Tuesday, May 31, 2011

It's hard to ignore (pending) green ... / Connors' TPS Strategy & EdgeRater

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Summary

  • We're seeing some thawing of the bear ice regarding the pricing model slopes, e.g., the 5d EMA is above the 8d and the 8d is above the 13d.  This is bullish on a short term basis only.
  • The remainder of the longer pricing model EMAs, e.g., those longer than 13d, are all negative.  We have to watch the "slope of the slope" to see if these are going to transition positive or remain negative.
  • The VTI short-term timer, which is a whole-market short term timer, fired LONG with the close of business Friday, May 23rd.  I have placed a buy stop loss at $69.38 due to the potential gap up this morning (e.g., it will fill if the gap fills).
  • The Intermediate-Termed Elder Force Index timer is in CASH, and given the numbers, is most likely there for another day or two.
  • The Long-Cash Ratio model slopes are thawing regarding bear ice, e.g., the 5d and 8d slopes *just* moved positive on Friday.  This indicates that on a short-term basis that more stocks are flowing to the "LONG" side than those moving to the "CASH" side.  This is positive for us -- we want to invest when the number of stocks that are outperforming historical averages are increasing, not increasing.
Conclusion:  We are approaching a new bull leg on a short-term basis.  Many indicators are still in bearish territory, but if you're nimble, you should be able to move in and out quickly and make a profit.  Note that on an intermediate-termed basis you should be in CASH.

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Slope Models

The GGT Pricing Slope model is becoming more bullish:


As with all my images, right-click then open/save as desired.

Volume is in the toilet, which simply means that either money is sitting on the sidelines or it's being obligated in the options/futures markets, and not in the general equity markets.  

Looking above at the left side of the presentation, we see two consecutive days of the 5d EMA and the 8d EMA showing positive values.  This means that these two indicators have moved upward into positive territory -- they are gaining in $/day on these time frames.

A look to the right side of the presentation shows why the left side is doing what it is.  Out of the last 9 trading days, 7 of these days have had an upward-pointing slope.  It should not be a surprise to you that we're seeing some form of bullish signal as this occurs.

What is most important here is that we experience some form of follow through.

Here's the Long-Cash Ratio dashboard:



Again, much of the same presentation as above.

What is encouraging here is that we now have the LCR system indicating that on a short-term basis -- 5d and 8d -- that we are experiencing a net inflow of stocks with a LONG recommendation to those with a CASH recommendation.  Today's action is sure to add more green to the left side of the presentation, increasing the universe of stocks we can choose from.

Conclusions:  I'm dipping my toes into the bullish waters, as it appears that we can do so with some partial wind at our backs ...

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ETF Trading Bandit and EdgeRater

One of my GGT colleagues in the Dallas area, Bob Wilson, poked me to re-evaluate / use some software that I've had which has been written by Chris White.  ETF Trading Bandit is a package that was originally written with Larry Connor's strategies in mind, but any list can be processed using the package and what results are recommendations based on mean reversion strategies.  While the "Bandit" is based on daily closing prices, EdgeRater is a backtesting system, and it's usefulness is growing within my cadre of tools.

One of the first things I did was set up EdgeRater to backtest Larry Connor's published strategies in his book.    I'm fond of a strategy called "TPS", which is an abbreviation for a strategy that means Time-Price-Scale In.  The basic philosophy is to first invest a 10% position in the equity meeting the requirements, then 20% on the subsequent day if conditions are met, 30% on the next, and finally, 40% on the last day.  Of course you could go further, but then you're exposure would be greater than 100% of a position size.

Connors did his work with unleveraged long ETFs; here are his results:



You see that on average, you're pocketing 1.45% on each trade over 6 days, and 89% of the time the trade works in your favor.  Note that this was buying/selling AT THE CLOSE on the day of the signal.

Those are published results -- if EdgeRater can do what it says, it should be able to duplicate these results.

After setting up the program (rather easy if you watch Chris' videos), here are the results I attained:


So in the compare/contrast, here is what we have:
  1. Connors listed 1159 trades, EdgeRater listed 1071.  The difference in statistical significance is negligible.
  2. Connors listed 88.78% winners, EdgeRater found 87.86%.  Close enough.
  3. Connors listed 1.45% average gain per trade, EdgeRater found 1.46% per trade.  Again, close enough.
At first glance, we have excellent correlation, at least for published data through 12/31/08.

One thing that should catch your eye:  the average profit per winning trade is $56.59 on an amount invested of $10,000 (the $10K isn't shown).  This isn't a great deal of profit per trade, and the amount that you take home will be very sensitive to commissions.  It is absolutely critical that you trade Connors' strategies in a low-commission account!  

One very important graph that EdgeRater provides is the statistical distribution of the results.  This graph can give you confidence at the repeatability of the strategy, as well as giving you some view of the significance of the outliers (the tails -- how bad or good can it get over the backtested period).

Here's the chart:



  • The x-axis is the % gain/loss on 1% increments.
  • The y-axis is the number of occurrences of the strategy within a given bar interval (here, 1% bars). 
  • The "S" curve is the normal (bell-curve) probability distribution of the sample -- we would expect that at 50% (y-axis, right side) that we would have the largest "n" occurrences of our data.
  • To have an "edge", we want the 50% S-curve to be as far to the right as possible.  In the upper right corner of the graph, the average of the dataset is +1.45%.
  • More subtle, but equally important, is the other data in the upper right corner of the graph.  Here, we see that the median is 1.4545 (%), and that the standard deviation is 1.9951 (%).  When the mean and the median are almost equal, this means the dataset is "well behaved" and we can have confidence in the strategy.  The standard deviation means that we have a 66% chance of the results of a given strategy falling between 1.4506 - 1.9915 = -0.54% and 1.4506 + 1.9915 = 3.442%, and since more lies on the positive side than negative side, we can expect positive returns with the strategy.
Another thing to test is the ability to invest end-of-day, say in the last 5 minutes of the trading day, vs. at the open the next morning.  Connors' published works all are end-of-day entry/exits, which is difficult for many people with day jobs.

To test this, EdgeRater allows to choose "Event Bar on Close" (end of day entry/exit) or "Next Bar on Open" (next morning at the open).  The results are as follows:



Here, we see a drop of nearly 5% overall in Net Profit %, or a reduction in -0.18% per trade in the Average Profit per trade.  This is significant, and indicates that we should attempt to enter the trade at the closing price OR BETTER (even if it is the next morning).  This can be accomplished with a LIMIT order that can be placed in the overnight hours.

Having established that we have good correlation from the beginning of Connor's time to 12/31/08, what about since then?  EdgeRater makes easy play of this effort:


Here is how I interpret the above table:
  1. There have been a total of 388 trades since 1/1/09, and nearly 94% of them have been profitable.
  2. Average profit is 1.73%.  Part of this can be attributed to the bull that we've been experiencing since 3/09.
  3. Note that Net Profit % would be less than shown because of the impact of commissions.
EdgeRater give you more info than a table; here's the equity curve:



The top graph is the equity curve, starting at $100K on 1/1/09.  The bottom part of the graph is the required open positions within the TPS strategy to achieve the equity curve shown above.  It should be of interest to you that the period leading up into May 2009 has little to no trades using the strategy -- Connor's has a built-in safety mechanism that the equity has to be trading above the 200d MA in order for the strategy to be valid.

While it may be hard to see, around 10/23/09 we had ~18 positions open.  This is a conundrum -- if our starting equity was $100K and I was investing $10K/position, how can I commit $180K?  Obviously, you cannot without the use of margin.  I'll research this more with Chris White, the creator of EdgeRater, and will get back to you on this.

What this does point out is that you will need simultaneous positions opened in order to achieve the theoretical  equity curve due to past performance.  The results above, with 20 ETFs, there were market situations where they *all* (or the vast majority) could be invested.  This suggests that on a $100K portfolio that your maximum position size is $5K, not $10K, and as a result, the amount of capital deployed and put to use to generate income is far less than what we see above.

As a test of this, I reduced the "Dollars per Trade" to $5K and reran the test.  As you might expect, the Net Profit % dropped to 8.53% (which excludes commissions).  I then doubled the "Dollars per Trade" to $20K and reran the test -- the result was a Net Profit % of 34.79%.  To be accurate, the program should cap your ability to move into a position as long as the amount of available equity (cash) is greater than 0.  Again, I'll talk to Chris about this.

Bob Wilson and I are doing further tests with EdgeRater and I'll report back here as we move forward.  We're validating each other's work so that our concepts and findings are confirmed with another set of eyeballs, at least between the two of us.

In general, I like EdgeRater.  Furthermore, use of the 20 Connor's ETFs, combined with a good backtesting package like EdgeRater, can give you confidence to move into the markets when the equity price is falling yet the equity is in an uptrend (which is what a mean-reversion strategy accomplishes).  I'd like to see some nuances addressed, but for the most part, this is a solid piece of software that can give you (me) confidence to use the tested strategy.

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Effective Volume

I am blogging daily at http://forums.effectivevolume.com.  I have my own forum there, and it is easier than blogger to have multiple threads/conversations in the running.  

Please register (for free) at the EV site and submit a request to join the GGT forum if you would like to see how I use GGT + EV for my investment decisions.

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

Regards,

pgd








Sunday, May 22, 2011

May 20 Weekend Update

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Effective today (May 22nd) I'm posting weekend updates here, and daily updates at my forum at Effective Volume.  I'm finding it nearly impossible to simultaneously operate multiple forums due to various time constraints, so please join me at the EV site, where you will find my content as well as other very valuable content concerning market timing.

You can become a member by pointing towards:

http://forums.effectivevolume.com


If you join, please let Pascal or the administrator that you communicate with know you're from here.


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Summary

  • For the week, the GGT price index fell about -1.2% on volume that was -17% below the 50d MA.  This is within a standard deviation over the average so I wouldn't read too much into the lack of volume.  The bears are in control.
  • The pricing slope model clearly shows the bears being in control, as ALL pricing slopes, from the 5d through to the 65d, are pointing downward.  This means that on all time frames we are losing $/day, and this further supports that the bears are in control.
  • Of the 5 days this past week, three of them showed a renewed attempt by the bulls to pull the market prices upward.  Friday showed that they failed, and the bears resumed control.
  • The Elder Force Index timer is in CASH.  We should not purchase stocks on the long side with the intent of holding for the intermediate term.
  • The slopes of the Long-Cash Ratio (LCR), which tell us how fast stocks are moving into a long recommendation on a per day basis, is solidly bearish with all moving averages through the 65 showing some negative value. This means that the number of stocks per day that have a favorable setup compared to historical performance is decreasing on a per-day basis.  Put another way, your stock picking abilities have to improve when these slopes are falling, because the pool of outperforming stocks is falling day-over-day.
  • Despite the LCR slopes being negative, they are all pointing UP, which means that we have the internal markings of the bulls trying to make a comeback.  Even with Friday's down day the number of stocks falling into CASH status was less than those moving into LONG compared to Thursday, which is important if we are to see any form of bounce from here.
  • Contra ETFs, as measured by the 5/65 method (presented below), are showing that we are too early to commit both feet to contra ETFs.  This could easily change if we continue moving downward.  Conversely, long-rated ETFs are looking poor too, so we're in middle.
  • Effective Volume techniques (http://forums.effectivevolume.com) are showing a net outflow of money in the market on Friday, and the value is becoming more negative in terms of change/day than Thursday.  This timer remains short on the market as a whole.


Conclusion:  we have confirmation between the GGT pricing slope model, the GGT LCR slope model, and the EV 20d MF model that we should not be long.  The pricing model slopes are pointing down after a failed attempt to reverse this past week, which is bearish, but the LCR model slopes are pointing up, which shows that the number of stocks falling off the cliff each day is decreasing.  This can be viewed as a real-time attempt by the bulls to bring in a new set of leadership to the market.  Until this is demonstrated, we should not be long in the markets.

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Leveraged ETFs as an Early Warning Indicator

One of the techniques that I like is to review a composite indicator of leveraged ETFs to see what they are doing in terms of price performance.  Leveraged ETFs offer an early-warning system over non-leveraged instruments because their daily changes are multiplied by the leverage value, resulting in an amplification of a change in trend.

I use HGSI software to accomplish this, as it makes it child's play to build your own indices.

Start with the Direxion Funds, which can be found here.  Select only the bullish, or bearish funds for your respective index.  I get 13 ETFs on either side.

When I plot the Direxion Bears, I get the following:



As with all my charts, right click on the chart to open in a separate window or tab.

The chart is very simplistic:  
  1. Along the top I have the slope of the 65d moving average of price.
  2. In the middle I have the 5d EMA of price, as well as the 65d EMA of price.
  3. Along the bottom I have the price of the index, as well as the 65d EMA.
The rules for this system are very easy:
  1. Buy the components of the index en masse when the 5d EMA crosses above the 65d EMA, AND when the 65d slope line is positive.
  2. Sell the components of the index en masse when any of the following occur:
    a) the 65d slope moves negative, or
    b) the 5d EMA crosses the 65d EMA from above, or
    c) the price closes below the 65d EMA
So, let's interpret the graph above:
  • The 65d slope is NEGATIVE by a hair.  This prevents en masse movement into the components of the index (but does not prevent surgical strikes)
  • The 5d EMA is (barely) less than the 65d EMA, preventing en masse movement into the components of the index (but does not prevent surgical strikes)
  • Prices are still closing below the 65d EMA, which is bearish for the index.
All this being said, what does the BULLISH side of this model appear as?



Let's use the same analysis as above:
  • The 65d slope is POSITIVE by a hair.  This shows that we do not have complete breakdown, and although I stated above that the bears were in control, they are not 100% in control according to this methodology.
  • The 5d EMA is LESS THAN the 65d EMA, again by a hair.  We should not be holding any of the Direxion components for the intermediate term at this point (assuming that we got in early)
  • Prices are closing below the 65d EMA, which means we should have exited with the signal on 5/13/11
Conclusions:  Based upon the above, we should avoid contra ETFs in general as the primary component within our portfolio, as the most sensitive 3x components have not confirmed a move to the contra side of the market.  Further, we are seeing a general breakdown in the long side using these leveraged instruments, and based upon these findings, we should be exiting long positions.

Given the above, it is possible to use the same criteria for the components of the index.  Knowing that we are at the tail end of a bull, and knowing that an index is the average of the components, it's a reasonable assumption that there are some strong performers in the leveraged contra group that are pulling the index upward.

Here are some charts for your review given this assertion:

LHB: Direxion -3x Latin America Bear


According to this method, we have a BUY as of the close of 5/12 on LHB.  This needs to be reviewed in context of Effective Volume.  Unfortunately, LHB is NOT tracked at the EV site, due to the low volume of the ETF.  Luckily, the other side of LHB, which is the +3 leveraged instrument called LBJ, does have $-volume greater than $10M-sh/day, so it can be used as a shorting instrument if we see short term AND longer-term LEV decreasing (e.g., removal of institutional support from the long instrument):

Here is the short-term EV view from TradeStation of LBJ, the +3x leveraged Direxion fund for Latin America.  Note that 6 days of EV data are presented, and 8 days of price/volume data are shown (a quirk of TradeStation):




We see that in general, LBJ has been losing institutional support in terms of selling over the last 6 days.  This is significant, and suggests that we can short LBJ as long as this trend continues.  The red line above is SmEV, or the retail players, the blue line is the LEV, or large players, and the yellow line is the TEV, or total EV, which is the sum of the two values.

As a check, here is the longer-term EV view of the same ETF (LBJ):



Same color scheme as before.  What this shows is that we've been experiencing a general lack of volume support for the +3x Latin America fund, and hence our HGSI 5/65d analysis holds -- we can most likely short LBJ.  Note how the SmEV is remaining fairly constant to a slight downward slope, whereas the LEV/TEV pair are moving down aggressively.  

As a check, let's see what GGT has to say about LBJ:


GGT is showing LBJ as "CASH", and it has been for the past two weeks (all red in the squares to the right of the word "Cash").  GGT's timing has been fairly stable on LBJ; here's the timing diagram over the past year:



The red line above shows when GGT was calling either a "Long" or "Cash" position on the equity.  It appears that the signal was neutral during the December call as well as the March/April call, but as you can see, it performed will during the 2010 long period.

I'd like to see this one continue lower than Friday's low before entry on the short side, but certainly I would not enter at any level above Friday's open.

FAZ:  Direxion -3x Financial Bear

Here's the HGSI chart for FAZ:



Again, using our screening criteria, it's clear that this one is just making the grade in terms of price.  Any further deterioration of financials in the market will most certainly move this one off it's 65d EMA line, which will most likely remove the chance of whipsaws.

FAZ *is* tracked at the EV site, and the chart pattern is interesting:




The first thing that appeals to me is that the total effective volume (TEV) is above the average line shown in pink.  We need this to continue for us to consider this instrument.  Next, you can see that the average line in pink has a slight upward trend.  Hence, FAZ is not screaming to the upside in terms of new money moving in, but it certainly is not being distributed as it was on the left side of the chart.

Here's what TradeStation has to say about FAZ, on a short-term basis.  Note that about 4.5 days at 1 minute bars are displayed:


Indeed, the downward slope of TEV, then the movement upward that appears in the previous figure is certainly present here.  On a 8-day scale, FAZ has been distributed, but as we can see by the blue trace, over the last two days this has reversed.  We see this also on the previous figure, so the two correlate.

Another thing that I like in the TS presentation above is that there was considerable volume action at the end of the day, pushing price upward, and moving TEV / LEV upward also.  While not a rule, when I've seen this in the past, it bodes well for the equity and in this case, since this is contra Financials, poorly for the market overall.

As a check, here is what GGT has to say about FAZ:



Here, we see that FAZ moved long this past week (Monday, to be exact), and on Friday, was jumping up and down wildly, flailing it's arms, saying "look at me".  You can see this by the "Aff. Long" recommendation.

We're looking Mr. FAZ, we're looking.

Continue to give FAZ, or it's weaker leveraged ETFs (SKF = -2x, SEF = -1x) your attention.

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GGT Price Model - Slopes

I know that many of you follow this next sequence, so here's an update:



I've described this chart in previous posts; if you have questions, please submit them at the Effective Volume site in the GGT forum so everybody can learn.

The left side shows the value of the slopes of the GGT price index moving averages, from 5d in length to 65d.  Aside from two days where it appeared that the 5d was going to lead to a thawing of the bear ice, we've been solidly in bear territory since 5/6 and have had early warning indicators of this occurring since 4/29.

The right side of the table shows us the direction of the slopes, independent of whether they have a negative sign in front of them or not.  THE RIGHT SIDE MUST HAVE MORE GREEN THAN RED if the bulls are going to resume the upward march.  If you do not understand why this is so, you need to ask.  It's crucial.  THE RIGHT SIDE IS A LEADING INDICATOR relative to the left side of the presentation.  Again, you must stop and think about this, and if you do not understand why this is so, please ask.  It's crucial to understanding any form of slope analysis, whether it be mine or someone else's.

The above presentation should leave no doubt in your mind that we are in bear territory, and for now, we have no indications of moving out of this territory.

Defensive postures, please.

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GGT LCR Model - Slopes

The same presentation can be applied to the number of stocks in the database with a "Long" recommendation compared to those with a "Cash" recommendation. We typically do not want to buy Cash-recommended stocks except only as a bottom feeding exercise and ONLY when we have positive-moving Large Effective Volume / Total Effective Volume.

Here's the latest:



The presentation is more or less the same:  the left side is the sign of the slope, red = negative, green = positive, and the right side is the direction of the slope, independent of the sign.  On the right, red = pointing downward and green = pointing upward.

As can be seen, the database LCR (Long Cash Ratio) has been moving downward steadily since 5/3 on multiple time scales.  Look carefully at the right side, and you'll see that the few days prior to 5/3 we had negative-pointing slopes, as evidenced by the red.  Hence, we have leading indicators on the right compared to those on the left.  This is important.

Look at the presentation on the right for 5/18 - 5/20; the number of stocks moving to the dark side is reversing.  While still losing in the number of stocks/day, the rate of the bleeding is tapering off, day over day.

This indicates that we may be seeing some form of rotation/rally appearing, and we must be vigilant for this occurring this next week.

For now, buying stocks is not advised, as there are a number of indicators that say we'd be swimming up stream against the current.  Remember -- salmon, when they swim up stream, they get eaten by the bears....

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I'll post my review of stocks in the EV forum either later tonight or in the morning.

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, May 16, 2011

Monday, May 16: Timers in CASH, GGT + EV Stock Candidates Explained

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I'm traveling on the west coast for the remainder of the week and will not arrive tonight until very late. Correspondingly, my entry tomorrow (Tuesday, May 17) will be delayed (hey, I have to sleep some time).


This content has been cross-posted to the new Value-In-Time GGT forum.   If you are not a member, you should elect the free membership for the next 4 weeks, as there is considerable content there which gives you much to consider, and more importantly, to act upon.


You can become a member by pointing towards:


http://forums.effectivevolume.com


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As established this weekend at our monthly face-to-face meeting, we are clearly in an intermediate down-trend according to numerous slices of the market:

1) 20d Money Flow is cash/short
2) Elder's 13d Force Index timer on the GGT universe of stocks is solidly in cash
3) A simple 5d / 65d EMA on the GGT universe of stocks moved to cash on 5/11
4) GGT's pricing slope model is 100% in cash through the 65d EMA (we are losing $/day on every time frame through the 65d)
5) GGT's long-cash ratio (LCR) slope model has been contracting for a large number of days (as the database contracts, indicating poorer performing stocks, your stock picking abilities must improve dramatically)

Given this, it's really not in our interest to move long into stocks.

Despite that statement, we have a number of GGT + EV candidates worthy of consideration. I will not be providing a detail like what follows every day, but will do so when I have time. You should be able to follow everything I am doing (teach a man to fish and .... ) Here's how I break each one down:















CHS: CHS has improving stats on a short-term basis but is lacking longer term EV support. GGT has this as a CASH-ranked stock, and it simply is not meeting historical volume levels, which is keeping it in a CASH-ranked status. AB is lower than I prefer -- I like 80 and above, and this one is coming in at 57, indicating that the R/R is poorer but still around a 2:1 upside. 2d thrust and Extension EV are positive, so money flow is inward. CHS is not providing any earnings guidance as of 5/13.

CPWR: CPWR is a technical stock and the sector is presently been in the weeds. LEV looks good on an 8d and 40d scale, showing institutional support. LEV held nicely on 5/11 with downward price pressure, so there was no selling to speak of from the big boys. SmEV has been decreasing, shaking out the weaker positions. AB is a 97 which indicates a favorable R/R ratio provided this one continues to move upward. CPWR has been ranked LONG by GGT for 4 days, which means that it is outperforming it's historical levels. 2d thrust and Ext EV are both negative, which most likely reflects the sector performance as well as the individual stock performance. Note that CPWR is guiding down on earnings, which is problematic for longer-term institutional support and needs to be watched.

DGX: DGX is in the healthcare sector which is a favored sector. 2d thrust and extension EV are indicating a new-found breakout, and AB = 72 indicates that upside and a favorable R/R ratio are available. Longer-termed LEV is showing solid institutional support. Volume is increasing in the stock and GGT has had it LONG for 6 trading days, showing a relatively new breakout. On the negative side, DGX is guiding down in EPS but inline with earnings, but it doesn't report until 7/21.

EL: EL has been on the list for several days and is experiencing a bit of outflow as measured by the 2d thrust and Ext EV, both of which are negative. This being said, it is in retail, and as a whole this is a favored industry. Volume has been steadily increasing over the last 4 weeks which is contrary to the overall trend of the market. EL has reaffirmed earnings inline to lower than consensus, but this should not impact the stock until August. GGT has had this stock long since 4/27.

ENDP: ENDP has favorable longer-termed LEV support, and is seeing minimal downward pressure over the last two days as measured by 2d thrust and Ext EV. This stock is in the IBD50 list. With an AB = 53, R/R is lower than I like, but it is in heathcare, which is a favored sector. The stock is guiding inline as of 4/28, which I consider positive. The stock has been LONG in the GGT universe since 3/29 if you consider the whipsaw it experienced, and if you disregard the whipsaw, since 2/28. In this time it has moved 18%. It recently cleared a Darvas box of $42.37 but has pulled back below the threshold, so we need to see strength here in both pricing and EV.

HOG: HOG is GGT-ranked as CASH because volume is poor compared to historical levels, but everything else looks good in the GGT universe. The AB = 100 suggests favorable R/R, but note that this is railed against the lower level for this indicator and I'd want to see it drop from 100 towards 80 before I move on HOG. The stock fits into consumer discretionary, which is a favored sector overall. The stock has seen three days of solid accumulation in terms of LEV while the price has moved sideways, which I consider very positive. It is presently within a Darvas box with a ceiling of $38.75 so I need to see it clear this level and sustain a move upward before entry. Harley Davidson is not offering guidance on HOG but the stock has met or beat estimates QoQ since this time last year. Latest YoY revenue growth is 53%.

IR: IR is in a difficult sector that is tied to expansion of infrastructure. Despite this, GGT has the stock ranked LONG and as important, we've seen a 3d expansion of LEV while price has seen downward pressure. Longer-termed LEV is solid, showing institutional support. Volume has been increasing but is relatively low, slowing my excitement. IR is within a Darvas box and is contained from $49.08 on the low side to $52.33 on the high side. I'd like to see it move above the $52.33 level prior to entry, simply because the sector is underperforming.

JBL: JBL closed a Darvas box on Friday, May 13th, and it will be interesting to see what it does from here. The ceiling is $21.87 and it was tested at least 3 times this past week, establishing a firm resistance. Shorter-termed LEV is improving but weaker than I like, and longer-term LEV is wishy-washy. 2d thrust shows some money flow inward, and an AB value of 76 shows a favorable R/R ratio. JBL has products in consumer discretionary, which is a favored sector. They are guiding up on both earnings and revenues, and are due to report June 22nd.

MENT: MENT has experienced a 2d breakout on short term LEV, and this is indicated by the 2d thrust and Extension values. The AB value of 86 is quite favorable. GGT has the stock as CASH because it is not seeing significant moves to the upside compared to historical levels when it broke out, indicating a weaker stock at the present time. The stock moved to a GGT CASH status on 4/29. MENT is guiding up in both earnings and revenues, and reports on May 27th. Note that the 1-year ago report showed a declining YoY revenue number, but since then, every YoY revenue number has been positive. The stock has longer-term LEV institutional support. Note that it is in a weaker sector, so we need to watch the group as a whole.

MYL: MYL has solid LEV on both short term and long term scales. The AB value of 74 suggests favorable R/R ratios. 2d thrust and Ext EV are showing an inward money flow. The stock is in a favorable sector (healthcare), but is a GGT ranked CASH stock due to poor volume, compared to historical breakout levels, as well as poor pricing, again compared to historical breakout levels. The stock is in the lower range of a Darvas box with a floor at $23.41 so this combined with the LAB could provide a very good R/R potential. MYL is guiding inline.

NSM: NSM is a takeover candidate from TXN and is essentially a safe haven. It gets a pass from me.

RAD: RAD is in the retail group which is presently favorable. It has a GGT LONG ranking, which means that it is above it's historical, favorable thresholds. AB = 82, which is in my sweet zone. While 2d thrust is positive, Ext EV is negative showing some short-term downward movement in EV. Despite three days of downward price movement LEV has remained intact, which I consider positive. RAD is guiding up on revenues only, and is due to report June 23rd. Note that they have not had a stellar report card in terms of revenues on a YoY basis so be watchful.

SYK: SYK was covered in detail at my seminar this past weekend and is a solid buy candidate in a strong sector.

XRAY: XRAY looks good as of recent but has lacked institutional support, at least on the 40d scale. It just cleared a Darvas box of $38.74 but has fallen back below that level, indicating some weakness. It's in a good, favored sector (healthcare) so it is a good candidate. XRAY is guiding down on earnings, so be watchful of this. 

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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

Thursday, May 12, 2011

May 12: Very Few Choices in GGT + EV, a Few Contras Look Interesting

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We have a meeting Saturday morning at the Great Falls Public Library in Great Falls Virginia.  Doors open at 10:00 and we'll get started around 10:15.

WebEx information will be posted in the GGT group today.  The library indicates that they have a high-speed connection in the meeting room.

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Summary

  • The GGT price index fell -1.39% on volume that was -9% below the 50d MA.  This volume level is within a standard deviation so we have a solid distribution day.  In fact, we've had several over the last few weeks:

    5/11:  -1.39% on -9% 50d MA volume
    5/6: -1.93% on -4%
    5/4: -1.01% on +6%
    5/3: -1.17% on +5%
    4/29:  -1.21% on -3%
    4/18: -1.3% on +3%
    4/12: -1.11% on +1%

    7 distribution days in the last month is a wakeup call.  We need to be paying attention right now.
  • ALL of the slopes of the pricing moving averages (MAs) have turned negative again.  This is measured from the 5d to the 65d.  This is BEARISH, as it indicates on all those time scales that we are losing $/day in our portfolios.
  • ALL of the directions of the pricing slopes are pointing down, again through the 65d MA.  This means that not only are we losing money day over day (see the previous bullet), that we're doing it at an accelerating rate downward.  Protection of profits is a good place to be.
  • The Short-Term LCR Change Timer moved long Tuesday night and I entered a VTI position yesterday at the open, and was immediately stopped out in the afternoon.  The timer is now LONG-CASH (0), indicating that if today is a down day there is a high probability that it will move back to cash tonight.
  • Elder's Force Index timer is clearly negative by several days.  Stocks should not be purchased on the long side.
  • Despite the downdraft yesterday, the LCR only fell -4%.  This means that there was not a broad, deep selloff, which is actually dangerous.  Put another way, had the LCR moved down quickly, we could expect a bounce, but since it moved down only gradually, I expect to see continued bleeding.
  • ALL of the slopes of the LCR are still negative - 6th contiguous day.  ALL but the 8d slope are pointing downward.  The database is contracting day-over-day faster than it was yesterday, so stock selection abilities must improve dramatically.
Conclusions:  Cash is king.  New entries into stocks on the long side.

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GGT + EV

There are only two candidates that appear on the screen today:  NSM and MENT.  NSM is a takeover target by TXN, but volume has been quite heavy as of late and LEV on a short term scale has been moving upward.  Longer-termed LEV is poor, as we would expect, so this is not really a serious play as far as I'm concerned.

MENT held up rather well yesterday but did show a net outflow in LEV for the period.  SmEV has started to move up and in to the stock while LEV is decreasing, which is the exact opposite of what I like to see.  TEV is moving up in aggregate though, so this is good overall.    While somewhat moot, as I'm not moving long on anything, I think that there is good potential here once the market finds a base.

On the ETF front, we have three ETFs that are "New Longs":
  • UUP:  EV is not supportive of a move into this ETF, but it has flashed a buy signal in the weekly and daily charts based purely on price.
  • SMN: LEV made a real good move in terms of the short-term LEV yesterday, and longer-termed LEV is solid.
  • DUG:  mixed signals on EV, so this one gets a pass.
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Trading Plan for Thursday

I shed most of my positions over the past two days using 1% trailing stop losses on the weakest of performers, and I exited many positions at the waterline with simple market or limit orders.   The exit of the contras was premature (obviously), but there was no way of knowing what was going to transpire in the afternoon and as of yesterday morning, life wasn't all that bad for the bulls.

My wife's TSP is still fully invested and the adaptive timers on those positions are indicating to stay in the market as of the close of last night.  Her portfolio from our latest entry is down -1.38%, but overall us up over 10% over the rolling last 12 months.

My VXX positions, which were heavily underwater going into the market yesterday, have halved their losses, and with the market looking poor today, I'm expecting that they will continue upward.  These positions are worse-case down -2.9% and while very volatile, are exactly where I need to be with the portfolio.  

My CMI positions (AB = 100, LER = -62, Rating = 14) have not yet triggered to fire to CASH according to GGT, but saw some distribution yesterday which has me concerned for their longevity.  CMI looks great on the longer-termed LEV chart but is clearly experiencing distribution on the 8-day LEV chart; you can see this too in Pascal's data which shows a 2d thrust of -1.63.  From HGSI's perspective, CMI is still a hold:
  • 13d Force Index (both calculation methods) are not confirming (EMA is negative = sell, SMA is positive = hold), 
  • 13d and 34d slopes are both positive
  • all relevant EMAs are aligned properly:  8d > 13d > 21d > 34d > 55d > 140d
So, for today, CMI is a hold.

In a review of the Contra universe, I'm not seeing anything yet in the 3x leveraged contras (from Direxion), so it's too early to move into these.  If I were to purely speculate the -3x bear on Energy looks somewhat interesting, but again, LEV is poor.  SKF, the -2x on financials, is looking pretty good.  FAZ, the -3x on financials, is looking equally good in terms of LEV, but is incredibly volatile and hit my stops a few days ago when I tried to enter.  BZQ has flashed a buy signal on the daily and weekly and LEV is supportive of an entry.

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

Regards,

pgd




Wednesday, May 11, 2011

May 11: Some Timers Pointing Long, Others Still in CASH, Few Candidates to Choose From

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We have a meeting this Saturday at the Great Falls Public Library in Northern Virginia.  Doors open at 10 and the presentation will start around 10:15

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Summary

  • Tuesday was a good day in terms of prices, with the GGT price index jumping another +1.1%.  For the Monday-Tuesday sequence we've moved almost +2.0%, which does not erase the damage of last week, but it certainly helps.
  • The slopes of the pricing moving averages are showing some signs of life.  The 5d and 65d (only) have now crossed back into positive territory.  The 65 moved back because it has only been negative for 2 days -- shallow, and the 5d moved positive because we are seeing pricing strength in this local bounce.
  • ALL the pricing moving average slopes are pointing higher, independent of whether they are negative or positive.  This is necessary for a bull to continue, and so far, we have two consecutive days of this occurring.  The bulls are regaining control on a short term basis.
  • As stated yesterday, the Short-Term LCR Change Timer based on the LCR and tradeable with the VTI has moved LONG.  If you choose to play this (I will this morning), enter at the open this morning.
  • The Intermediate-Termed Elder Force Index timer is in CASH, but only barely.  If today is a solid day on volume and price appreciation, we could see the FI(13) signals move LONG with the close of markets today.  This would be bullish overall if we can get the change.
  • Pascal's Money Flow signal is still SHORT, although money did flow back into the markets yesterday.  Despite the fact that money flowed in, there are few GGT + EV candidates to review, so while I may frustrate some of you, I'm not going to be aggressively bullish at all in this market.
  • The Long-Cash Ratio (LCR), which is a measure of the GGT universe in terms of the number of stocks with a LONG rating compared to those with a CASH rating, has moved up +2% on Monday and +19% on Tuesday.  ALL of the LCR moving average slopes are NEGATIVE, which is bearish.  Despite this, ALL of the slopes are pointing upward from their negative levels, which is encouraging.  I simply do not move long in an aggressive manner when the LCR is negative.
Conclusions:  This is a tough market to make money.  Prices are moving upward, the database is starting to move with the prices (upward), but many of the "all clear" timers are in cash or short.   Markets get choppy as  they see-saw back and forth, and this is the best description I can provide.  I may move long on a few GGT + EV candidates; more below.

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What Say HGSI about the GGT Universe?

Take all the GGT stocks, dump them into a list, and import them into the package.  The result is the ability to look at my own index:


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

I went through this chart format recently with respect to Contra ETFs so I'll not go line-by-line here.  What is most interesting to me is that: 
  1. Elder FI(13), using both the EMA and SMA methods, have *just* moved long with yesterday's action.  This is calculated a bit differently than my personal method, so I'm inclined to tip the balance towards moving long since the past trend has been long.  It is a coin toss though...

    [For those of you wondering, my personal method adjusts for additions and deletions of stocks so not to skew the calculations (much like how the DJ30 index is calculated when a stock is added or removed), whereas the presentation above simply considers the basket held as of the date on the right side of the graph.  The history shown to the left is not the same history that actually existed, hence the difference in calculation methods]
  2. The 13d and 34d slopes are pointing upward (bullish) AND they are about to both move positive in value.  This is based on price, not volume, and I think it important that we consider moving long when these both cross into positive territory.
What gives me pause in the chart above is that:
  1. The MACD is still showing a negative histogram -- this is bearish in general
  2. %B is already "yellow", which means we're entering overbought conditions.  Any further movement upward will cause this to turn pink or red, which is not a time to purchase stocks.
Conclusions:  Using HGSI, we are clearly moving upward towards a resistance level, and with the Elder FI(13) methods now showing bullishness, as well as the 13d/34d slopes moving positive, we should consider entering longs on a shorter-termed basis.

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GGT + EV

So the question becomes which stocks to consider?


Let's look at each and see if they are further candidates:

  • EL beat guidance on May 5th and has run up nicely into that announcement.  AB is a 76, which is just on the lower threshhold of 80 (an arbitrary value I may add) that generally is my cut off.  2d thrust is barely negative, and there has been some money flow out of EL over the past day or two.  Nevertheless, this looks "ok" if it can move higher that the previous day's high and resume LEV inflow.
  • ENDP has an AB Buy Signal level that is lower than I like at 55 -- I prefer numbers close to 100.  The stock is about to clear a Darvas box level of $42.37, but the AB level suggests that caution should be advised.  This stock has been strongly accumulated by large players on both short term and long term EV scales, so give it a review.  The stock is guiding in-line.
  • MGLN looks poor from a couple of different viewpoints.  First, from a long-term view, LEV is below the SmEV levels, showing lack of institutional support over longer time frames.  On a shorter-term view, the LEV is falling, showing distribution.  The AB level is 49, and there is less than $2 upside until we hit the upper active boundary.  This one gets a pass from me.
  • MENT looks good from a LEV perspective on both short-term and longer-term scales.  Volume is steadily increasing, which I consider positive.  LEV is diverging from SmEV, which I love in overall patterns.  The AB level of 98 translates to a projected UB level of $18+, or over a 25% potential move up from here.  MENT is guiding up in earnings AND revenues, which I consider positive.  This is a buy.
  • MSTR isn't providing guidance on earnings and revenues, which I always consider suspect.  Short term LEV has been decreasing after two large-block orders on 5/5 move LEV up dramatically -- e.g., there has been some selling as of late.  This is also reflected in the slight negative value of the 2D-Thrust values.  Upside looks good according the AB signal, but the recent distribution of LEV gives me pause.  I'm passing on MSTR.
  • CA has started new LEV accumulation -- short term looks strong, longer-term is poor but improving.  Active boundary levels show that there is 10-15% upside from here with defined risk to the downside. CA is guiding inline and has earnings announcements on May 12th (tomorrow) after the market closes, so I'm going to give this a pass.
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Trading Plan for Wednesday

While I'd like to move into the markets, pickings are slim.  The LCR slope values all still being negative give me pause despite their pointing upward -- a negative slope means "loss/day" and in this case, stocks are losing ground faster than those that are moving upward in terms of volume and price.  This is relatively easy to understand -- GGT requires volume AND price to move LONG, and only requires poor prices to move to CASH.  Hence, in an environment where volume is poor, the GGT Long-Cash Ratio will always favor the bears.  This is by design.

Further to my point here, there are few GGT + EV stocks to choose from.  This is due, in part, to the lack of volume (GGT stocks are moving to CASH), but it also points to many cross currents that I'm seeing in terms of EV.

MENT looks like a good candidate, so as long as LEV continues upward as prices move up, or at least holds steady as prices drop, I plan to enter.  EL also looks interesting overall.

My Contra ETF positions are underwater, but only slightly.  Most of my longs (CMI, ORCL, SPY) are slightly above/below the waterline and are unremarkable.  My VXX positions are down hard, now nearly -6%, but I consider them a good hedge to hold if the market moving around in a sideways pattern.

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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