Friday, March 23, 2012

Update for Friday, March 23rd -- Timers Showing Increased Bearishness, but ...

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I am traveling today to the HGSI seminar in Palos Verdes, CA and thus, my blogging this weekend will be as time permits. Dropbox files will be updated for today and by the open Monday.  You can find my daily blogs at the Effective Volume site at http://www.effectivevolume.com, in the GGT forum.

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A number of my indicators continue to show weakness -- as I said yesterday, it's impossible to know if this is a buying opportunity or the start of a change in market climate. Despite the following, the long-term trend is still upward.

The weakest of my indicators is the Long-Cash Ratio (LCR) slope model, which has transitioned completely negative:


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

The simple take away here is that with all of the LCR slopes negative, including the 2d EMA slope, and with all of the LCR slopes of the EMA slopes negative, buying stocks on the long side should be suspended.

The LCR fell -13% on Thursday (far left of the table image), and in terms of acceleration downward, we've had three continuous days of day-over-day decreases in momentum (each day-over-day change is bigger than the day before). 

A short-term pullback will be characterized by the far right of the table view moving positive (green). These values represent the slope of the slope, and they lead any momentum change.

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Because of the across-the-board bearishness in the LCR, the Price-Slope-LCR Trend timer, which is a prototype and still under development, transitioned to full cash:


This timer uses the GGT price trend (now down compared to 1 week ago), the GGT 65d slope trend (now down compared to 1 week ago), and the LCR trend (down) to determine buy, sell, short, and cover signals. As you can see, this timer has issued a sell signal.

Because we can't invest in the GGT index outright, I've included data which shows what the impact is using the SPY, QQQ, and IWM. This last signal, which issued a "BUY" on 3/13, resulted in gains for the Q's but losses for everything else. Nevertheless, the model has historical validity, so I will continue to develop the rules.

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The GGT Price Slope Model is also showing increased bearishness, but note, it is still quite bullish on the longer time frames:




The GGT price index fell -0.91% on volume that was -8% below the 50d MA. Of significance here is that the Database Strength indicator has fallen just below parity, so half the database is in an up trend and half is in a down trend. 

The 2d - 13d slopes of prices are negative. If this continues we will hurt on the long side. The right side of the table -- the price slopes of the slopes -- are fully negative and indicate that the last 3 days have not been good to us on the long side. Furthermore, the far right of the table above shows that we are accelerating downward in day-over-day price decreases, as a whole, and this is also a warning sign. We'll have to see if the trend continues. 

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Because the 13d price slope is now negative, the Elder timer is under pressure:


As you can see, we're not negative by much, but it is there.

The "Mixed" state in the Elder Signal arises because the calculation methods -- one being a simple moving average (SMA) and the other being an exponential moving average (EMA) -- do not match. The EMA is faster, and it is negative, causing the two to give different signs (one positive - SMA, one negative - EMA). In a trending market these always resolve themselves within a week or so, but when we get mixed signals it clearly is a wake up call to watch for market reversals over the intermediate term.

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Correspondingly, the timers are now flashing caution on the long side:


My counsel is that if you took the 12/20 or 1/3 signals to move long, then I would stay the course, as the 5d / 65d timer has been long since this time frame, and from a pure GGT index point of view, you're up over 10% since that time and can take a small pullback.

Conversely, if you got in after these signal dates, then gains are less and any gains at this point could be fragile. This is the boat that I am in and I'll take my long positions off the table which are underwater and will set tight stops on those that are above the waterline.

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As a final comment on "my crystal ball is as good as yours", the following chart is interesting to me:



The chart is generated from Pascal's DIVA file at www.effectivevolume.com, which lists all positive and negative divergences that are developing between effective volume and price. The chart shows the net of these values in addition to the GGT price index. 

It's clear to me that as of the close of markets yesterday there was net buying on decreasing prices. Taken in isolation, this points to higher markets and a bias to the long side. This is my interpretation, not Pascal's, and this is work in progress. Nevertheless, we're not seeing huge selling at this point (as of yesterday), so the "do nothing" solution if you are long is attractive. Additionally, while there has been a decrease in Pascal's money flow relative to the last few days, the net values are still somewhat positive, which I also take as net bullish:


Time will tell.

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

Regards,

pgd