Saturday, October 8, 2011

Update for October 8th Weekend

.
The previous week was a good week for me, with all of my portfolios, except 1, finishing higher.  The one that did not was due to my own stupidity -- I mistakenly left a limit buy order on an account and the price fell through the buy limit threshhold, grabbed the security on the long side and kept going down, effectively taking out the week's gains that I had built in the account.

The week started in a downtrend which lasted through the early morning of 10/5.  This short-term trend was most evident if reviewing the $TICK indicator, which is a measurement of rising/falling stocks on a per-bar basis on the NYSE.  This was revealed to me by Billy @ http://www.effectivevolume.com, and for short-term trades, as well as knowing when to enter longer-termed trades, this tool can be very powerful.

Here's the chart through the close of the day Friday:


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

The top trace is of the VTI -- the Vanguard Total Index, which is a good, broad ETF that shows the broader market behavior.  The middle trace is a filter on cumulative $TICK -- it requires 500 stocks/min to change by some amount before the trace moves.  This indicator resets to 0 at the beginning of the trading session, and I use it to look at the trend for the day.  The bottom trace is the cumulative $TICK indicator, but this one does not reset each day.  I've also plotted various moving averages, which form a ribbon, so that trend are clearly evident.

Bottom line, the trend that started earlier in the week (down), started to conclude on 10/5 with the crossing of the cumulative $TICK and it's moving averages.  I've marked different crossings that I felt were important to the change in signal and you can see those on the graph.

Friday signaled a change in short-term sentiment, and it caused me to close my long positions mid-day (not at the greatest time of the day either -- I hate selling at any time other than the first hour or last hour).  You can see this behavior by the tightening of the MA lines -- this is a loss of direction or trend -- and the nearly horizontal nature tells us that we're in dangerous waters.  Hence, I'm flat going into the weekend except for some very small positions on EFA, SPY, AGG and VXF.

Looking forward into the next week, which also includes the start of earnings season, should be interesting.  Earnings season is typically a bullish time, so I would expect that the cumulative tick values would start to trend up from here.  Until some direction is shown, I'm on the sidelines (for the most part).

As an aside, stocks that have favorable characteristics and that are offering guidance to the upside, over what the consensus has dictated, are shown below:


From a logical view point, these stocks have gone on record, either by the CEO or the CFO, as guiding higher in earnings ("guiding up earnings only"), revenues ("guiding up revs only"), or both ("guiding up").  Keep track of these going forward and let's see the percentage of stocks that actually do beat estimates.

Many of these stocks are paying dividends, which are shown in the "Div Yield" column.  The bright green label indicates that they are higher than the average of all the stocks in the database that are paying dividends (the average is presently 3.26%).

Review the effective volume (EV) for each of these, paying specific attention to the Active Boundaries values, before jumping in.  A three-month kick of the EV tires at http://www.effectivevolume.com only costs US$49.  As a disclaimer I get nothing if you join -- I simply am a believer of the tools available and the impact that they can have on your trading/investing.  Either way, I intend to wait to enter any new long positions until the cume $TICK indicator starts moving upwards.

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

A review of the GGT indicators shows a DIVERGENCE forming between the pricing model and the Long-Cash Ratio model.  Here's the Price Slope Model (PSM):


Again, right-click on the image to open in a new tab or window.

The GGT price model FELL -2.36% on volume that was -11% below the 50d MA of volume.  This is a big difference from the narrower DJ30 (+0.26%), SPX (-0.26%), or NDX (-0.05%), but is in line with the R2K  which fell (-2.09%).  The slight decrease in volume is irrelevant -- this is within the standard deviation and is considered normal.

Falling prices of this magnitude on average volume is noteworthy and is indicative of the volatile environment that we presently occupy.

Also ominous for the bulls is that the price slopes for all the EMAs have reset back negative.  This means that on all measured time frames, in $/day, the trend is DOWN.  Put in dollars/cents, if you held to the end of the day Friday you are most likely even if not down for the latest bullish bump, and this model bears that out (pun intended).

On the right side of the table are the "slopes of the slopes".  These are pointing downward again, which is the wrong direction for a bullish leg.  This is unfortunate, because we were gaining momentum.

I use the 34d slope as a demarcation between short-term trends and long-term trends.  Here's a graphic view of the 34d PRICE slope:



As you can see in the figure above, both the 34d EMA on PRICE and the 34d EMA slope are heading down.  Further, the 34d EMA slope is still in the pink zone, meaning that it's negative.  Interpretation:  stocks on a broad scale on the 34d time frame and longer are losing money.  In my opinion if you are holding long positions now you're simply giving up money that you fought hard to earn ...

Contrasting, and here is where the divergence is evident, is that the Long-Cash Ratio (LCR) model continues to indicate further expansion of price, volume, and positive rate of change:



As you can see from the above figure, the LCR moved up +13% on Friday, telling me that stocks are continuing to see price, volume and rate of change expansion.  Put another way, 13% more stocks are above their historical (outperforming) thresholds than the previous day.

A slight crack in the ice is that the 2d LCR and 3d LCR slopes of the slopes have turned down.  These indicators move quickly because of their short time frame, so we'll have to see whether the trend continues or not.  What is most important is that the overall slopes of the slopes are bullish, and have been for the past 4 days, which is quite encouraging.

Adding some fuel to the "bull fire" is that the LCR acceleration continues to move in a positive direction, and also in a controlled fashion (not huge jumps):




This steady improvement in LCR Acceleration tells me that we're adding more stocks to the Long side than those that are falling back into Cash, despite the weakness in the Price Slope Model.  Correspondingly, I'm more optimistic for the short-term than I am bearish.

Of course, your crystal ball is as good as mine.

On the longer-termed view, we are still in a bearish downtrend:



This chart is quite ominous in that the longer LCR EMAs are showing that stocks are NOT outperforming compared to the past, and consequently, short-term swing trading is most likely going to dominate.  Further, this chart suggests that we've another dip in our future, so until proven otherwise (e.g., a crossing from below of the shorter EMAs above the longer EMAs), we should be longer-term bearish.

The charts do not lie ...

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

You can follow my daily blog at http://www.effectivevolume.com, in the GGT Forum on that site.  You have to register to do so, but registration is free.  This keeps the SPAM bots off the boards and keeps the content there private.

Make it a great weekend!  I'm taking my family camping in a few hours and will be back Monday, only to jump on a plane and spend the rest of the week in the Dallas / Ft. Worth area.  Dinner with folks who want to attend on Wednesday, October 12th, at Riscky's at the Stockyards.  We'll be discussing EV, GGT, and our view of the universe.

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

Regards,

pgd

Monday, October 3, 2011

Weekend Update - October 1st, 2011

.

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

Overview

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

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

Price Slope Model

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


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

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

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

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

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


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

A couple of observations:

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

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



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

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

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

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


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

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

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

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

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

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

Regards,

pgd