Wednesday, March 30, 2011

Continuing to Hold the Long Side ...

.
Summary

  • The GGT Price index hit a all-time new high of $34.05 on Tuesday on volume that was 19% below the 50d average.  We had rising prices in December 2010 on poor volume, and we cannot discount the impact of POMO buying.  New price highs are bullish overall, period.
  • All the pricing moving averages are positive and pointing upward.  This is bullish for our bank accounts.
  • The GGT Price Accumulator Oscillator is at +14, it's maximum reading, and is indicating that we should not buy new stocks on the long side as the short-term chance of decline from today's levels is above average.
  • GGT Strength is at 74%, and indicates that there is considerable fuel in the tank to power higher.
  • The short-term timers are both LONG, but I would not chase them from here.
  • The Long-Cash Ratio (LCR) closed above 1.0 on Tuesday at 1.058, the first time since 3/7.  While the absolute value is not important, the trend is up, at least through the 34d moving average.  The 55d and 65d moving averages are still negative, which means that we do not have 100% confirmation as far as the broad base of GGT stocks are concerned.
  • Investor's Business Daily finally joined the party Tuesday evening and has announced that we are in an uptrend.  There is comfort having them on our side.
Conclusions:  Stay the course on the long side.  While we are approaching overbought levels on a short-term basis, suggesting a slight pull-back, I think we'll be okay through the rest of this week.

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

Holdings

I'm presently holding AZO, CAT, FXP, OPEN, PCLN, and SJM.  I unloaded positions in DOG and SH yesterday, and lightened my position in FXP, all for a significant loss I may add, but Effective Volume action at the end of the day suggested that any further holding of the positions would be at the peril of my account balances.  I am mirroring this portfolio in the GGT, LLC account and it too realized the loss.

While you may be inclined to say that EV is a poor signal to base selling decisions, I think you'd be mistaken.  I simply remind you of the FTNT situation in January when LargeEV was increasing but price was decreasing  -- we had the same situation for SH and DOG until about 3 pm yesterday.  This is one of numerous examples.  All I can say is that many people took a hit yesterday, including our micropercentage compared to the masses.  Until I see compelling evidence to the contrary I'll let EV continue to guide selling if there is any consternation.  Of course there are other indicators to tell me to exit, but the majority of them have been mixed, as folks have not believed this latest up leg.  Finally, I'm reminded of a discussion I had with a full-time trader recently -- she indicated that when a hedge comes off, there's a loss, or there would be no reason to have the hedge in the first place.  Point taken.

Here's what I'm seeing on the positions being held:
  1. GGT has all of the stock positions as "Long", so there is no compelling reason to unload anything.
  2. AZO saw a significant uptick in the last 30 minutes of trading in terms of LEV and a simultaneous decrease in SmEV.  Price moved upward, so the big boys were stepping in.  I feel better about this stock, although I'm not overly pleased about how it's been acting over the last week or so.  I do note that it just cleared a weekly Darvas box, so combined with the breakout of the daily Darvas box on 3/24, we have a good setup.  I'm 17% below my target holding position of 16% total.  My price target is still around $300.
  3. CAT saw a turnaround in LEV yesterday, with steady, linear accumulation while SmEV dropped throughout the day.  CAT also just cleared a weekly Darvas box, and again, like AZO, when combined with the daily breakout of the box, we have a good setup for higher prices.  I'm 59% below my target allocation of 40% in CAT, so will most likely add early but not all, especially since the GGT Price Accumulator Oscillator is maxed out, saying we're due for a pullback.  I'm looking for a price target of about $114.
  4. FXP is frustrating me.  With the close yesterday I have mixed signals on the weekly time frame, and also with the close yesterday FXP has fallen outside the lower right corner of the daily Darvas box, an ominous sign.  Given this, LEV upticked at the end of the day as buyers stepped in.  Also, in looking at the price series over the last 40 days, it's visually easy to see that we're near a lower active boundary, so when combined with the mixed weekly signal, FXP actually appears to be a good play.  Nevertheless, GGT has FXP as a CASH recommendation, and I need to follow my own rules unless LEV skyrockets today (along with price).
  5. OPEN continues to perform well, and coincidently, has just cleared a weekly Darvas box in concert with a daily Darvas box on 3/24.  With recent strength my target allocation has fallen to nearly zero (volatility has been spiking, a bad sign), so I will place a target stop loss/profit point OCO order and exit the position with some form of gain.
  6. PCLN is marching upward nicely.  I'm 23% below my target allocation of 13%, so most likely will add those shares early this morning.  My price target is still around $540.
  7. SJM underperformed yesterday, which is worrisome when a stock does not participate in the broad market.  I'm slightly underwater on the position in both accounts, with a worse-case of -0.44%.  LEV held steady on Tuesday though while prices dropped, which is a good sign.  Any weakness in LEV will be cause for removal, especially since yesterday's price closed below the Darvas Box ceiling of $72.09.  We'll see how it behaves early in the session and if it lags, it's gone.
=================

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

Regards,

pgd






Tuesday, March 29, 2011

Stay the Course on the Long Side

.
Summary

  • The GGT price index fell -0.35% on Monday on volume that was -20% below the 50d average.  There was no conviction in the selling so I am not concerned at this point.
  • All of the pricing moving averages are gaining on a day-over-day basis.  This is bullish for prices.
  • The GGT Price Accumulator, which guides me on entry of new stocks/ETFs, remains at a value of 0 which is dead-smack-right-in-the-middle-of-the-scale, e.g. neutral.  The markets can go either way on us, and the risk/reward profile for entry of new positions is balanced.
  • Database strength fell on Monday to 69%, and indicates that we have a considerable amount of fuel in the tank should the markets want to go higher.
  • The short-term timers are all still LONG, although they gave up some ground yesterday.  The earliest these timers could move to CASH would be with the close of markets on Wednesday, and both days would have to be Long-Cash Ratio down days.
  • The intermediate-termed Elder Force Index timer is solidly LONG, and has been for 3 consecutive days. This is bullish for stocks.
  • Despite the GGT price index falling, the Long-Cash Ratio (LCR) INCREASED yesterday, showing underlying strength in the database.  Granted, the change in the LCR was only +5%, but an increasing LCR when prices are falling on poor volume is bullish for stocks.
  • The LCR moving averages are more-or-less unchanged from yesterday (see yesterday's blog).
Overall, I'm bullish on the short-term market, given the data through the close of Monday, March 28th.

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

Holdings

I'm presently holding AZO, CAT, DOG (laughing out loud right now ... "CAT", "DOG", get it?), FXP, OPEN, PCLN, SH, and SJM.  I received a note over night asking how I'm managing my positions so here's a blow-by-blow accounting of my thought process for each:
  • All the non-ETF positions are rated as GGT LONGs.  There is no reason to sell from GGT's perspective.
  • AZO came under pressure yesterday, but Effective Volume (EV) remained constant/somewhat increased on the day, giving me confidence to hang in there.  AZO cleared a Darvas box on 3/24 and made a new 52w high on 3/25 on increasing volume.  17d, 50d, and 200d moving averages are all in an uptrend.  My price target for AZO is presently 8.1% over my purchase price, or about $295.  The reward/risk level with AZO is lower than I like (presently 0.479), but it has consistently beat earnings since 2008 so is a quality company.  I'm trying to get to a 15% position in my portfolios in AZO.
  • CAT has been falling out of favor in terms of institutional sponsorship as of late, making the recent series of new 52w highs somewhat tenuous.  The stock has solid 50d moving average support and is well above the 17d line.  Volume has been steadily increasing for a couple of weeks, despite the lack of institutional buying.  CAT recently issued earnings guidance that beats estimates, which is a good sign.  CAT has consistently beat earnings estimates since April 2009.  My reward/risk ratio for CAT is better than AZO at 0.896, but with a dividend yield of 1.61% we're near my ideal consideration point of 1.0.  My price target is about $114. I'm trying to get to a 39% position in CAT.
  • DOG is the inverse ETF on the DJ30 and all I'm trying to do here is hedge the top of the markets right now.  I'm down -2.22% on the position since entry, but EV has been steadily increasing, as has average volume on both the 8d and 40d time frames, so I am not alone in my thinking that a hedge is a good place to be right now.  I have removed my stop loss on the position(s), simply because I hate stop losses. If it closes below $41.39, which is the floor of the Darvas box that it is operating within, I will have to seriously evaluate exiting the position early the following day.
  • FXP is the inverse ETF on the Xinhua 25 exchange in China, and it is presently down -4.44% since my entry.  Volume has been increasing with this one, and someone liked it enough on 3/23 to purchase 354K shares in a 1-minute block.  It's still operating within a Darvas box with a ceiling of ~$31.16 and a floor of ~$27.31, so there is no reason to exit at the present time.  Of course, a close below the floor of the Darvas box will cause me to reconsider.
  • OPEN has short-term institutional support, as determined by an 8d EV window, but the 40d is relatively poor but is increasing.  OPEN has beat earnings estimates every quarter since it went public in 2009.    The stock broke out of a Darvas box on 3/22 and hasn't looked back since, making 52w highs nearly day-over-day (except yesterday).  17d, 50d, and 200d moving averages are all upward-trending.  Again, the reward/risk ratio is a bit low for my liking at 0.573, but it is performing nicely at the present time.  It is nearing it's upside target of $104 so I may be exiting soon (I should have exited yesterday at my profit target but I was away from the PC and omitted setting a stop target).  I'm presently a bit overweight in OPEN, with a target of 2%.
  • PCLN has good EV and good 50d support.  It has consistently beat earnings every quarter since 2007.  It is presently guiding in-line for the next quarter, to be released ~ May 10th.  The stock made a new 52w high on 3/24 and it continues to push higher, with the 17d, 50d, and 200d all pointing upward.  A bit of a warning sign is that while EV is good, average volume is decreasing, giving me pause to the higher prices.  The reward/risk ratio is 0.582, again lower than I like.  My price target on PCLN is ~$540, and my position weight is 10%, which is my target.
  • SH is the contra ETF on the S&P500, and it is down -1.63% since my entry.  Effective volume has been increasing steadily on this one as the price has fallen, so many people are flocking to this as a hedge.  Average volume has been decreasing though, and overall, it's not a good long-term core holding.  It just fell outside of the lower corner of a Darvas box so I'm in conflict -- it should be sold if it closes below $42 (which it did last night), but the steadily increasing EV shows good institutional support, effectively putting a floor in.  I intend to hold SH as a hedge unless it breaks down in EV.
  • SJM has great institutional support and continues to experience significant buying, independent of price.  The stock is experiencing a bit of declining average up-volume, so as we make new highs, this is somewhat worrisome.  It broke out of a Darvas box on 3/21 and has been bouncing around against a new 52w high since then.  The 17d, 50d, and 200d moving averages are all in an up trend.  It is presently above my price target and if I see EV break down in any regard, I will sell it.  Note that every time the price dips that Large EV moves upward, showing increasing institutional support.  SJM has beat EPS estimates every quarter since August 2008.   I'm significantly under my target position weight of 34%, and given that we're above my price target, I will NOT be adding to the position in the short-term.
==================

Trading Plan for Tuesday

I'm more or less sitting pat today.  Stocks are bouncing around as of 10.a.m.  I moved 100% of my wife's TSP into stocks yesterday, so it will be interesting to see how that experiment works with a good chunk of change.  I've got a solid watch list of stocks for consideration, all with above-average reward/risk profiles, so we'll see how they perform throughout the day.

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

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

Regards,

pgd


Monday, March 28, 2011

Move Long Confirmed, Well, Almost...

.
I've presented some analysis of various signals that I watch at my TSP blog, which can be found at http://ggt-tsp.blogspot.com.  I suggest that you review that material to understand today's title a bit better.

===============
Summary

  • The GGT price index has hit an all-time high of $33.88, taking out the high of $33.45 on 2/18/11.  New Highs are bullish.
  • Volume remains below the average 50d MA level.  We saw this same behavior during December, so don't get lulled into thinking that lack of volume can keep the market from moving higher -- it moved much higher in December 2010, on very poor volume overall.
  • The Elder Force Index timer has confirmed a 2-day move upward into positive territory, and this is a new bull signal.
  • GGT Bull Strength, which is the ratio of GGT New Longs compared to GGT New Cash recommendations, has made two consecutive days of being above 1.  This means that more stocks are appreciating in terms of price and volume than are falling below historical optimized levels.  This is bullish.
  • The slopes of moving averages on the GGT price index are all positive and pointing upward.  This is bullish for higher prices.
  • The GGT Price Accumulator Oscillator is mid-scale at 0, showing that it is an equal reward/risk ratio to enter the market with new long positions on Monday.
  • The GGT Short-Term Long-Cash Ratio (LCR) Change Timer, which is just what it name implies, has been long since 3/18/11.  It has gained +3.95% in this time frame.
  • The VTI Short-Term Timer, which is the tradable ETF on the GGT Price Index, has been long since 3/21/11.  It has gained +0.8% in this time frame.
  • The LCR has gone up a consecutive 6 days running, moving from a value of 0.297 to 0.900.  This is a large change in a small amount of time, but is bullish.
  • The slopes of the LCR moving averages are turning more positive and are confirming an expanding database.  Historically, this has been a good time to buy stocks.
=============

GGT Pricing Slopes

When we take the GGT price and apply moving averages of various lengths, namely 5days through 65, we get a feel for what the market is doing in terms of prices on these time scales.  Here's the table view:



On the left is the slope of each of the moving averages.  If it's positive (e.g., price is going up day over day on that time frame), it's green, and if it's negative, then it's red.

As you can see, this week was a bullish week, with the prices all turning green on all time frames since 3/21/11.  This is bullish for prices and tells us that the trend is UP.

On the right is the "slope of the slope".  This literally tells us if the end of the moving average is pointing down (red) or pointing up (green).  More red means bearishness, and more green means bullishness.  This is a leading indicator over slope because we need the moving average to point a given direction before the slope will transition from red to green or visa versa (why?).  Make sure you understand this.

As you can see, we've been nearly GREEN for three consecutive days.  We typically don't get FOUR consecutive days of being "green", so I'm expecting a bit of a short-term pullback in terms of prices.

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

GGT Long-Cash Ratio Slopes

Much like the presentation above, we can apply various lengths of moving averages to the ratio of stocks in the database with a "LONG" recommendation to those with a "CASH" recommendation.  Hence the name.  When we apply these moving averages and look at them through the same lens, we get an idea if the database is expanding or contracting.

I've shown in the past that we should buy when the database is expanding and avoid buying when it is contracting.

Here's the table:



The left side of the table above shows that we've been thawing a considerable amount since 3/21, and this week's action was quite beneficial to the bulls.  I would like to see the 55d and 65d LCR slope averages move to into the "Green", indicating that they are positive, which may happen this week if we see continued bullishness in the markets.

Remember, the GGT system requires both price AND volume to be appreciating for a long call, so even though we're seeing reduced volume across the entire GGT database, we are seeing a greater number of stocks move to the long side than are bleeding to the cash side.  This is bullish.

The right side of the figure shows the "slopes of the slopes", and tells me if the moving averages are pointing upward or downward.  This is a classic case of demonstrating the leading nature of this method -- note how the solid green block PRECEDED the move to the long side -- this is because to follow a trend, the trend has to develop, and this "slope of the slope" method detects new emergent patterns early in the trend formation.  It's very powerful, and shows us that this signal is real. 

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

Price Change Oscillator

Recognizing that the market ebbs and flows, the price change oscillator helps me to determine when to enter new stocks.  Here's the chart:




The chart shows three regions -- pink/red, which is an overbought area, white, which is neutral, and green, which is oversold.  Also on the chart is the last 6 months or so of the GGT price index.  You can see that in general, when we're in the pink zone that the GGT price index has stayed horizontal or has fallen, and when we are in the green zone it has moved upward.   On the long side it typically pays to buy in the green zone and avoid buying long in the red zone.  The converse is true for shorting.

We are presently at 0, which is neutral.  The market can go either way on us for Monday.  Consequently, so too can our purchases.

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

Portfolio Management

I'm presently holding both long and contra ETF positions, and given the new flurry of "go long" signals, I'm looking to unload the contra ETF positions with minimum damage.  As indicated above, we are several days running into consecutive "up days" in terms of the pricing "slope of the slope" indicators, and we typically pull back and recover a day or two before resuming the advance.  I've got stop losses in place, so we'll see how things react over the next few days.

I'm gradually changing my approach to trading/investing, as I've been working to better understand how to compete against a benchmark(s) and hopefully beat the benchmarks in the long haul (if you can't beat the benchmark, then we are compelled to invest in an index and be done with it).  I'm also under greater demand in my day job, so I need to transition to more of an "evening" investor rather than watching the markets throughout the day.

If I look at the past performance of the last 13-26 weeks with my present set of holdings, and use that as a proxy of performance (return and volatility) going forward, I have a reasonable expectation of achieving about 17% gain with a bit more than 19% volatility with the current portfolio over the next year, provided that I'm 100% invested.  As of this writing, I'm only 5/13 invested on the long side, so given this allocation in cash, the expectation drops to 7.25%/7.09% return/volatility respectively.  This is too low, and there is no hope of beating a benchmark with such a high position in cash.

Using the DJ30, which has outperformed all other indexes the past 13 weeks (5.75% compared to S&P500/4.46%, Russell2K/4.12%, NASDAQ/2.83%), we are underperforming the DJ30 on an annualized basis but are outperforming everything else, so we're in the ballpark, again provided that I'm fully invested.

There is nothing in the tea leaves that suggests I shouldn't be fully invested so my goal is to add to the positions.

In terms of allocations, I presented some work in the GGT/TSP group over the weekend that shows how to allocate for maximum return/minimum risk using a metric called the Sharpe Ratio.  The suggested portfolio combinations using my present holdings are as follows:



Here, various combinations of weightings produce estimated returns/volatility, and the goal is to maximize return while not disproportionately increasing volatility (risk).  As you can see, the optimal value of weighting produces 17.7% gain at about the same volatility, whereas right now, with my present allocations, I'm underperforming in terms of expected return and taking on a bit more risk than I should.  You can also see that I've listed a portfolio combination that provides minimum risk (10.27% expected return and 13.30% volatility) -- in this case the expected return is whatever pops out at the distant end of the calculation.

Optimizing by the Sharpe Ratio has limitations -- it presumes that a buy-and-hold mentality has occurred over some period of time in the past, and that the future will continue to hold the same basket of stocks.  As a market timer, this is not my reality.  I've modified the textbook optimization of the Sharpe Ratio by using data only if GGT indicators are LONG for the given stock, omitting data when the individual stock is a GGT "CASH" rated stock.  This gives us upside volatility in the calculations, which is more representative of how this portfolio will be constructed.  I'm also using a technical document from JP Morgan/RiskMetrics (pp 94 - 102, Section 5.3.1.2) that applies a weighted average to data, effectively using only the last 100d or so to provide better estimates than the usual "use all the historical data available and hope" model.

All of this presumes that the next 13-26 weeks (or next year, for that matter) will behave like the last 13-26 weeks, which is a difficult proposition but my analysis has to start somewhere.  All of these stocks are GGT "Long" rated so they are performing well relative to their past.  All of these positions have favorable Effective Volume on a 40d scale.

Additions to the portfolio must raise the Sharpe ratio without sacrificing gain.  If a position becomes a GGT "CASH" ranked stock and is sold, then the portfolio will need to be re-evaluated based upon the new composition.  Luckily, the evaluation process is automated, so given a basket of stocks, I can see the overall performance.

I've found that it is very difficult to find a combination of stocks that maximize gain yet minimize volatility.  I've also recently found that using leveraged ETFs multiplies both the return AND the volatility by the same factor, so more often than not, there is no advantage to using leveraged ETFs in a constant-volatility model (in fact, I've actually found that volatility for leveraged instruments increases faster than it does for the 1x instruments, and this has to be a function of market demand).

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

Individual Stock Recommendations

I'm getting out of the business of providing daily stock screens based upon GGT and Effective Volume on this blog, and will be transitioning to a subscription service. I spend considerable time screening stocks, and I have 100% confidence in the GGT/EV methods.  You can subscribe to Effective Volume candidates at Pascal's site. You can review my past blog entries and evaluate my picks yourself; you will see that they largely outperformed the broad indexes after they were suggested.

I'm also now providing coaching services, and this area needs my focus.  I will continue to post my holdings, strategy, and actions and will continue to blog on a daily basis, when I am available.

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

Trading Plan for Monday, March 28th
  • As I indicated in the GGT-TSP blog, I'm moving my TSP funds from 100% cash to 100% invested in the market.
  • I intend to gradually exit from the remaining contra positions that I hold, but will do so selectively as the contras show strength, not as they show weakness.  I know this seems counter-intuitive, but we are due for a short-short-short-term pullback, which will reduce my losses in the contra positions.
  • I intend to add to my present holdings to build my present portfolio.
====================

Remember, you are responsible for your own trading decisions.  Please do your own work, and please take ownership for your actions.

Regards,

pgd

Position Disclaimer:  as of this writing I am holding the following equities:  AZO, CAT, DOG, FXP, OPEN, PCLN, SH, SJM, SLV

Friday, March 25, 2011

Friday 3/25 Update - VIX Ribbon Confirms Move LONG

.
(as I slurp my coffee, still attempting to wake up ...)

In my review of my indicators this morning, I note that the VIX Ribbon indicator that I have been using to confirm moves definitely shows that a move to the LONG side occurred with the close of markets on WEDNESDAY, MARCH 23rd.

Here's the chart; click on the chart to launch in a new window or tab:



The closure of the VIX below the lowest EMA, the series which comprise a ribbon, has provided a good indicator of when we should be moving back into the long side.

Based upon this, I will close all contra positions for a loss today.

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

Regards,

pgd

No Solid Confirmation of a Bull Leg; Being Selective

.
I finally landed from the west coast about 1 a.m. Friday morning so this will be abbreviated, in that I've not been able to review my watchlists in detail.

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

Summary

  • The intermediate-termed timing model that I use (Elder Force Index) is mixed and has NOT confirmed this move upward.  I'm looking for two consecutive days of both methods closing in positive territory; we're not there yet.
  • GGT closed at an all-time high with the close of markets yesterday.
The key here is to buy "test" positions in strength; some of my ideas are below.

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

GGT + EV Stocks

Here is my watchlist of stocks that I'm considering

  • AEM - good 40d and 8d support, just cleared 200d, volume is increasing
  • AZO - newly showing 40d and 8d accumulation, very close to 52 week high, new breakout of Darvas box so watch it to take out the 52w high
  • EZPW - riskier trade, but is breaking out and is starting to show accumulation.  Has lacked institutional support prior to this breakout; new Darvas box breakout
  • FMC - showing increasing support and looks that it will take out 52w today if it continues higher
  • GWR - showing solid momentum to the upside
  • NFX - failed a close above the 52w this week but is in a definite uptrend and has accumulation
  • PCLN - looking very strong, about to issue a buy signal in terms of correlated volume and price action.
  • CTSH - also looking strong on multiple fronts
  • EFX - just took out 52w high and has good institutional support
  • CLH - not attracting massive short-term accumulation, but is marching higher on good volume
  • THS - same as CLH, and keeps setting new 52w highs each day
  • UPL - showing new strength, but a volatile stock
  • YUM - showing good accumulation on the 40d and increasing volume in a range
  • WAT- solid accumulation but volume appears to be dropping slightly
  • SUN - just cleared a new box and set a 52w high and is attractive, but beware of doji on Thursday
================

Trading Plan for Friday

I'm net bearish in my positions, which are down about 2%. I intend to hold onto these and add selected stocks if they show strength today.

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

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

I'll provide a detailed review over the weekend.

Regards,

pgd


Monday, March 21, 2011

A Pause or a Reversal? The LCR Has Been Here Before ...

.
I'm away on travel most of this week to the west coast so blog entries will be curtailed.
=================
Summary

  • The GGT price index rose +1.02% on volume that was 29% above average.  I attribute some of the volume increase to quadruple witching, but rising prices on volume is a good sign.
  • All of the pricing slopes have turned up, with the exception of the 13d (no idea why it's holding out).  This is necessary for us to make money on the long side.
  • The pricing accumulator, which tells us whether we should enter stocks on the next trading day or not, is telling us to avoid entry of stocks on Monday, as the likelihood of a downday is increasing (reward/risk is poor).  The value is presently pegged at overbought, and given past history, there is only a 13% chance that today will be an up day (futures up 1% as I write this so it looks like we'll be in the 13%...)
  • The Elder 13d Force Index is in CASH.
  • The slopes of the Long-Cash Ratio (LCR) EMAs are all negative but are pointing upwards.  This a good first step to moving long.
Conclusions:  while there is no signal to move long, the overall indicators are not deteriorating, and to some extent, are showing a very slight improvement.  I intend to sit pat on Monday.

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

Market Internals on Friday

Friday wasn't a day to get excited about, as far as I'm concerned.  Here's a view of the behavior of the market, as determined by the average performance of 2x and -2x ETFs, relative to the 2x S&P500:



I explained this figure last week, so refer backwards a few days to get the details.

The top trace is the SSO, which is the +2x ETF on the S&P500.  The middle trace is the SSO minus the average of 9 +2x ETFs, all in different sectors of the economy.  The result is a relative behavior of this average to the SSO.  The bottom is the average of 9 -2x contra ETFs, basically the opposing "pair" of the +2x contras, and I subtract the SSO from this result.

When the middle trace is red the 9, +2x ETFs are underperforming the +2x S&P500, and this is the condition we see right now.  We also see in the lower trace that the -2x contra ETFs actually improved throughout the day, relative to the opening, showing that the S&P500 was under pressure all day.

This combined presentation is not one that I would call one of strength and because of this presentation, I think that the volume we saw on Friday was due to options/futures expiration and not much else.  While the bears certainly did NOT claw their way back they made great progress on Friday, and because of this, I am wary to whether this soon-to-be three-day up leg can be sustained.

The opposing position would have been supported if the picture above had solid green for the middle trace, e.g., all of the sectors (or the majority of them), as measured by the +2x ETFs, would have outperformed the S&P500.  I would have also liked to have seen strength in buying into the weekend, but instead, we saw gradual selling of long positions throughout the day.

Conclusions:  we're not as healthy as we would want to be to move aggressively long for the intermediate term.  I intend to remain largely in cash for the next day or two at a minimum.

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

GGT Pricing EMA Slopes

This next figure gives me the state of the health of pricing EMAs within the GGT universe:



This figure shows the slopes of various moving averages, from 5days in length to 65d, on the left, and the daily change of these slopes on the right.  Here's how to interpret:

  1. On the left, we've been in a pattern of increasing downward-pointing EMAs.  This has been evidenced in more "red", with the red growing from the shorter EMAs to the longer EMAs.  Consider this increasing bearishness as the calendar days click off.
  2. On the left, there are periods where we reverse the "redness", and see a couple of days of apparent recovery.  It will be incredibly important to see more than two days of "green" if we are to break the present pattern.
  3. On the right, we bounce between a couple of days down, a couple of days up, then repeat the cycle.  We've just experienced two days upward.  We'll need several of these days up to get me to move long.  Looking back over recent history, 4 continuous days up on solid volume would be a strong influence on my present outlook.
Conclusions:  The damage has stopped, based upon Friday's action (almost green across multiple time frames).  We need several days like this (more than 2) in order to have confidence to re-enter the market on the long side.

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

GGT Long-Cash Ratio Slopes

Whereas the pricing slopes tell us the pricing behavior of the database, as well as give us a short-term indicator of where the prices are moving, the GGT LCR slopes tell us how much support is under the price moves.  

Here, I'm looking for an increase in the LCR value, relative to a few days ago, as well as "green" in terms of the slopes or change in slopes.  Here's the presentation:



Here, we see the raw Long-Cash Ratio on the left, the slopes of LCR in terms of redness and greenness, and on the right, we see the change in slopes on a day-over-day basis.  Here's how to interpret:
  1. As you can see on the far left, we've had a significant number of consecutive down days of the LCR.  In fact, this is the longest streak (-7 days) since 11/9/10, which also was 7 days in length.  I note with interest that we also had a -7 day streak that started on 10/14/10, so we dropped in October, went up for 5 days, then dropped again for -7 days.  Relating this to recent action, we're "more or less" at the ending point of the first wave of down days, and we may/may not see the second wave down.  I would consider a test downward as healthy, as it would test the bottom formed over the last week or two.
  2. On the left, the slopes of the LCR are all "red", meaning that they are all negative.  I'd like to see some green here, first appearing on the left with the 5d and 8d periods, before I'd move long into this market.  Right now the database is NOT confirming the price action, which causes me to pause.
  3. On the right, we've had two days of "greenness", indicating that the slopes, while negative in value, are pointing upward.  This is the first condition to a sustained bull ... we need more green on the right to show that we can pull ourselves out of the abyss.  We're not there right now.
For the curious in you, here's the presentation from OCTOBER 2010 of the same LCR conditions that we seem to be experiencing right now:



If history is any indicator, we MAY be at the date corresponding to 11/1/10, but of course, your crystal ball is as good as mine.

Conclusions:  The LCR EMA behavior is not supporting the aggressive price EMA behavior, even on the shortest time scales, so this too gives me pause to entering the market on the long side.  I want to see continued days and increased "greenness" on the left side of the LCR slope presentation, which will reaffirm any sustained upward pricing movement.  Until then, I'm sitting more-or-less pat.

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

GGT + Effective Volume Stocks and ETFs

I've posted the stock and ETF updates in the Yahoo! GGT forum in the files section, and you can download the file to view stock candidates.  Simply refer to the "DashboardEV" file.  Because of market conditions, I do not plan to enter any of these stocks today, as the reward/risk levels are poor.  I'll re-evaluate tonight after I land on the west coast.

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

Trading Plan for Monday

Well, I'm presently holding contra ETF positions.  I'll most likely hold these as I think the likelihood of a decline, short-term or not, is fairly large from here.  My position in BIDU is also not performing well, and if we have a strong up day and BIDU decides not to participate, I'll cut it loose.

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

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

Regards,

pgd


Friday, March 18, 2011

We Need Significant Volume

.
Summary

  • The GGT price index rose +0.79% on volume that was -2% below the 50d moving average.  In isolation, unremarkable.
  • The slopes of the 5d through the 21d pricing EMAs are negative, which means that day-over-day on time frames less than 21d, you're losing money in your equity account.  The 34d resumed pointing up yesterday.  This is a step in the right direction.
  • The reward/risk tool is pegged at +14, telling us that entry to long positions today is risky.  Conversely, given the down-mood that we've been in over the last week or two, entry to contra ETF positions is ideal.
  • Database strength *barely* edged up yesterday.  This is a tepid response to a +1.4% increase in the major indices, and shows lack of broad support.
  • The Elder intermediate-length Force Index timer is still in CASH.
  • The GGT Long-Cash Ratio (LCR), which tells us the number of stocks that are performing well compared to those that are not, FELL yesterday.  This means that more stocks slipped over the edge of the cliff than climbed back up the price and volume mountain, and shows underlying weakness.
  • The slopes of the LCR EMAs are all negative, although yesterday's action did cause them to point upward from negative territory.  This means that the database is stabilizing, which is necessary for a bull leg to resume.
All things being equal, we're either taking a breather before heading down, or we're getting our feet under us.  Volume participation was lackluster, causing the LCR to drop.  This being said, a +14 reading on the reward/risk tool says that today probably isn't a great day to enter long positions (quadruple witching, Friday, Libya, Japanese nuclear reactors), so adding positions to contras may be a safe(r) play.

For me to have confidence to move back long I'd like to see 
  1. all of the pricing slopes in positive territory
  2. the Elder Force Index timer showing a LONG status
  3. the LCR slopes moving into positive territory day over day (first the 5d, then the 8d, then the 13d, etc.)
  4. I'd like to see the VIX close below the lowest level of the ribbon, as shown below, with the 14-day volatility average decreasing:


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

GGT + Effective Volume Stocks

Since I didn't post stocks yesterday, allow me to update the list.  Note that I'm not at all advocating entering these stocks, as you're swimming upstream against the current.  It is good to keep your lists active though so that you're ready to enter when the time comes.
  1. CLH is a new addition to the 3/18 list and has good 40d Large Effective Volume (LEV) and newly emerging 8d LEV.  I'd like to see price close above $95.47 in order to move in on this.
  2. CMG went against the trend yesterday and lost a good amount of price value, as well as seeing a Total Effective Volume (TEV) wipeout.  What I like about this is the 40d LEV pattern is solid, the price held the 17d MA, and it's in a Keltner/Bollinger squeeze.
  3. THS is newly emergent in the 8d LEV pattern while the Small Effective Volume (SmEV) sold off during the day, which I generally like.  Price drifted down throughout the day while LEV moved upward, showing support.  I'd like to see it close above $52.49 to enter.
  4. YUM was new to my list yesterday and saw notable LEV accumulation late in the day.  It is holding it's 17d well and the close proximity of the 50d provides a good stop loss level.
  5. DLTR has mixed signals.  The 50d is in a downtrend, but the 17d and 200d are in up trends.  Volume has been increasing steadily since mid February.  40d LEV is solid, and 8d LEV is holding steady although prices have been under pressure.  I'd like to see this close above $53.42, which is the low of the gap down on 1/4/11, before entry, but I may be dreaming here....
  6. GWW is rangebound in a box defined by $129-$138, and it saw a breakdown in LEV support yesterday.  Despite this, the 200d is pointing upward, and the 50d and 17d are intersecting, with the price action open/closing above this intersection, which is bullish for the stock.  Keep it on your list and wait for it to move upward beyond $138.
  7. MDR is another rangebound stock but is finding support on good 8d/40d LEV patterns.
  8. MPEL appears to be losing a good chunk of value but LEV is holding well.  Unfortunately, it's trading below it's 17d AND 50d, which is challenging for me.
  9. PCP is another rangebound stock that is following it's downtrending 17d in terms of price.  LEV, on the other hand, is steady.  I'm watching support at $136 and would like to see it break out of $146.68.
  10. SUN continues it's rangebounding behavior between $40.84 and $44.  I'd like to see it move above $44 to enter.  LEV has been wonderful on the 8d and 40d time scales, and it bounced well off it's 50d.
  11. *TEX is one that I may enter today.  It closed above a resistance threshold yesterday and 8d/40d LEV look great.
  12. WAT is bouncing between an upper resistance level and a lower support.  LEV has been growing, but its price is under its 17d (but above the 50d) and performance yesterday was less than spectacular.  What makes this worth watching is that LEV held up well as the price dropped this past Tue/Wed, which shows good support.
  13. *WFMI has cleared resistance of $59.57 so I'm looking to get into this one.  A good stop loss will be just below the resistance level.
  14. HK just cleared resistance yesterday of $22.07, and 40d LEV has been steady.  Note that the ATR(20) on this one is 7%, which is very high.  This means that you can see some wide swings with this one, so ensure you set your stop loss wider or simply do not move into a stock with this volatility.
  15. *CNX just cleared a resistance level which corresponds with a 52w high, and EV has been steadily increasing.
  16. *CSU just cleared a resistance level which corresponds to a 52w high, and volume has been very steady.
  17. DTG keeps breaking it's 52w high, almost on a daily basis, and LEV has been steadily increasing.  It's a bit overpriced here, but it has obeyed the 17d very well, so keep an eye on it.
  18. GLNG ships natural gas, and given the infrastructure issues in Japan, this company stands to benefit.  Note though that it has several long-term contracts in place which prevent it from directly benefiting from an immediate increase in NatGas, so think of this as a derivative play.  I'd wait for a pullback to enter.
  19. *JVA just cleared a 52w high and LEV has been moving up aggressively.
  20. *PANL continues to march upward, having cleared resistance and now setting a new 52w high.  LEV is very supportive.
  21. TESO is getting ready to clear resistance which corresponds to it's 52w high.  LEV has been decreasing slightly, but if this closes above, I'd look for this one to move higher.
  22. TRC has been on my list for a week or so, and has bucked all downward trends.  Note that it has made 3 consecutive 52w highs in the past 3 days, and LEV  has been steadily increasing.
  23. UAM just cleared resistance and has positive-trending TEV.
  24. ADES is traded at a thinner level than I like ($-vol = 486Ksh), but LEV has been steadily increasing.  Note that it dropped yesterday, which is bucking the upward trend, so make sure it holds above $16.
  25. APL continues to impress me, with it now clearing resistance for 2 days and LEV moving upward at a steady clip.
  26. *MMSI just cleared a 52w high on improving volume.  The 50d is crossing the 200d from below.  LEV has been steadily increasing.
=======================

Trading Plan for Friday
  • I may enter selected stocks as listed with trial positions if they continue to move upward, but the reward/risk levels are poor.  
  • Today, at the end of day, could be a good day for Contra positions, if the market continues moving upward.
=======================

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

Regards,

pgd

Position disclaimer:  as of this writing, I own positions in the following equities:  BIDU, EWH, SJM, SWI.



Thursday, March 17, 2011

Surgical Strikes using Connors' TPS Strategy, Cash is King

.
Summary

  • Since the market peak on 2/18, the GGT price index has fallen -6.5%.  In comparison, the dip after the 11/8/10 peak was -10.4%, but the 1/18/11 peak to subsequent drop was only -3.90%.
  • Wednesday's action saw the GGT price index fall -1.33% on volume that was 33% above average.  This was a significant day down, and it caused many stocks to move into a CASH recommendation.
  • The 34d pricing slope has now turned downward.  This is the first time that this has occurred since 11/16 & 11/17, and during that period, it only lasted 2 days.  If we are to recover, I would expect that this will move back to the upside very quickly.  If it does not turn up, then I will maintain my bearish outlook.
  • My pricing change tool that I use to determine reward/risk levels is pegged against the bottom rail at -14, indicating a great reward/risk on the long side and that I should move into stocks aggressively on the long side.  This is a day-over-day tool, so in no way is this telling me to open new positions for any duration of time.  My overall outlook on the intermediate term is bearish.
  • The Long-Cash Ratio (LCR) Change Timer, which is a short-term timer, is solidly in cash.
  • The Elder Force Index timer, which is an intermediate-termed timer, is solidly in cash.
  • GGT database strength has just notched it's 6th contiguous day of dropping, the first time it has done this since August 2009 (yes, 2009), and is well overdue for a bounce to the upside.
  • The LCR has dropped to 0.305, the lowest level it has been at since 8/26/10, when it dropped to 0.300. This is an incredibly low level.
  • The slopes of all the LCR EMAs are pointing downward, and the day-over-day change of these slopes has been negative for three consecutive days.  Three consecutive day-over-day changes to the downside means we're running really fast into oversold territory, and a 4th day of this pattern is rare (11/9 - 11/12 inclusive, 10/14 - 10/19, 6/21 - 6/24, 9/21/09 - 9/24/09 ...).  I would expect a bounce upward either today or tomorrow, which is quadruple witching day.  Until some of these slopes start appearing to move to the upside I will maintain my bearish outlook on the market, and will keep a high degree of cash.
Overall, we are due for a bounce upward.  This doesn't mean that it will be sustained, so nimble is the key.

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

Market Internals

The broad market started strong yesterday, with the underlying sectors outperforming the S&P500 most of the day, both on the upside as well as the downside.  Sentiment changed about 11 a.m. EDT, when a recycled rumor caused most everybody to panic, and this was enough for Contra ETFs to establish a foothold on the day and dominate.


I discussed this chart yesterday in my blog so refer to that entry for details.

The greenness in the middle trace tells us that while the S&P500 was falling, the other sectors in the market were falling LESS than the S&P, on a relative level. This means that they were holding up and I generally like to see this as a precursor to any move upward.  I especially do not like divergences when the S&P500 moves up and this group of 9 ETFs moves down, the latter showing a lack of support.  This wasn't the case yesterday, so I was overtly bullish to the health of the market.

The bottom trace is the 2x Contra ETFs, and we can see that they underperformed the broader market until about 11 a.m. EDT, then there was no looking back after 11.  The fact that they increased their bearishness stance into the final hour of trading, while the +2x ETFs held steady (relative to the S&P500), simply tells me that people were in a sell-sell-sell mode, which caused me to buy-buy-buy in terms of Connors' TPS ETFs.  And that is exactly what I did in the final 10 minutes of the day, simply because the candidate ETFs were being driven fast and far away from the RSI(2) reading of 70.

Futures are up as I write this, and given the performance yesterday of the +2x ETFs, I would say that we'll have healthy participation across the board on the long side.  We'll see.

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

Trading Plan for Thursday

I'm short on time today so I'll not post my watchlist.  It's risky to enter stocks for the longer haul, so nothing lost.

Almost all of my Connors TPS trades are above their average P/L levels, which are my inside targets.  I've got meetings starting at 10 a.m. and will not be able to watch the markets, so I'll place stop loss orders at these profit points just prior to 10:00 and lock in those gains.  This is a deviation from the Connors rules but the next couple of days are going to be challenging for me in terms of watching the market so until the Japanese issues are under control, cash is the best place to be, oversold or not.

I may enter additional Connors TPS trades IF the market is significantly lower just prior to the close.

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

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

Regards,

pgd

Position Disclaimer:  as of this writing I own positions in the following equities:  BIDU, EFA, EWH, EWT, IWM, QQQQ, SJM, SWI, TBL, XLF, XLV.

Wednesday, March 16, 2011

Caution is Advised, but Stock Candidates are Growing

.
Summary

  • Since the 2/18 high, the GGT price index has fallen -4.6%.  In the big (intermediate-termed) picture, this is a minor pullback.
  • The GGT price index fell -0.92% on volume that was 22% higher than normal.  1 standard deviation is 24%, so this is notable and certainly can be called a distribution day.  This being said, we've only had three of these days that pushed 1 standard deviation since our peak on 2/18, so as far as I'm concerned, the sky isn't falling on the intermediate trend.  Under pressure, yes, collapse, no.
  • Price slopes continue to erode (see yesterday's blog), and we now have all EMA slopes less than 22 days in length under water and falling.  This is moving my sentiment towards an intermediate-termed bear but I'll need to see the 34d and 65d slopes underwater before I'm there.
  • Database strength is indicating that we are very oversold, and I expect a bounce here any day.
  • All short-term timers are in CASH, and if you have a time frame of a couple of days, you should be too.
  • The Elder intermediate-termed Force Index timer, which operates on 13d and 34d intervals, is clearly in CASH using two different calculation methods.  Historically, when this timer has moved to CASH you should not have intermediate-termed stocks on the long side within the market.
  • LCR slopes (again, see yesterday's blog) continue to erode and are completely bearish.  The relative change in these slopes is negative, so more stocks are moving to cash on a day-over-day basis than the opposite.  This means that the pool of stocks that you can choose from is getting thinner, with obvious implications.
  • You would have thought that the price change indicator that I use to determine short-term (couple of days only) reward/risk levels would have slammed against the negative rail yesterday, indicating that the reward/risk level was good for entry into stocks on a short-termed basis.  Not so.  The value moved from netural (0) to just under neutral (-4), giving a slight edge to the bullish side, but not by much.  I wouldn't get trigger happy on either side (bullish or bearish) at this point -- the upside on either longs or shorts is more-or-less balanced.  Given the oversold nature of the database strength, I'd err on closing shorts / contra ETF positions and securing those gains, and wait for a rally to re-enter shorts/contras.
==================

Intraday Performance of 2x ETFs

While we saw a steady recovery of the S&P500 yesterday from the initial sell-off at the open, the broader market did NOT participate.  This is worrisome for me, as I would have liked to see the trend spread across all sectors.  Here's the chart:



I explained this figure yesterday, but for a quick recap, the top trace is the SSO, which is a levered 2x ETF on the S&P500, the middle trace is an average of 9, 2x ETFs, subtracted from the performace of the SSO (e.g., we'd see green if the 9, 2x ETFs were outperforming the SSO), and the bottom trace is an average of 10, -2x contra ETFs, the latter average subtracting the performance of the SSO (e.g., we'd see green if the 2x contra ETFs outperform the SSO, which obviously, it did).

Here's how I interpret the figure, which gives me a view into market internals.
  • The middle graph started out bearish, with the broad (long) market significantly underperforming the SSO, which was also deep underwater.  You can see this as red in the middle graph.  We also see that the broad contra market (think of this as shorts on the normal market) were outperforming the SSO, and this can be seen by the huge green levels on the lower graph.
  • As the morning progressed, buyers stepped in or shorts covered, causing the broad market to move towards parity with respect to the SSO.  By noon EDT the broad markets were even with the SSO, which is when a few bars of "green" started appearing on the middle graph.  Hence, while the SSO was down on the day, all the markets were performing equally.
  • The gradual decline in the strength of the contra ETFs, shown in the lower graph, shows that the markets were becoming more rational, and simply that the SSO was clawing back, slowing gaining on the day.  The fact that we still had a significantly green level at noon EDT simply shows that on the day, we were net negative for long positions and net positive for contra ETF positions.
  • Where things started to diverge is after 1:30 EDT or so.  We see that the SSO, and the broader markets in general, more-or-less held their range until this time.  We see the flatness of this reflected in the SSO, the 2x ETFs, and the -2x ETFs.  After about 1:30 EDT the SSO started to march upward again, while the long ETFs lagged, this latter observation coming from the middle graph as it actually decreases in value while the SSO continues to increase.  This is a divergence that shows that the broad market was not participating at the rate that the SSO was moving upward, and it shows that not everybody is on board.  This is a warning shot.
  • After about 2:30 the SSO continued it's upward march, and the broad markets started to improve until about 3:45 EDT.  After about 3:45 the longs started selling, and contra positions started buying, so the mood at the market close was clearly one of bearishness, not hopefulness.
The "so what" in all of this is that we're not out of the woods.  Committing to either side at this point in time is not prudent, and with the uncertainty in the nuclear situation overseas, any bad news could send the markets heading south.

I personally will use any form of rally to move back towards contra positions.

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

GGT - Effective Volume Stock Watch List

The following stocks are GGT long-rated stocks with favorable EV setups.
  1. PCP fell a significant amount yesterday but EV has held steadily on long and short time frames.  It seems to have a resistance line at the 50d, but if it closes above the 50d, this could be a good candidate.
  2. APKT saw a significant amount of buying with the overreaction of price downward at yesterday's open, and LEV held up nicely all day.  I see resistance at the 17d MA, but the 50d is strong and price is well above the 50d.
  3. CHKP is newly emerging on the longer time frame as far as accumulation is concerned, so this is early. This being said, it is respecting it's 50d very well, and within the last few days accumulation has increased.
  4. WAT has been under steady accumulation which accelerated yesterday.  On the down side, this one violdated its 17d, which is well above the 50d, so while it could drop a significant amount, risk/reward seems to be quantifiable.
  5. SUN continues to show steady accumulation on short and long-term time frames.  It's now well above the 17d, so I'd wait for a pullback to the 50.
  6. MDR didn't budge a bit to the downside in terms of LEV yesterday, while prices obviously sold off.
  7. NYX is seeing significant buying on the LEV side and distribution on the SmEV side.  This is relatively new, and stems from the hostile takeover rumors that are circulating.  Nevertheless, folks are moving into this stock aggressively, and it obeyed it's 50d well.
  8. FFIV continues to see accumulation on long and short time frames, and has tested the 200d twice and held.
  9. TEX is obeying it's 50d, more or less, and is seeing newly-emerging accumulation while the longer-termed accumulation is solid.
  10. GWW is at a confluence of the 17d and 50d, and yesterday's action caused it some problems, although it closed above this area.  Accumulation has been steady.
  11. Surprisingly to me, M has been under longer-termed accumulation and short-term is starting to take off.  I see though that the 50d downtrend mimics the price behavior, and now with the 17d and 50d converging, we need a close above the convergence point.  Watch this, as it's very liquid, but a wedge is forming.
  12. DLTR is holding up well and although it is well above the 17d, it seems well behaved despite recent downdrafts.
  13. WFMI is holding up relatively well and is well above the 50d.  Accumulation is relatively solid, although there was a bit of selling at the close yesterday.
  14. CAB has been on the list for days and I like it.  It is respecting the 50d, and LEV has been solid despite the recent selloff.
  15. I know semis are in trouble, but LSI has been doing well and needs to be on your list.
  16. MPEL is compelling, although it broke it's 50d yesterday.
  17. DUK has sold off, partly because it's got a number of permits pending, but overall, this is a good company. Disclaimer -- I work in this industry and know this company well.  It violated its 50d yesterday, and is a volatile stock, but LEV is solid on multiple time frames.
===================

Elder Market Cap Favoritism Candidates w/ Favorable Effective Volume

The following stocks meet Elder entry criteria that fits the rules within GGT, LLC and have favorable EV on short and long-term time frames:
  1. BIDU
  2. CHSI
  3. FDO
  4. CRDN, but this is a newly emergent breakout in terms of LEV
  5. TBL
  6. SJM
  7. SKS
  8. PCLN
  9. SWI
==============

Trading Plan for Wednesday
  • I'm biased to the down side for swing trading.
  • I'll consider entering Elder candidates if they show strength while the market falls, and they meet entry criteria, while the market appears to stabilize.
  • I'll consider entering GGT+EV stocks at 25% positions with well-defined stop losses, if they continue to show LEV stability while prices drop.
  • If the markets rally, I'll most likely enter contra ETF positions.
==============

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

Regards,

pgd

Position disclaimer:  as of this writing I am long in EFA and IWM, which are Connor's TPS trades.



Tuesday, March 15, 2011

Approaching Oversold Areas & Expecting a Long Bounce

.
Summary

  • The GGT price index fell -0.49% on average volume that was -2% below the 50d moving average.  This is normal market noise, when taken in isolation.
  • Internally, the number of stocks with "stabilizing" price action is increasing.  This indicates (today's futures action not withstanding) that these stocks are finding a floor of support.
  • Database strength, which is a measure of overbought or oversold conditions, has just completed four consecutive days of dropping, and a 5th day is rare.  Again, given external events and the futures, it looks as though we will experience a 5th day of dropping in this indicator, which will place us deeply into oversold territory and set us up for a bounce upward on the long side.
  • There was short-term strength developing within the different market segments after 1 pm on Monday, and despite the futures this morning, we need to watch for this strength to develop (figure included below).
  • The Long-Cash Ratio (LCR) continues to drop, and is now in the same territory as it was back in August 2010.  While the absolute level is not as important as the direction, it is noteworthy because we have essentially moved back to the same conditions that we experienced in the mid-summer 2010 time frame.
  • My risk/reward indicator has moved back to neutral ground, indicating that risk/reward, on a short-term basis, is balanced.  This being stated, given oversold levels, I would not move into new contra ETF positions today, rather, protect any gains and get ready to play the long bounce.
  • In the big picture and with respect to the GGT index, we have only fallen -3.3% from the high established on 2/18.  World events aside, this is a minor pullback.  Note that since Tuesday of last week we have fallen -2.5%, so this is a rapid decline in a short period.  I have every expectation of a long bounce within the next day or two.  While the short-term trend is down, the intermediate trend is still intact and pointing upwards, and we must keep this in perspective.
==================

GGT Long-Cash Ratio 

In my discussions last night with Bob Wilson, who has taken over from Joe the task of updating the ETF pages to give Joe a much needed break, Bob poked me to update the GGT dashboards.  I obviously review these daily, but due to overall time constraints and a desire to streamline content, I hadn't posted the views for some time.  

The most important tables that I watch are the slope tables.  Here, I construct exponential moving averages of between 5d and 65d in length, then I calculate the slopes of these different EMAs.  If they are pointing up, this is generally good, and if they are pointing down, then this is generally bad.

As with all my images, right-click on the picture to view in another window or tab.



This first image for today is the dashboard for the pricing slopes.  As you can see by the red areas that are evident in the figure that we have a number of slopes that are pointing downward, and more importantly, we have just experienced 3 consecutive days of this behavior.  Looking back in the table this 3-day green/3-day red play has typically characterized a choppy market, and as I indicated in my summary above, we've only dropped less than 4% in total since our peak on 2/18.  The greenness of the figure shows where we have been -- bullish -- and the lack of total red across the bottom of the figure indicates that on the longer time frames, we still are in a bullish uptrend.

This next figure gives us a view of the database in terms of the number of stocks with a long recommendation, compared to those with a cash recommendation.  To recall, in order to have a long recommendation, price and volume must be above historical optimized levels where the stock has performed well, and to have a cash recommendation, all that is required is for price (not volume) to be below this historical optimized level.



The LCR view above is more sensitive than the price view simply because we're looking at more than one variable -- price -- so as price and volume expand and contract, we get a greater amplification of market sentiment and direction.  I place more emphasis on the LCR slope table above, for obvious reasons, but in the end, we put PRICE action in our bank accounts, not the LCR behavior.

In reviewing the figure above, the market turned decisively bearish on 2/22, and with the exception of a brief bounce that started around 3/3, really hasn't looked back.  I view the rightmost columns -- the 55d and 65d slope lines -- as the primary indicators of the health of the intermediate trend, and for now, the health of these longer trend lines is in trouble.  As you saw in the previous figure, the pricing table showed that the 65d pricing EMA was pointing upward, but with the LCR 65d line pointing downward, we have fewer stocks that are supporting the pricing action.  

In the end, the two must align in direction.  It is impossible to sustain a growing pricing action for these lengths in time while the number of stocks moving up is declining.  This is exactly the situation that we have now.

In summary, I think that while we are due for a bounce here due to our oversold conditions, I do not see anything that will spark us upward and sustain a new expansion.  Caution is advised.

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

GGT Stocks for Further Review

A number of stocks are on my watch list and are worthy of consideration if they hold support from here:
  1. CAB fell significantly yesterday but 8d and 40d LEV support is evident.  The low touched the 50d MA yesterday but it closed above the 50, and the highs appear to be bounded by the 17d.
  2. CMG is starting a new short-term accumulation pattern in the presence of an established longer-term pattern.
  3. EIX held EV levels well yesterday despite a major selloff in price.  There may be resistance at the 17d, so watch this one.
  4. FE is in the same boat as EIX, and they are from the same industry.
  5. GWR has a convergence of the 50d and 17d, and the EV patterns has been relatively good.  It appears to be holding well at the 17d/50d convergence level.
  6. GWW is nearly the same as GWR.
  7. MPEL is behaving very nicely on the 50d, but the 17d is below the 50d, which I take as a warning.  This being said, the LEV patterns are compelling.
  8. PCP saw price pressure yesterday but LEV held nicely throughout the day.  It also experienced a bullish engulfing pattern with a close above the 50d.
  9. SUN continues to perform well in terms of EV and 50d support.  It's well above the 17d, which is above the 50d, so I intend to wait for a pullback
  10. AAPL bounced nicely off the 50d twice, and is now just above the 17d.  EV is solid.
  11. LULU has behaved nicely at the 50d for many consecutive days, and although it finished above the 17d, the longer-term LEV pattern is holding.  I do not see any short-term 8d LEV accumulation, but I don't see any short-term selling either.
  12. CEG is another utility that has a confluence of the 50d/200d MAs converging, and it experienced a bullish engulfing candle over the last two days, closing above the convergence.  Further, LEV looks wonderful on short and long time scales.
  13. PNC, which is a bank, is at a confluence of the 17d and 50d, and it is respecting this convergence nicely.  LEV is good on short/long time scales.
  14. HDY is a riskier play, but the 17d/50d lines are interwoven and the price is more-or-less behaving.  Premarket today shows it down at $5.32, but I'd place a low at $5.18, so it still is worth considering.  The appeal here is that LEV has been supportive and that buying stepped in yesterday.
  15. HTZ is respecting the 50d well and the long-term LEV looks good.  I do not see any significant buying on the 8d LEV pattern though, so beware.
  16. ESV is a more volatile play but is respecting the 50d within the past few weeks.  Longer-term LEV is solid; 8d LEV is weaker.
  17. HK saw a considerable amount of buying yesterday near the close, driving price upward.
  18. TEX is respecting the 50d but appears to have resistance at the 17d.  LEV looks solid.
  19. NYX is continuing their hostile bids and this is reflected in LEV, so give it a look.
==================

Internal Strength Indicator

I've modified an indicator that Hsin provided to me to reflect the behavior of the 2x ETF markets, specifically those ETFs that have less than a 1:1 correlation.  Here's the chart:



The top trace is a 5-minute bar on the SSO; the middle histogram is a composite index comprised of the average movement of 9 +2x ETFs, and the bottom trace is comprised of the average movement of 10 -2x Contra ETFs.  The middle trace value reflects the 2xAggregate subtracted from the SSO, the 2x of the S&P500, and the bottom trace reflects the performance of the -2xContraAggregate minus the performance of the SSO.  Consequently, if we see green in the middle graph, we know that the underlying +2x market is outperforming the 2x S&P500, which I show as a good indicator for the longs, and if we see green on the bottom graph, we know that the -2x Contra ETFs are outperforming the 2x S&P500.

Yesterday was an interesting day in terms of this graph.  We see that the -2x contras started off with a small gain, but it grew throughout the day until 1 pm or so.  During this time the +2x ETFs held relative steadiness while the SSO dropped.  Once the SSO stabilized, we see that the -2x contras stabilized too.  Interestingly though, the +2x ETF started to grow in relative strength, showing that the market internals were stabilizing.   Furthermore, after 1 pm, we started to see the SSO begin to recover, market internals began to improve by the amplitude of the middle graph growing (the +2x ETFs were relatively stronger than the SSO), and at the same time, we saw a general degrading of the amplitude of the -2x Contras.  

Hence, while the -2x Contras finished in the green, we saw significant strength internally in the market in the face of really bad news from Japan.  Today will be telling.

Note that you cannot infer anything across the day-boundaries; the data is not valid in the first 5 minutes of trading, as the 1st bar is set to 0.

The way I use this indicator is to watch the relative trends of the 2x and -2x ETFs.  If I'm long, I don't want to move into the market while the -2x ETF lines are growing in relative strength.  Conversely, if I'm in contra positions, I don't want to enter additional contras if I see the +2x ETF lines growing.  You get the idea.  Basically, it's riding the short-term wave to better time entries.

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

Trading Plan for Tuesday

I'm net short on most of my positions, both personal and with GGT, LLC, so I'll close these if they start to appear weak.  There are a number of good stocks above -- if they show strength today in terms of LEV I'll enter as the setups allow.

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

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

Regards,

pgd

Position Disclaimer:  as of this writing, I own or influence positions in the following equities:  BOM, BZQ, DRV, EFU, QID, REW, SMB, SOXS, SSG, TYP.





Monday, March 14, 2011

Avoiding Intermediate-Term Long Positions; Contras Should be Considered

.
A pause here to think about the folks in Japan.  My brother-in-law, Paul Hurley, has a daughter Nicole who is an English teacher in Sendai.  After several days of living on pins and needles they finally heard from her and her husband Bob, and Nicole/Bob are amongst the people who are safe.  They have electricity, food, and bottled water, so are better off than many.  It's amazing just how close some of this can touch your family, extended, distant, or not, and it puts everything in perspective....

===================
Summary

  • Overall, the majority of my indicators point us towards a defensive position on the market.  Buying stocks aggressively to the long side right now is simply swimming up stream.  Don't do it unless you are an excellent swimmer.
  • The GGT price index rose +1.26% on Friday on volume that was 6% lower than the 50d moving average.  This is a weak showing by the bulls and should tell you that the markets are dangerous on the long side.  The FinViz dashboard of stocks (www.finviz.com) shows that the markets moved up but on much lower than average relative volume, confirming GGT's measurement.
  • The price change accumulator tool that I use to tell me if stocks are short-term overbought or oversold moved to +14 on Friday, in line with the markets moving up, causing the reward/risk ratio of entering new positions on the long side to be extremely poor.  Because I am positioned defensively, entering contra ETF positions early on Monday could be a good selection, provided that good contras exist.
  • For the record, the GGT Short-Term LCR Change Timer is in CASH, as well as is the VTI timer, which is tightly correlated with the LCR Change Timer.  These two timers indicate that purchasing stocks and ETFs on the long side with a short time frame have poor reward/risk characteristics.
  • Also for the record, the Intermediate-Term Elder 13d Force Index timer, when applied to the GGT database, is also in CASH.  This is telling us not to purchase stocks on the long side.
  • The contraction of the Long-Cash Ratio (LCR) is slowing, possibly showing that we may get a bounce here in the next few days.  I will avoid the temptation to enter stocks on the long side, but rather, will use the opportunity to enter selected contra ETFs.
==================

Contra ETFs

My posture is defensive right now, so Contra ETFs have my full attention.  This being stated, I let the HGSI dashboard view that I have created to tell me how they are performing.  

I like to use the Direxion -3x Bears as a source to create an index on contra positions overall.  I do this simply because the levered ETFs are more sensitive than their -1x counterparts, and as a result, we see trends easier with the -3x leveraged ETFs than we do with the -1x underlying ETFs.  As with all my images, right-click on the picture to open in a new window or browser tab:



A quick glance at this index view shows that we are still early, but we are getting closer to an "all-in" signal.  Here's my interpretation of the chart:
  1. Starting with the top two lines, we have Bull and Bear Power.  These are Elder creations, and Bull Power is simply the distance that the high of the bar is above the 13d moving average, and the Bear Power is the distance that the low of the bar is above the 13d MA.  I like to see both of these as a positive number at least once and early in a new bull cycle (for contra positions), and right now, the Bull Power is +0.844 and the Bear Power is -0.4782.  We did see Bear Power pull within -0.0403 of going positive this past Thursday, so we are close as far as this set of indicators is concerned.  Thursday's price doji doesn't instill a tremendous amount of confidence at this point though.
  2. Below Bull and Bear Power are three more Elder creations, the Force Index.  I plot two different methods of calculation of the Force Index in the top two lines, one using an exponential (faster) moving average, and one using a (slower) moving average.  Both are green, which means both are positive, and this is bullish for contra ETFs in general.  I note that the lower ribbon here is red, which is the 2d Force Index, and this means that it is blocking us from entry into contra ETFs at this time.  Ideally, we want this to move green (negative), THEN enter on strength of the positions, in which case it would move red with the close of markets that day.  This is subjective though, and a frequent and valid complaint is that if you wait for the FI(2) to move green-red then you miss the initial strength of the move.  Whatever your method, Elder's FI methods are bullish on contra positions.
  3. Next is the MACD histogram, and we see that the histogram bar is positive, which indicates that the MACD line is above the MACD-signal line, which is bullish for contra positions.  
  4. Bollinger's %B is yellow, and this is simply telling us that we're middle ground in terms of price volatility and actual index price.  Risk/reward is neutral at this point.
  5. Below this is my favorite 13d/34d EMA slope plot.  First, the 13d slope is above 0, which is bullish on this time frame.  Contra ETF prices are heading upwards, and the daily change of prices is accelerating to the upside on this time frame.  We also see that the 34d is about to cross the zero line, and it too is pointing upward, again confirming on a much longer intermediate time frame that contra ETF prices are moving upward, and more importantly, are accelerating to the upward side.   We're almost there -- not quite, but when the 13 and 34d are BOTH above the zero line, and they are pointing upward, we have confirmation to enter contra ETFs.
  6. The pricing graph below the slope window shows that we are early.  First, we still do not have a crossing of the 8d EMA above the 13d EMA from below, although if Monday is a down day it looks like this will occur.  THIS WILL BE A SIGNAL TO ENTER a 25% CONTRA position in my portfolio.  Further closures of price above the ribbon of EMAs will continue to pull the EMAs upward, further showing that we need to be entering on this side of the market.
  7. Finally, look at the slope of the 50d MA of VOLUME in the lowest window.  The slope is moving upward on the average line, indicating that contra positions are increasing in demand.  This is bullish for these contra positions.
================

Trading Plan for Monday

I intend to enter Contra positions early if I can identify any that have good reward/risk characteristics.  
  1. SMB is a contra on the short municipal market that seems to be attracting money.  
  2. BOM is a double short (-2x) contra on base metals that is also attracting money.  
  3. EFU is a thinly-traded ultra short (-2x) on the EAFE (European Asian Far-East) markets that is also attracting money.  
  4. SQQQ is a -3x on the NASDAQ that also is attractive to me.  
  5. DOG is the -1x on the DJ30 that rocketed in terms of Effective Volume on Friday at the close, so pay attention to it too.
In the Direxion index that I created and displayed above, TYP, SOXS, DPK, MWN, and LHB are all risky but good candidates for further review.  Watch correlations though, and if you're not familiar with how to use Excel's PEARSON() function to determine correlations, you need to do some work.  Pick ETFs that are loosely correlated, and ensure that you're using good money management.  Note that leverage in early signals can backfire, so only consider the Direxion ETFs if you are aggressive in nature.

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

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

Regards,

pgd

Position Disclaimer:  As of this writing, I own positions in the following equities:  BOM, REW, SMB, SOXS, SSG, TYP.

Thursday, March 10, 2011

Top 25 ETF Portfolio Master Signal Change

.

Reminder:  There will be no entry on Friday and the weekend entry with the file updates will be late Sunday/early Monday, as I am traveling with my family Thursday - Sunday in upstate New York (Troy). I will attempt to update the files via remote login, but no guarantees.

=================
Summary
  • The Top 25 ETF portfolio has signalled a reversal change, meaning all positions should be sold and contra ETF positions should be entered.  We normally would sell positions on Thursday morning, so we are lock-step with our normal calendar.
  • Overall, we are still early for mass movement into Contra positions, but selected contras do look appealing.  Money management, and risk management are key.
=================
Top 25 ETF Portfolio

The Top 25 ETF portfolio has signaled a portfolio-wide change in sentiment.  This does not occur often, and I have only 4 signals generated since testing began a year ago this month.  There is no ambiguity in the signal -- I simply create an index of all the ETFs that are recommended since the previous evaluation period (last week Wednesday night close) and watch this basket index on a daily basis.  When the Elder FI(13) is below 0 on the basket index for three consecutive days or more, it's a problem.  Wednesday's action comprised the 3rd consecutive day.



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

In the figure above, I draw your attention to the upper right corner, specifically the Elder Force Index lines.  Note that both EMA and SMA methods are negative in value, and correspondingly, given the 3-day run, this change in sentiment means that the basket should be closed.

This is where the strategy bifurcates. 

Option 1:  Generate a new basket based on the same methodology.  The advantage of this method is that it will pick the strongest ETFs that have a GGT ranking of long.  The disadvantage of this method is that it heavily weighs momentum (continued moving in the same direction based upon where it has been) and does not take into consideration acceleration (newly emergent equities have acceleration but little momentum).

Option 2:  Generate a new basket based upon acceleration, which reflects changing sentiment.  The advantage of this method is that it has a greater chance of capturing the mood of the last week, and does not pay attention to momentum.  The disadvange of this method is that it is riskier of sentiment continues to change faster than 1 week in time frame, potentially causing a complete change in the basket NEXT WEEK.  This is significant turnover and there are transaction costs associated with this.

Backtesting of this strategy used Option 1.  Drawdown levels approached -13%.  Portfolio turnover with option 1 increased dramatically as equities rolled off the GGT LONG list and into CASH, causing rotation on a week-over-week basis (hence, little advantage over Option 2 in this regard).  Backtesting shows that Option 1 had you in the most powerful equities when the next turn in sentiment (e.g. bullish) occurred, but the issue obviously is the drawdown.  This is a large drawdown due to the leverage possible in this portfolio.  Again, this option has you long at the bottom, fully capturing the move upward when the market does eventually reverse to the upside.

There has been no comprehensive backtesting of Option 2, as my HGSI software cannot provide backtesting data.  I've done some manual spot checking at obvious turning points over the past year and if we are nimble, we can take advantage of this on the Contra ETF side and participate in the downside move of the market.  It will mean that we will miss the bottom, but it means we'll be in tune with market sentiment at the present moment, which I think is the way to go.

The next question is what equities to choose at this time.

To answer this question, I look at the weekly time frame, and I use a list of contra ETFs that have the greatest performance in terms of relative strength (compared to the Russell 2000) and that have increasing Large Effective Volume, the latter measured over the last 40 days.  Here's the list:
  • REW
  • TYP
  • SSG
  • BOM
  • SOXS
Only 5 ETFs are listed -- on a weekly time frame, these are the only ETFs that have accelerating relative strength and that are attracting big money.

The next question is one of position size.  While this is the Top 25 ETF portfolio, I've heard loud and clear from you that managing 25 positions is very difficult.  Correspondingly, I'm reducing the number of positions that should be considered using statistics and volatility measurements from each of the equities being considered.

I'm using the site RiskGrades as a guide for historical risk measurement of various equities.

Targeting a 2x return on risk no greater than 2x the S&P 500, we desire a target risk grade of 2x (SPY) = 2 * 62 = 124.  Using the basket above, 9 positions achieves the desired goal (projected risk grade with 4 positions in CASH and the 5 positions above yields a targe 115 Risk Grade).  Hence, each of our positions should be 11% in size.

Given the extraordinary selloff of equities today, entering contra positions at such a high value is not in our best interest.  I intend to wait for the inevitable bounce or recovery, either later today or tomorrow.

I'm content to let the portfolio remain in cash today.

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

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

Regards,

pgd