simply "# stocks long/# stocks cash".

This concept of a falling EMA plot opens up a discussion of the slopes of these LCR EMAs.  "Falling (or rising) indicates "change".  Recall that slope is "rise over run".  In our case, the "run" is easy -- it is 1 day in length.  Rise is a measure of whatever we are quantifying, and in this case, the LCR, so the units are "change in (# stocks long/# stocks cash) per day".  Hence, a change number of +0.15 represents that we have 15 out of every 100 stocks converting from a CASH basis to a LONG basis on that day (e.g., the database is expanding or becoming more bullish because the value is positive).  Conversely, a value of -0.07 represents that 7 out of 100 stocks are converting from a LONG basis to a CASH basis on a given day (e.g., the database is contracting or becoming more bearish because the value is negative).

I track the slopes of various-length EMAs of the LCR, so let's plot one of those, the slope of the 65d EMA of the LCR:



I've highlighted three key areas that we should remember concerning this present bull leg:  the September 2010 signal, the December signal, and the come-back-from-Xmas-vacation signal.  As you can see, the behavior of the LCR has been different for each of these events.  For the first one in September, the slope of the 65d EMA of the LCR moved positive on 9/2 and didn't look back until after 10/19, which is when it turned negative.  You should remember that it was relatively easy to make money in almost anything during this period.  As you can see, the GGT price index rocketed upward between 9/2 and 10/19, and the slope of the intermediate-term 65d EMA told us that we were "ok", e.g., it remained positive during this time.

[I'm not addressing the short burst on 11/4 that lasted only until 11/10, as this was a failed rally and it was pretty clear at the time that the stars were not aligned.  We got in, and we immediately got out ... ]

The signal on 12/3 worked until the week of the 14th, when volume started drying up.  Recall that a LONG rating requires both price and volume; without volume, stocks can slip into CASH status, and they are held there until volume in the market returns.  Despite this, the GGT price index continued higher, essentially unsupported by the LCR.

Finally, on 1/3/11, we had a major rally with price and volume, causing the highest LCR change since mid-December.  Volume had been high in this time frame, but note that the LCR had been struggling to maintain a positive level, again showing that prices are going up but that the underlying database of stocks was contracting, e.g., that it was getting smaller in the ratio of LONGS to CASH.

As we all know, this past week saw a major dive downward in terms of prices, and the LCR also reflected this, with a drop in the 65d slope of the LCR EMA.  Life isn't healthy for our portfolios at the present moment, because it's impossible to know how far we are going to drop, or even whether we will continue to drop.  Suffice to say, I'll continue to let the slope of the 65d LCR EMA guide me, and if it moves positive while the GGT price is moving positive, I'll have confidence to move back into the market.

This final figure will be my last commentary on the GGT LCR System:




Here, we see the table view of the previous slope of the 65d LCR EMA figure, but now I've expanded it to include the primary EMAs that I watch, those from the 5d to the 65d.  Compare the last three days of the 65d column (right-most) above to the last 3 days in the previous figure, and you'll see that the table above shows "red" or "bearish" and the previous figure shows the slope of the 65d LCR value in the pink zone (less than 0).  Hence, the table view above gives us some idea about the performance of the LCR EMAs, as a whole, in terms of change.  When all the slopes are pointing upward (bullish), we have a green condition, and when all the slopes are pointing downward (bearish), we have a red condition.

Look closely at the table above, specifically at the 12/1/10 signal.  We saw a crack in the ice around 11/29 for the slope of the 5d LCR EMA, then the thawing began on 12/1 and was confirmed across the board by 12/3.  THIS gave us confidence to move back long into the market.

Sometimes, the table view is easier to interpret.  Sometimes, the previous figure view is easier because of quantification.  It's subjective on what view I use, but the conclusions have to be equivalent because they show the same data...

All the LCR slopes are presently pointing downward, and have been for the last 3 days.  This is a short-term cautionary signal and I will not buy stocks long while this is the case.  When the database is contracting in terms of the LCR, the number of stocks in an uptrend that is supported by volume is getting fewer and fewer, implying that our stock-picking ability has to improve during the contraction.  I've not met one person who can consistently pick winning stocks on the long side during a market contraction.  If you are able to do this, then please introduce yourself to me by sending me an email to (pduncan [at] vt dot edu).


If/when a new long signal does develop, I'll need to see participation at the LCR level that clearly shows that we have an expanding database in terms of the LCR ratio.

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

The Pricing System

I generally start with something taught to me by Ken Phillips, one of our NoVA group members and a long-term investor who has far more than he can teach me than what I could possibly impart to him.  One of the first questions about going long (or going short for that matter) is whether we are in an uptrend or a down trend.

The first question you should ask is "On what timeframe?"  If the answer is intermediate-termed lengths, then we are considering 6-week plus moves in the market before we have to make changes to our portfolio.  One way I keep track of the general market is by a simple plot of the 5d EMA and 65d EMA on a price series.  This works for indexes, like GGT, or for individual equities.

When you calculate the 5d and 65d EMAs on an index, you can establish the following rules:

  1. We are LONG on the market that comprises that index IF the 5d EMA > 65d EMA.
  2. We are CASH on the market that comprises that index IF the 5d EMA < 65d EMA.
It really is that simple.  

When we apply this rule to the GGT world, we get the following figure:


The figure above shows the status of when the 5d price EMA > 65d price EMA, as well as when this condition is not true.  We had a bullish confirmation in April 2009, exactly 1 month (22 trading days) after the market bottom, so you can see that although other systems may have signaled earlier, we had a confirmed rally and this was certainly the "all in" signal.

The spike downward occured on 11/4/09 and lasted exactly 1 day.  This is an issue with ALL EMA crossing methods -- they may whipsaw, but you need to stay the course and mechanically perform as the system indicates.  Looking back at my notes, we were just starting a new uptrend in prices but the LCR was falling, so this would have confirmed the dropping LCR and it appears that I moved to the sidelines for a few days.

The nail in the coffin to the major run of 2009 occurred on 5/19/2010, when we confirmed that we had a bone fide bear in the making.  We already had moved a major portion of monies to the sidelines at the end of April, so risk at this time was not very high.

As we all recall, this summer was a tough period, and due to events in my personal life, I took most of the summer off of trading and simply sat on the sidelines.

The next major bull signal was confirmed on 9/10/10.  Again, this was the "all-in signal", and while I was playing catchup (I was on a mountain on 9/1 when the LCR 65d EMA slope moved positive), but I jumped in  with both feet and was rewarded until I stepped out in mid-October.

As of the close of markets on 1/21/11, we are still in a confirmed bull market that confirmed on 9/10/10.  The difficulties that we are presently experiencing may result in a short-term pullback, or we literally could continue higher on Monday and never look back.  Certainly, keep an eye on my blog, as I will report on the status of 5/65 crossing if we get close to crossing from above.

Just like we have the ability to watch the slopes of various LCR EMAs, we can do the same with the GGT Price index EMAs.  The following table is exactly like the LCR EMA table and the interpretation is exactly the same, except we are measuring the amount that the database price rises and falls:



The table view above shows us that we presently have some issues with the present EMAs, as we have the start of a breakdown where the slopes of the shorter EMAs are already below 0.  The implications of this are easy -- if you have bought stocks within the last 5 or 8 days, because these EMAs are sloping down on the major GGT index, there is a greater likelihood that you are underwater on those positions.  Of course, actual mileage may vary, but if your stocks behave as the general market, then this is probably the case.

If the presentation above reverses, e.g., we start seeing green in the 5d and 8d positions, then we could be at a good buying point, everything else that I've presented not withstanding.  We need alignment on all signals in order for my confidence to come back, and I do think that we need to pull back and "reset" before we see any sustained bull.

My approach this week will be is selling into strength, as well as monitoring the Contra ETFs for surgical opportunities.  There are too many indicators telling us that we should be cautious.

=========

Remember, you are responsible for your actions, and I am not.  Please do your diligence and take ownership for your actions.

Regards,

pgd

Friday, January 21, 2011

Trimming the Top 25 ETF Portfolio for Friday

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With the close of Thursday, 1/20 markets, the following Top 25 ETFs will be sold today (Friday) at Marketocracy:

TNA (+15.28%)
UYM
UWM (+1.35%)
MVV (+4.07%)
TQQQ
SLV (-5.53%)
TYH (+21.73%)
SIVR (+0.72%)

Gain(loss) values for UYM and TQQQ weren't available because they executed faster than I could get back to the main screen.  The results are buried in the logs, but I'm moving on.

This will raise our cash position dramatically, perhaps above the allowed 35% level.  If this is the case I may add to the strongest ETFs to bring our cash level below 35% -- I'll advise later if this is the case

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

The Top 25 stock and ETF portfolios are for testing purposes only.  If you choose to follow these, you do so at your own risk and with complete acknowledgement of the disclaimer located on the masthead when you first enter this blog.

Regards,

pgd

Mixed Elder Intermediate Timer Signal (of course)

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Nothing is ever easy.

The Intermediate-Termed Elder Force Index timer has transitioned to FI(13) < 0 if we use the exponential moving average method, and it still remains long if we use a simple moving average method.

The implications on the Top 25 portfolios are simple:  we need to transition out of stocks and into the contra ETFs if you are conservative, else if you are aggressive, remain invested in stocks.  If today is another down day and if today results in the FI(13) < 0 by the SMA method, then we move to the contra ETFs, without question.

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

Remember, you are responsible for your actions, and I am not.  Please do your diligence, and please take ownership for your decisions.

Regards,

pgd

Thursday, January 20, 2011

A Belated Top 25 Stock Change

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Yes, this is a day late.

Yes, it's probably a dollar short too.

My day job got in the way of this extracurricular activity and I could not post the Top 25 Stock changes to the world.  I need someone else to cover me for instances like this.  Any volunteers?

=========

Here's how I'm handling the SNAFU.  I'm using the data file of 1/20, just as normal.  We'll sell the stocks according to that file, and we'll buy the new stocks recommended.  BUT, I've run the updates for today (Thursday) on the Top 25 stocks and I know which ones were a sell for Thursday, so we won't buy those.  The result is that we'll have 22 stocks when we're all said and done with this.

Sell:

AMRN (-2.02%)
APKT (-13.79%)
FCS (+6.14%)
FRG (-20.05%)
HL (previously sold intra week)
JRCC (-13.04%)
KOG (previously sold intra week)
LNG (+2.60%)
NXPI (previously sold intra week)
OCLR (-7.10%)
REE (-11.63%)
WLT (-7.70%)
WNC (-7.54%)
WNR  (previously sold intra week)

These stocks will be staged for sell at the open and will execute as Marketocracy allows, dependent upon market volume.

Buy:

AREX
HDY
MHR
NCT
SFI
SGMO
SRZ
AXL
CIEN
ENTR
VVUS

Buying will start with available equity once the majority of the stocks above are sold.

Hold:


ACLS (-2.54%)
XOMA (+10.10 %)
WTNY (-0.02%)
LULU (-4.80%)
JAZZ (+16.55%)
ITMN (-2.10%)
GTLS (+2.94%)
FTK (+4.53%)
EXEL (-8.51%)
CVI (+3.01%)
ATML (+2.19%)


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

An obvious challenge for the Top 25 stock portfolio at Marketocracy is the lack of ability to short stocks.  Additionally, the ability to use any form of leverage does not exist (e.g., margin), hence once the Elder Intermediate Timer rolls below 0, this portfolio is sold and we are in cash.

I'm backtesting an approach that appears to work and allows enhancement of returns when the Elder FI(13)<0.  It utilizes -1x ETFs only, and basically allows us to use the following ETFs:

  • DOG (-1x of DJ30)
  • PSQ (-1x of NASDAQ 100)
  • SH (-1x of S&P500)
  • RWM (-1x of Russell 2000)
I'm testing 20% per position with these, with 20% in cash, because Marketocracy requires a 65% invested amount at all time and at no time can any one position exceed 25% of the portfolio.

A variant on this is to use the -2x ETFs:
  • DXD (-2x of DJ30)
  • QID (-2x of NASDAQ 100)
  • SDS (-2x of S&P500)
  • TWM (-2x of Russell 2000)
Results are a little less than double the 1x performance.

These ETFs cannot be purchased until they signal "New Long",  I note with interest that:
  • DOG and DXD are both still GGT-rated in CASH
  • PSQ and QID are both still GGT-rated in CASH
  • SH & SDS are both still GGT-rated in CASH
  • RWM is in CASH
  • TWM has signaled NEW LONG as of the close of Thursday, January 20th.
Under the methods that I have backtested, I would be allowed to enter a 20% position of TWM on Friday IF the Elder FI(13) of the GGT database is < 0.  I will not know this until Friday morning which is when the GGT stock universe will complete it's update.

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

The Top 25 Stock Portfolio is performing poorly relative to the Top 25 ETF portfolio, as well as the S&P 500.  Since inception on 10/28/10, and through closing on 1/20/11, the portfolio has dropped -0.11%.  It reached a peak of 5.87% on 12/29 and has given up all of these gains.

One of the major difficulties of the Top 25 Stock portfolio is that the GGT method is relatively slow on the exit of a given equity once it starts to break down.  This can delay exiting, and as a result, cause us to hold onto a position until it drops to -20% or greater (FRG is the case in point).  Hence position management other than relying on the Wednesday rotation or a drop out of the GGT Top 25 needs to be affected.

As many of you know, I'm a big fan of Elder, and I'm also a big fan of using the slopes of the 13d and 34d EMAs as a buy/sell window.  This is incredibly difficult to backtest though, because each of the GGT lists has to be hand reviewed.  The data exists in HGSI, which is what I used to backtest many of these variants, but going back to March of last year with a new set of test requirements simply does not appeal to me.

The introduction of effective volume also can play a role here.  We can simply block entry into any stock that does not have a positively-trending large effective volume (LEV) on the day of selection.  Additionally, we can sell any stock that experiences significant (define significant?) drop of LEV, long before GGT will react.  Again, backtesting is virtually impossible. 

I'd like your comments on these ideas.

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

Please check back before the open on Friday to see if the GGT Elder FI(13) value is below 0.

Remember, the Top 25 portfolios are TEST portfolios only.  

Regards,

pgd


A 1-Day Sell-Off; Shall I join the masses?

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Yesterday, when I commented that

"Note that we've rarely seen 6 days of successive gains in the LCR, with the last occurrence being 8/13/10 to 9/15/10.  Based on this alone I would not be surprised at some form of pullback."


I didn't expect to see a 39% change to the downside in the Long-Cash Ratio (LCR) in one fell swoop.  Putting this in perspective, I have 541 discrete levels of the change in the LCR since we started keeping track.  Yesterday ranks as the 12th greatest change in the LCR to the downside in over 2 years of tracking.


This begs the question of "what typically happened after such a dramatic bow shot?"

  • November was the most recent occurrence of this drop in LCR.  On 11/9 the LCR dropped -22%, then on 11/12 it dropped another -36% (rank 18th), then on 11/16 it fell another -38% (rank 14th).  We rallied after Thanksgiving.
  • October 19th saw a drop in the LCR of -50% (rank 3rd), and 4 days later it jumped +12% (rank 147th to the upside), and 12 days later it jumped +62% (rank 11th to the upside).
  • October 4th saw a drop in the LCR of -30% (rank 31st to the downside), and the next day we whipsawed +47% to the upside (rank 24th up).
  • August 11th saw a drop in the LCR of -51% (rank 2nd), and 12 days later it jumped +43% (rank 30th to the upside)
  • July 16th saw a drop of the LCR of -39% (rank 13th), and 4 days later (7/22) we saw a jump of +64% to the upside (rank 10th up)
  • Here's an interesting sequence:
    On 6/29 the LCR dropped -43% (rank 5)
    On 6/30 it dropped another -22% (rank who cares)
    On 7/1 it dropped another -20%
    On 7/2 it dropped another -20%
    On 7/7, just 2 trading days after the 7/2 date, the LCR jumped +46% (rank 25)
    On 7/8, it jumped another +35%
    On 7/9, it moved another +30%
    and on 7/13, it jumped +102%, which is the 2nd strongest jump ever.  Dead-cat bounce indeed.
We all know what happened after 7/13 until the end of summer ...
  • If you've followed this history lesson this far, you're probably wondering about the worse day in GGT history:  it came on 5/6/10, when the LCR dropped -71% (obviously rank #1 to the downside).  The next 5 days saw slight gains in the LCR:  +5%, +14%, +16%, +39% (rank 35 to the upside), and +15%, then it was all downhill with another selloff on 5/20.   For those of you who recall, most of the major timing systems signaled a move to CASH near the end of May, 2010.  
What I take from all of this is that while we may head down here, there will be a few days available to sell into the rallies.  There's no need to panic, as a considerable amount of cash is deployed out in the markets and it's not all going to move to the sidelines overnight.  I'd watch for some bull traps of the larger entities, e.g., the big boys and gals driving price up on larger volume so that they can exit quietly under the cover of us retail lambs...

All this being said, it's going to be hard to hold on today, as I see that the futures are down as I bang this out ...

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

The LCR System

Here's the snapshot of the LCR dashboard:



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

Starting from the left, we see that the LCR dropped -39% from 2.141 to 1.299.  The teeter-totter of the number of stocks in the database that have some form of LONG status to those recommended as CASH still favors the LONG side, but obviously, not by much.  When the LCR drops below 1.0 the teeter-totter is in favor of the bears and we need to note this accordingly.

Of particular interest is the solid RED line across all three dashboard areas:  left, middle, and right.  Let your eye move backwards in time and you can see when this occurred in the past.  What is significant is that usually, we see a glop of red in the right-most panel, followed in time by a glop of red in the middle panel, and then a glop of red on the left.  This is because the right side of the figure is the most sensitive -- it tells us the "slope of the slopes", or put another way, overall momentum of the database.  If momentum slows enough, we move from advancing upward (middle of the figure being green) to declining downward (middle of the figure being red).  This is because the middle of the figure plots the slope of the EMAs, e.g., are the EMAs trending up, or are they trending down.  If they're red they are trending down and we're losing whatever the EMAs are tracking.  IN THIS CASE the EMAs are tracking the number of stocks in the database that are moving up on price and volume appreciation -- RED means that we have less to choose from, and typically, it's a period of consolidation.

One day of red does not make a trend, so again, there's no need to panic and sell the farm.  We need to see how the next couple of days perform in order to know if the markets are going to favor the Contra-side of the equation.

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

The Pricing System

Here's the pricing system dashboard:




Of importance here is that we have a sea of GREEN, not red.  Yes, the database is getting smaller in terms of the number of stocks that are appreciating in price and volume, but no, we don't have a full implosion of the thing that matters most -- the price of the stocks.

Starting from the left:

The GGT price index fell -1.64% yesterday, ending the day at $30.04.  Volume was 23% higher than the 50d MA of volume, so falling prices on higher volume is a distribution day.  Consider this a bow shot.

The left panel, which is a sea of green, tells us where we have been, not where we are going.  We've been in a bull-market (duh), which is evidenced by the 5d EMA > 8d > 13d > 21d > 34d > 55d.  There's nothing here that tells us otherwise.

The middle panel tells us the SLOPES of the pricing EMAs.  Specifically, we have some cracking in the ice -- the 5d and 8d EMAs are pointing downward.  This means that on these time scales, and on these time scales only, if you've made investments within this window, there is a good chance you're losing money.  If we see more RED creep into this middle panel we'll know we're in trouble, so continue to watch.  For now though, the longer, shorter-termed EMAs (13 and 21d) are intact, and all of the intermediate lines are still bullish.

The right panel feeds the middle panel.  Like the LCR dashboard, the right panel above is the "slope of the slopes", and if we see lots of red here, it's because day-over-day, we're accelerating to the downside.  In fact, we do see this for the shorter EMAs (5d, 8d, and 13d), and of course, because of yesterday's draft downward, we see it across the board, but overall, we'll simply have to watch.

The far right column of numbers is my GGT strength oscillator, and it varies from 0 to 1, with a 1 being incredibly overbought and a 0 being incredibly oversold.  A drop in strength from 0.769 to 0.488 is a huge drop for one day, and actually gives me some hope for a bounce upward in the next couple of days (perhaps early next week), because this is a great distance to go in a short time.  

So, in general, yes, we have experienced a bow shot.  Yes, investments I've made over the last 8 days are more-or-less underwater.  Sell the farm?  Not yet, although I won't let my present holdings drop too far.  Futures are looking worse so I'll simply evaluate the end of the day -- if I see a major drop in the index components then I'll know that this is for real.  I've actually been seeing some buying at the end of the days, so I'm not convinced yet that we're headed south for good.

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

The Timers

Here is the dashboard view of my two primary timing systems:



The Short-Term LCR Change Timer, shown on the left, is showing a "0" status, which is a LONG-CASH recommendation.  IF today is a down day as determined by the LCR change, there is a high likelihood that the timer will move to CASH.

Closely related to the LCR Change Timer is the VTI timer.  It is presently LONG, although it took a heck of a hit yesterday.  I chased this timer, buying a position on Tuesday because I missed the signal on the previous Friday, and I've paid dearly for this mistake.  Don't chase timers!

The right side of the graph is my Elder Force Index timer.  It is showing a LONG status, which indicates that it is prudent to consider the LONG side of equities and not the contra side.  I do note though that this timer fell a HUGE amount yesterday and is sitting just above the zero-line, which is the crossover point.  If today is another distribution day of the magnitude we saw yesterday there is a good chance that both the simple-moving-average (SMA or MA) method and the exponential moving average (EMA) methods will both drop below 0, indicating that we should unload all our long positions with no questions asked.  We'll see.  The SMA method normally changes about 41K per day and it is presently at +163K, and the EMA method normally changes about 42K per day and it is presently at +80K.  Putting this in context of yesterday, the SMA method dropped -93K and the EMA method of calculation dropped -220K, so we are well within striking distance of a personal sell-off.

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

The Contra Watch

Here is my summary view from HGSI of the Contra ETFs that I track:





I note that bull and bear power are still both negative, which means that the highs and lows of the index are below the 13d EMA.  This is BEARISH FOR CONTRAs, so we're early.  

Below the bull/bear indicators are my Elder FI(13) ribbon bars, one calculated with an EMA method, and one calculated using the SMA method.  Both are NEGATIVE (red), so again, we're too early for contras.

The MACD histogram has just eeked out a positive value, which is a ray of sunshine for the index as a whole.  This means that the faster EMA is above the slower EMA, and this is an early stage of bullishness.

The %B ribbon bar is green, which I've inverted from the default HGSI presentation (it is normally RED when  %B is low -- don't ask me why).  The fact that it's starting to trend upward gives me another ray of sunshine for the contras, but don't get too trigger happy at this point.

Below the %B ribbon is a window containing my 13d and 34d slope lines.  The 13d slope is crossing the 34d slope from below (bullish), and both are pointing upward ("slope of the slopes" is up).  BUT, look at the numerical values on the right side of this window -- they are negative.  This means that on the 13d and 34d time frames (short term and intermediate term) CONTRA POSITIONS ARE LOSING MONEY, and as of last night, the 13d was losing it at a rate of -$0.1418/day and the 34d at a rate of -$0.1374/day.  They simply are losing it less fast right now, which is a necessary condition to making money in contras.  When these lines cross the 0 line it'll be "Katie, bar the doors" for the bears on stocks will be all around us.

Finally, ALL the EMAs are inverted (8d < 13d < 34d < 40d < 160d), so we are very, very bearish overall on contra positions.  The only saving grace right now is that volume was above the normal levels for this index, AND we had a 1-day move upward in the contra index price.

All this being said, there are some contras worth watching:

SMN, the -2x contra on Basic Materials, saw a significant inflow of volume, much of it attributed to Large effective volume (LEV) yesterday.  It did end the day with a drop in LEV, so be cautious.  Nevertheless, it did move upward a significant amount and did trigger a buy signal on my short-term views.

SKF, the -2x contra of Financials, moved upward yesterday in price as well as LEV, but like SMN, sold off in terms of LEV late in the session, which is bullish for the markets overall.  Despite this, it did signal a buy signal on my short-term daily views, with the 13d crossing the 34d from below.

ZSL, the -2x contra of Silver, saw a major inflow of LEV and increased a dramatic amount (+6%) on Wednesday.  I've actually had a long signal on this since 12/7 but have been ignoring it because gold and silver were topping in this time frame; now this looks to be a signal worth reviewing in detail.

TWM, the -2x contra of the Russell 2000 Small Caps, moved up a good amount on Wednesday but the move was not supported by LEV (in general).  Yes, LEV did move up, but it was all over the map in terms of volatility, so it's hard to read this one.  Small EV (SmEV), or that volume attributed to investors like you and I, remained fairly constant and flat, so I'm not seeing a mass flood to TWM despite my position in UWM getting wacked.

TZA, the -3x contra of small caps, moved up a large amount and more importantly, was supported by a steady, upward flow in LEV, while SmEV dropped in the morning and then remained flat for the balance of the day.  This could be a good surgical strike if it continues, and by the way, it signaled a buy signal on the daily charts with yesterday's action.

PSQ, the -1x contra of the Q's, increased a significant amount (because the NASDAQ got wacked), but volume was not supportive of the move, so I don't think that the big boys/girls think that this is a major down draft at the present time.  

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

Trading Plan for Thursday

Short-Term Timer:  I'll exit out of my VTI position if it continues to lose ground.

Intermediate-Term Timer:  I'm holding a number of Elder stocks at Marketocracy as well as in the GGT, LLC portfolio.  If the Elder FI(13) on any of these drops below 0 between 3 pm and 4 pm I'll sell them.

Top 25 ETF portfolio -- I'll move into those ETF that have positive-trending LEV today in my real portfolio, and I'll make the appropriate changes at Marketocracy for all 25, per my blog of last night.  I still have to calculate the new Top 25 Stocks, which I'll do after I take care of some items this morning, so check back later.

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

Remember, you are responsible for your own trading decisions, and I am not.  Please do your diligence, and please take ownership for your trades.  Continued following of my blog implies your acceptance of the disclaimer that I have listed at the top of the blog masthead, located on the left side of the web page, when you enter the web site.

Regards,

pgd

Position Disclaimer:  I own or influence positions in the following equities:  AAPL, ADTN, BPOP, CAT, COG, DIG, ERX, FTNT, GLW, IEZ, IYR, JAH, KOL, PALL, TEVA, TMV, UWM, VTI, XLE, XME, XOP.




Wednesday, January 19, 2011

Top 25 ETF Changes for Thursday, 1/20/11

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Drum roll please maestro ...

Actually, even with today's serious downdraft, the impact to the Top 25 ETF portfolio was not as bad as you would expect in terms of turnover.  This is because most of the held ETFs are still GGT long-rated equities, and while we did have some 2x and 3x leverage in play, the drop of -2.90% was tolerable.

Here are the changes going into Thursday:

Sell

AGQ (already sold intra week)
FAS (-4.24%)
RFG (already sold intra week)
TMV (-0.22%)
XME (+3.85%)

The sell orders will be staged prior to open and will execute as Marketocracy and market volume dictate.

Buy

MVV
SIVR
IYE
RKH
SSO

This will be a good litmus test of these equities.  MVV is actually even, if not up a tad, concerning large effective volume (LEV) over the last 8 days, even with today's downdraft.  SIVR has been in a general drift downward in terms of LEV, but nothing that I would consider a fire sale.  IYE is relatively even, much like MVV, over the past 8 days, so that is a net wash.  RKH has been steadily trending upwards in terms of price and LEV, which I find interesting and hence the reason it appears here.  SSO, the +2x leveraged ETF in the S&P500 index, has been getting wacked more than any of the other new buys, but ended the day with a last minute surge, so we'll see.

Hold

The following are NOT in order of strength, but are randomly presented:

ERX
UWM
PALL
OIH
BGU
DIG
IEO
IEZ
KOL
SLV
SOXX
SOXL
TNA
TQQQ
TYH
UPRO
UYM
VDE
XLE
XOP

The following is the implied order of relative strength, compared to the top 100 ETFs that are long as of the screen, AND compared to those appearing from last week:





As allways, the color scheme is as follows:
  • Red:  moved down in relative ranking, compared to level last week
  • Yellow:  same relative ranking as last week
  • Green:  moved upward in relative ranking, compared to last week
  • White:  new addition to top 100 list, was either rated "CASH" the prior week OR was so darned strong that it jumped into the top 25 without going through the lower 75.

As far as the shadow portfolio over at Marketocracy is concerned, here's the holdings and individual performance as of this writing:






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

You can see from the very top line that the total gain is 8.5%.  This portfolio was created Thanksgiving weekend, or 11/26, so it's not done badly.

Going into tomorrow (Thursday), these are the Top 25 ETFs that have a postive LEV over the last 8 days and show a positive divergence from small effective volume (you and me, SmEV):

PALL
UPRO
TQQQ
IEZ
OIH
TYH
XLE
RKH

No order above is implied -- I simply went down the list and eliminated those with a negatively-trending LEV over the last 8 days.  RKH is by far the strongest in terms of LEV, then I'd say PALL is next.

This latter methodology is with some merit -- that is, only selecting those top 25 ETFs with a positively-trending LEV at the time of purchase.  Last week I purchased ONLY those top 25 ETFs with positively-trending LEV using about $30K of capital, and today I sustained only a tad LESS than 0.97% loss on the entire basis, so overall I'm encouraged that we can modulate the selection with those ETFs with institutional buying.






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Remember, the Top 25 portfolios are test portfolios.  Trade them if you desire, but you do so with no guarantees or representations from me.  Continued following of my blog and these test strategies implies that you have read and accepted the terms of the disclaimer found at the top of the blog masthead when you first log into this site.

Also remember that you, not I, are responsible for your actions.  Do your diligence, point out my errors, ask questions, but above all, take responsibility for trading/investing/whatever.

Regards,

pgd

Possibly a good day for entry ...

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Summary

  • The GGT Price index rose on higher volume, which is bullish
  • The GGT Strength oscillator FELL, indicating that the underlying strength of the stocks in the database is out-of-sync with the rising prices.  This could be a warning shot.
  • The GGT Long-Cash Ratio (LCR) rose on higher prices and volume, which is bullish
  • The Short-Term LCR Change Timer is LONG.
  • The Intermediate-Term Elder Force Index Timer is LONG
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The LCR System

The Long-Cash Ratio continues to march upward, reaching it's highest level since 1/3/11.  This is the 5th successive day of gains for the LCR and indicates that the database is expanding.  Note that we've rarely seen 6 days of successive gains in the LCR, with the last occurrence being 8/13/10 to 9/15/10.  Based on this alone I would not be surprised at some form of pullback.

All of the slopes of the LCR EMAs are positive and are pointing upward.   This is bullish, and buying stocks here, unless they meet a Elder FI(2) < 0 entry criteria, could be very risky.

My comments of yesterday still apply: I consider that the LCR EMAs are indicating being range bound.  The implications of this are straightforward:  with no directional increase or decrease in the number of stocks in the GGT universe that are achieving LONG or CASH status, the ability for us to make money rests solely on our ability to choose those stocks which are rotating in and have appreciating prices.  I have no illusions of a sustained bull leg from here, and certainly, I think that we'll bounce around here during earnings season, which obviously can be challenging for portfolio gains.

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The Pricing System

The GGT Price index rose to another new high on Tuesday, ending the day at $30.54.  Volume was heavier than normal, about 33% above the 50d MA.  The only way to consider this is bullish.

All of the slopes of the pricing EMAs, through the 65d, are positive.  A potential crack in the ice is that the 5d, 8d, and 13d "slopes of the slopes" are pointing downward, which is the first step at falling through the ice. Sustained downward directions here could be problematic, but one day does not make a sell signal.  We need sustained downward pressure to give us a bail signal, and for now, this is to be considered healthy market action.

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The Timers

The Short-Term LCR Change Timer is LONG, and I have a new position in VTI.  I purchased a 20% position in VTI for my personal account yesterday and of course, I'm now down -0.3%.  I warned yesterday about chasing this signal, but Large Effective Volume was increasing, so I perceived it as a drop in risk.  This may still be the case, but I'll need a confluence of indicators to add to the losing position.  

The Intermediate-Termed Elder Force Index timer is LONG, and in general, indicates that we should be only considering long positions.  Shorting anything here is most likely not prudent.

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

Elder Candidates

IM is a relatively strong Elder Candidate with increasing short-term LEV and steady SmEV.  The weekly and daily charts look good.  My buy point is $19.37 once it clears yesterday's high of $19.49.

IFF is experiencing short-term LEV appreciation and steady SmEV accumulation.  The weekly/daily charts look good.  The price just cleared the 160d MA last week, and now the 8d and 13d EMAs have cleared the 160d from below, which is bullish.  Momentum, according to the slopes of the 13d and 34d appear to be waning, so I'll add this to my watch list but wait until the momentum resumes.

PLD looks good for entry, although it has had a mature run so I'm not going to commit any more than 50% total position to this.  There is a price/LEV divergence, where price has fallen today yet LEV keeps continue to climb.  It is presently -1.1% below my buy point and looks to be continuing lower, but with a solid LEV, I'm putting this on my short list.

GLW was added to the GGT, LLC portfolio yesterday, and again, appears on the Elder candidate list for today.  LEV is in a tight range, and SmEV is diverging lower, which typically is bullish.  This one has had a good run so again, I would not commit any more than 50% of a position to this one, and I think dollar-cost-averaging into the position on key Elder buy signals would be prudent.  Momentum, according to the 13d and 34d slopes, is upward, so any pullback could be a good entry.

JAH was added to the GGT, LLC portfolio yesterday, and again, it appears on the Elder candidate list for today.  LEV accumulation has been steady but slow over the last 8 days, and SmEV is flat and horizontal, indicating the lack of retail buyers.  JAH pulled back just below the 10w MA in November and has recently broke back above the 10w MA, which is a bullish signal.  Momentum appears to be changing from upward to sideways, so watch this one for continued strength.  All the EMAs look wonderful.

TEVA was added to the GGT, LLC portfolio yesterday and like GLW and JAH, it appears on the Elder candidate list for today.  LEV accumulation has been explosive while SmEV has been in distribution, always a sign of good things.  TEVA is -0.6% below my buy threshold of $54.62, and I plan to add this to my personal portfolio when/if it moves upward.  Momentum, according to the slopes of the 13d and 34d, are slightly upward-pointing.

===============
Contra Watch

The number of contra ETFs that have improving chart patterns continues to grow.  Out of a list of 82 ETFs that I track, I have 17 that I would consider "candidates for further exploration".  Despite this, CONTRAS ARE TOO EARLY at this point, so I won't consider them as a major portion of my portfolio.

I do note a divergence in LEV between DZZ, which is a double-short ETN in gold, and GLL , which is a double short ETF in gold.  GLL is increasing in LEV while SmEV decreases, and DZZ is simply being distributed.  Not sure if this has anything to do with one being an ETN and the other an ETF, but it bears watching.

ZSL, a double short in silver, is experiencing a very short-term accumulation that ties nicely to price.  Too risky for me, but for those of you looking at precious metals, it may be worth watching.

I note with some interest that SmEV on SDS, is moving upward dramatically, while LEV is in a clear, 2-day distribution.  This is the double-short of the SP500, so you can easily see where the "more risky" big money is thinking in terms of the market.  Be careful of this though, because the SH, which is the -1x of the SP500, is starting to see some accumulation on any SP500 (SPY) strength.

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

Trading Plan for Wednesday, January 19th

Short-Term Timer:  I plan to add to VTI if and only if I see strength on the 39m chart, e.g., my momentum indicators turn up and this momentum bleeds over into the daily chart.  Momentum for me is a positive slope on the slope of the 13d and 34d EMAs.

Intermediate-Term Timer:  I plan to add to positions or add new positions if they meet Elder screening as well as my own momentum/effective volume criteria.

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Remember, you are responsible for your own trading decisions, and I am not.  Please do your own diligence, and please be accountable for your actions.

Regards,

pgd

Position Disclosures:  I presently own or influence positions in AAPL, BPOP, CAT, COG, DIG, ERX, FTNT, GLW, IEZ, IYR, JAH, PALL, TEVA, TMV, UWM, XLE, XME, and XOP.


  

Monday, January 17, 2011

All Timers Long ... Blogs are Mixed in Views ... What to do?

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Summary
  • The GGT Short-Term LCR Change Timer is LONG, which signaled LONG as of the close Wednesday night.  Since Thursday the index is up 1.33%.  I missed this signal due to my travels and I will not be chasing it.
  • The VTI Short-Term Timer, which is directly related to the GGT ST LCR Change Timer, signaled LONG as of the close of Thursday night.  The open price was $66.25 on Friday, and it closed up 0.65%.
  • The Intermediate-Termed Elder Force Index timer continues to indicate LONG, and has been long since 12/1
  • The slopes of all the primary GGT EMAs (5d ... 65d) are pointing upward, and have been since the close of Thursday's markets.  This is bullish.
  • The GGT strength index is up significantly from last Friday's level of 0.575, ending the week at 0.782.  Values above 0.8 are approaching overbought, but this is a less-than-scientific level.
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Commentary

There is a considerable amount of noise present in the market, specifically the number of blogs that purport to have an edge here or there (my blog notwithstanding).  In general, I've been down-selecting my reading space rather than increasing it, relying more and more on GGT indicators.  This being said, I do pay attention to the following links via my BlogShelf reader on my iPad:
Of course, the commentary by Pascal Willian @ http://www.effectivevolume.eu, specifically detailing 20d money flow should be part of your weekly, if not nightly review.

The issue, as most of you know, is that it is easy to justify any position.  Generally, the blogs above are aligned in the same direction, e.g., either they all are hinting at the bullish side, or they are pointing downward on the bearish side.  Unfortunately, with all opinions (because their crystal balls are as good as mine), we have a mixed situation:
  • Billy is LONG, solidly long.  The reasoning is sound and the indicators in the market are what they are -- bullish.
  • Frank, at Trading the Odds, gives historical evidence to this MLK week as being decisively negative, especially as the week moves onward.
  • Rob, at Quantifiable Edges, hasn't blogged in a week and his last blog entry was more on his methods and not on indicators.  Hence, he gets a hall pass.
  • Dave, at ETF Roundup, has been on hiatus and will return (today).  He too gets a hall pass.
So, this leaves me to be a tie-breaker.  The challenge is this -- if I'm wrong, then we'll either miss gains (sitting on the sidelines) or take a hit.  If I'm right, we'll have gains made through appreciation of value or the protection of equity (sitting on the sidelines).  There simply is no way to be sure at this present time.  

I do note though that the upside reward isn't as good as the downside risk, so gains attained right now are in a more risky market.

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The LCR System

I place about 90% of my first gate analysis on the status of the GGT Long-Cash Ratio system.  To recap:

GGT ranks stocks individually into two broad classes:  LONG and CASH.  Stocks in a LONG status are there because they have PRICE AND VOLUME above historical levels where the stock also performed well (or performed less poorly).  Contrasting, stocks with a CASH recommendation are there solely because they are failing in terms of price appreciation, against the same historical levels.  What is unique about this system is that each of the stocks gets updated daily, classified, and then the entire database is cranked through the meat grinder to determine the LONG:CASH ratio level.  Hence, when we see the LCR moving upward, we know that the database is appreciating in terms of price and volume.  When we see the LCR moving downward, we know that the database prices are falling.  Typically, we want to buy stocks when the database LCR is increasing, as the number of stocks above their historical norms is increasing.

The raw database LCR value is presently at a value of 2.033, and indicates that 1771 stocks have some form of long status and that 871 stocks have some form of cash status.  Here's a chart of the raw LCR values so that you can see how this compares to past levels:




What strikes me about the present LCR levels is how relatively unremarkable the present levels are.  "Choppy", "noisy", "in-determinant", are all words that come to mind.  What I can say is that clearly, we are not below 1.0, which is when we typically are characterized with decreasing prices, so if we are not in a dangerous zone, by inference, we must be in a safe zone, or at least, a less-dangerous zone.  Also note that when we go above 2.5 we generally keep going through 3.0 although this rule did not apply over the last couple of weeks. Admittedly, we cannot infer much from the raw LCR chart except that there does not appear to be a clear trend upwards or downwards.

Often, EMAs (exponential moving averages) applied to the LCR can help me discern a trend.  Here's a chart with the 13d, 21d, 34d, and 55d EMAs plotted:




Of significance here is that the primary EMAs shown above are "interwoven".  This exemplifies the noisy, raw LCR graph previously shown, and indicates again that there is really no primary trend on these time scales (which I consider the primary, intermediate-length scales).  I would argue that caution is advised with respect to longer-termed holdings (those longer than trading days, or 2.5 weeks), simply because we could move either way as far as the markets are concerned.

Remember, the LCR EMA graph is not a price graph -- it is a state of the database.  It is telling us that the number of available stocks to choose from is relatively static within the database, and when this occurs, it's time to look at other indicators.  It's not saying that the stocks aren't changing -- it simply is telling us that overall, neither the bears nor the bulls are winning in terms of longs/cash.  In fact, we are seeing rotation in terms of sectors, but more on that later.

If the two graphs above were not enough to convince you that there is no trend in terms of the database expanding or contracting, then this next one should show you in a graphical way just what is occurring.  If we plot the "change in the LCR EMAs", day-over-day, we get this next graph:




This graph shows that we've been bouncing back-and-forth above and below the "0" line, which is where the slopes of these EMAs (13d, 21d, 34d) change from pointing up to pointing down.  As we can see, all are in the white portion of the graph, which means that the slopes are pointing up.  What we've been experiencing though is a bouncing effect, so while stocks certainly are moving up in price (see the solid blue line), the database is not experiencing the same joy.  In fact, while some of the stocks are moving upward, the chart is telling us that a nearly equivalent amount are moving downward.  This hasn't been a great time to pick stocks, at least on these time frames.

This last graph is the familiar dashboard of the LCR system:





Here, we see that in the middle of the graph, that we have three days of the slopes of the LCRs all being "bullish", with the last two day's confirming the 65d EMA slope.  For now, we are bullish, but all of the "red" in the middle portion of this graph, and the choppiness of the red/green, tells me that we need to be cautious and ensure that if we commit monies, it is not with the expectation of holding for the intermediate length time frames...

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

The Pricing System

Wuda, cuda, shuda ....

Here's a summary dashboard view of the GGT Pricing System:




The left column is the daily GGT price change, in %, and next to it is the volume of the day, compared to the 50d MA volume of the GGT database.  We've been solidly above the 50d since returning from the holidays, so we know that the institutional folks are back at their desks.

Again, the middle of the figure is where the primary action lies, as this is the slope of different length EMAs on the GGT price series.  What is most important here is the sea of green -- especially the 55d EMA -- and with one exception on 11/16, we've been pointing upward.  Perhaps there is a lesson here, as we place dollars in the bank, and this "greenness" is tied directly to dollars.

Just as the LCR ROC chart can tell us about how far we are from the slopes moving positive or negative, we can do the same thing with the pricing slopes:



 Of significance here is the amount that we are up over the pink area.  Now, don't get complacent -- all one needs to do is look back to the middle of November and we had a huge downdraft from these levels over the course of a couple of days, but the point here is that invested portfolios have been making money because as a whole, the database has been appreciating on multiple time scales, all with upward-trending slopes.  The 13d, 21d, and 34d lines plotted above are the same 13d, 21d, and 34d columns of the previous figure -- please make sure you understand what you're looking at between these two figures, because the data is the same, just presented differently.

From the combination of the LCR charts, as well as the pricing charts, I conclude the following:

  1. The database is churning, neither growing or contracting in any regard.  Since we have New Longs as well as New Cash recommendations occurring each day, the inflows to New Longs and the outflows to New Cashes is more or less balanced.  
  2. Prices continue upward with respect to the database, which we established prior as not expanding.  This means that the stocks recommended in some form of "Long" status have to be carrying an increasingly disproportionate weight compared to the recent past.  As long as the stocks that rotate out (New Cashes) do not depreciate faster than the stocks that are rotating in (New Longs) the price index will continue higher, so we need to place our attention on finding these equities.
  3. This rotation of the database but increase in prices is unprecedented in the 2.5 year history of GGT.  Because of these uncharted waters, throwing caution to the wind and jumping on the USS InvestEverything is not something I'd consider prudent.
  4. Volume levels are still above the 50d MA, indicating the presence of big buyers/sellers.  Hence, we should be able to find stocks that are appreciating due to volume accumulation but are in a healthy uptrend too, e.g., stocks that meet sound Effective Volume as well as Elder Force Index criteria.
  5. While I didn't discuss the details, both the price charts and LCR charts have a "slope of the slope" section (far right on each), and as you can see, both are very green.  Monday is probably NOT the day to pick an entry to stocks and fire all of our powder, but careful selection could prove valuable.
With these thoughts in mind, I went hunting.

GGT New Longs, which were posted in our Yahoo! group over the weekend, provide a good starting point of seeing what is "en vogue" for the given day.  I start with this list, then filter down via Effective Volume using my TradeStation code, but you can use web-based links just as easily: www.effectivevolume.eu and/or www.monest.com/charts.

When I do this, I see that the "hotter" industry groups are as follows:
  • Business Services
  • Communications
  • Computer Services
  • Construction & Agriculture
  • Oil & Gas (Integrated and Operations)
  • Personal & Household
  • Semiconductors
If I had to pick two that had the most stocks meeting EV criteria, I'd say that Oil & Gas and Semiconductors seem to be the hottest, but they all have multiple stocks.

This being said, I think that the following stocks are ready for entry, provided that they pull back some to allow entry AND provided that EV continues to increase:

PCLN
TEVA
DISH
PBR
QEP
CHK
ARUN

PCLN is already 0.6% below my buy point, and the huge rise of EV at the end of day Friday is encouraging. If EV holds yet the price drops this could be even a better bargain.

TEVA is 0.1% above my buy point, and has been on a steady accumulation over the last week or so.  Prices seem to have hit some resistance, so any downward movement while EV remains uptrending could bode well.

DISH is 0.1% above my buy point, and it looks like it could pull back a bit from here.  The EV story has been mixed, but there was a steady divergence in price and EV over the last few days that suggests buying at the lows, which is always a good thing if DISH is going to run upwards.

PBR, QEP, and CHK are all from the same Oil & Gas Sector, and have been doing well overall.  Of the 3 I like CHK, but all are good candidates.

ARUN is a love-me-hate-me stock   I owned it a few weeks ago when it started to drop, and just recently, it started back up and again, looks solid for all the same reasons.  Furthermore, LEV has been moving in while SmEV has been flowing out, so this historically has been a good setup.  We'll see.

Other stocks that are in the middle of a pullback but have a good LEV pattern overall are:

BSFT
PVA
IFF
PLD
IM
IT
L
JAH
RDWR
RBY
HYC
IRET
CNH
BPOP

Many of these meet some form of Elder Force Index criteria too (check carefully), so could provide good entry under our GGT, LLC rules if they continue upward.  Note though that these are in a pullback, so watch the daily RSI(2) or equivalent to see when they truly start their march upwards.

The following stocks are all solid performers but are WAY over my entry points, so I need them to pull back.  They meet Elder FI(13) criteria but fail FI(2) < 0 criteria, but are on my watchlist nevertheless.  All have good LEV patterns as of this writing:

BIDU
FFIV
CRM
CLX
ISRG
LPS
NVLS
CYMI
UTEK
CBS
CVX

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Trading Plan for Tuesday

Short-Term Timers:  I may place a position in VTI if it pulls below the Thursday/Friday buy price.

Intermediate Timers:  Elder fits in here, and many of the stocks above fit this criteria.  I'll wait to see if the market drops and stabilizes, and if the prices drop to within my buy zone.

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

Remember, you are responsible for your own trading decisions, and I am not.  Please do your diligence and take ownership for your actions.

Regards,

pgd

Ownership Disclaimer:  GGT, LLC holds the following positions:  COG and FTNT.  My personal accounts hold DIG, ERX, IEZ, PALL, TMV, UWM, XLE, XME, and XOP.