I frequently get asked why I'm no longer blogging daily - the answer is simply you're not reading the right blog. You can find me daily at http://www.effectivevolume.com in the GGT Forum, which I manage. I'm only blogging here on the weekends so that my thoughts and process are available to non-members of the EV forum.
Please take the time to join me there. There is content far beyond what I produce and the quality of the individuals there is some of the best you will find on the 'net. Indeed, I know I lower the average IQ of contributors on the site ...
Last week was a fairly good week for me in terms of trading with my trading accounts. Note there is no long-term bullish trend, and the bears are still in control.
What seems to be working for me right now is staying away from stocks and focusing on the SPX, the NDX, and the Russell 2K. The broader ETFs which focus on these exchanges are far more forgiving than stocks right now, the latter of which are not giving me great signs on the long side.
I've been tying my movements to the performance of the $TICK indicator, which shows the number of stocks on the NYSE moving up in price over some period of time compared to those moving down. Thank you Billy @ the EV site for introducing this to me (as I said above, the caliber of people there is unsurpassed). When we accumulate, or add these values to the previous interval's value on an on-going basis, we get a good view of a trend. For more on this start here.
Here's a presentation that paints the picture of the cumulative $TICK on the NYSE:
As with all my images, right click on the picture to open in a new window or tab.
The top presentation is of the Vanguard Total Index, VTI, which gives a good, broad view of the entire market.
The middle pane is a daily-resetting cumulative tick -- this one starts off at 0 each day and if the daily trend is up, we'll see it move upwards, and if the daily trend is down, we'll see it move down. There's a catch to the middle pane -- it has a 500 stock/min filter on it, so only when the number of stocks is greater than 500 in either direction will the accumulator change. This allows the noise to be rejected and for me to only view the trends that are broader.
The bottom pane is the cumulative $TICK through the end of Friday, and the white trace is the instantaneous cumulative value and the varying colors of lighter to darker purple are moving averages on the white value.
A couple of things should be evident:
- the broader markets did not experience significant buying or selling on Friday. I conclude this from the nearly horizontal/range-bound white value in the lower pane.
- the broader markets are in a general down trend. I conclude this from the downward-sloping values of the respective moving averages
- there was an attempt to move the markets upward around 11:30 a.m. Friday morning, but this move was rejected, and the move down was confirmed around 12:30. I conclude this by the upward-moving attempt at 11:30, the reversal near that time, the second but lower-high around 12:30, and then the third attempt / failure around 14:00.
- SH: -1x contra ETF on the S&P500, trades ~11MM shares/day
- SDS: -2x leveraged contra ETF on the S&P500, trades ~50MM shares/day
- SPXU: -3x leveraged contra ETF on the S&P500, trades ~18MM shares/day
Here's what Effective Volume has to say about RWM, through the end of Friday:
So, the above presentations show that we're in a downtrend, that we're entering an oversold area, and that money is flowing out of SH (-1x ETF on the S&P500) and RWM (-1x ETF on the Russell 2K). Elder's 2d Force Index method is holding us off on entry to either of these, as is the decreasing LEV patterns on Friday to both SH and RWM.
GGT's Price Slope Model is showing the bearishness in the market, but it is also showing the first stages of a crack in the bear ice:
It's clear by the left side of the table that we've been in a pricing downtrend since Tuesday of last week on all time frames, and if we consider the 55d and 65d slope columns only, at least since the middle of July.
On the right you can see that Friday's action resulted in ALL of the slopes of the slopes pointing upward -- this is significant because the right side of the table leads the left side, and we need "green" (positive SoS) in order to see "green" on the left side (positive slope).
On the left I've boxed the Strength Index -- it's fallen for 5 consecutive days and is now in oversold territory -- I am expecting a bounce. We've been here before, but when we have, we ALWAYS bounce within a few days.
Here's the graphical view of the Strength Index to put it all in perspective:
You can see from the above that we're at fairly extreme levels in the oversold category so entry to contra positions is probably not the best method for Monday ....
The GGT Long-Cash Ratio (LCR) Slope Model is also showing some interesting indicators:
We've had 5 solid days of the database contracting and a falling Long-Cash Ratio (LCR), telling us more stocks are dropping below historical thresholds where they outperformed than are presently above those levels and outperforming. I do note with some interest that the left side of the table warned us of the pending contraction, as the longer slopes started to move aggressively to the negative (red), and on the right hand side of the table, the unanimous agreement on all time frames through the 65d slope of the slope, starting on 9/19, certainly gave us a great head's up that bad things were possible. 9/20 confirmed with the 2nd day of all of the SoS being negative, and by the 3rd day there was no doubt that you should have been reviewing the contra side of the world.
Note closely though that Thursday and Friday SoS are starting to point up on the shorter time frames. While not a strong signal -- it does not span all time frames -- this is indicative of some buying in the market AND more importantly, if we get all of the SoS periods turning up with Monday's action, we could see a bounce this week.
Time will tell. We're shifting gears here, so I think it prudent to consider a short-term, surgical play in long ETFs if this newly established roll-over to long positions continues (as possibly confirmed by tick, Elder, and EV indicators today (Monday)).
Take a look at the following chart:
This plots the 34d EMA of the Long-Cash Ratio with the slope of the 34d EMA. It basically is telling us that the last 5 days have been downward in database growth, and historically, when we've entered this area from above (like now), we bounce for a few days, wiggle around, then continue downward. I have no reason to think that we'll do otherwise. The EMA is in a clear downtrend in terms of the database expansion on the longer term so we'll continue to wallow around here for a while, bouncing back and forth.
As I opened with, there is no long-term up trend. Short, surgical strikes improve the chances that you will win in this market. I'll continue to post my view of the tick patterns, as well as my slope models, but be advised, there isn't a compelling reason to leave positions on for any term longer than a few days.
Good luck this week in the markets.
Remember, you are responsible for your own trading decisions, and I am not. Please do your diligence, and please take ownership for your actions.