Saturday, May 5, 2012

Update for Monday, May 7th -- Transition to Cash

With the close of markets on Friday, May 4th, all GGT models are transitioning from LONG to CASH. None of my indicators are suggesting the short side of stocks, although a number of -3x leveraged ETFs did signal "New Long".

I will close my QQQ position at the open Monday for a loss of about -3.1%. This position was derived from a test model that I am developing and I was exposed at a level of 0.5% equity with a -6.61% stop loss. While above the SL level, the macro model signal is kicking me out.

I will continue to hold my UVXY positions and will add to those on any sign of market strength.

For those of you who are watching my TSP model over my shoulder, it too has signaled a move to cash in the C-, S-, and I-Funds. Ensure you read the details here.


My primary model is based on a combination of the Elder Force Index Timer and 13/65d moving average cross timers which I have developed. Let's look at the individual timers:

Yesterday (Thursday close), there was a mismatch between the 13d Force Index calculated with an exponential moving average (faster) and a simple moving average (slower). Today (Friday close) these two are in agreement, and with the 13d and 34d GGT price slopes negative (red), we are confirmed CASH in this model.

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

The graph above shows the state of the subtracting the 13d EMA from the 65d EMA. The scale on the left is the one to pay attention to -- if we drop below 0, then the long-term trend I track will also be DOWN. We are close to this transition and any sustained weakness in the markets will be reflected here quite quickly.

The combination of these two timers results in a signal which requires the 13d and 65d crossing to be LONG and the Elder timer to be LONG for entry. If either of these transition to CASH, we're out. The Elder timer has confirmed this latter state, hence, we're out.

 I've listed the most recent statistics on the chart above -- we did fall a bit because this last cycle is a net loser on the broader index, but overall, performance is quite sound. Recall that we want:
  • PRR > 1.0 and preferably above 2.0
  • ME > 0 and preferably above 1.0
  • T-Test > 1.7 and the larger the better
  • # trades > 20-30 and we're working on that
  • Compounded Rate of Return as large as possible

Here's a snapshot of the detailed metrics to date - make your own decisions:

 Unfortunately, this last signal has resulted in a loss of -1.85% not including commissions or slippage, but this is well within the worse recorded trade level of -2.41% and is a bit larger than the average losing trade level of -1.58%. 

I am compelled to take the trades indicated by the model as long as the metrics hold. So far, so good, despite this last loss.

Finally, in terms of equity and all the timers I track, this combo timer represents a good trade off between performance and number of trades, and I have confidence in the model:

 In the end, the short-term timer is in CASH, the intermediate-timer is in CASH, and only the long-term timer is holding long:


The GGT price index fell -1.72% on volume that was +7% above the 50d MA of volume. This is significant. Coupled with Thursday, where we saw a -1.27% decline on volume that was also +7% above the 50d MA, we have a one-two punch that tells us to exit the markets. Hence, the models are responding.

There is nothing bullish in the GGT Price Slope Models:


The LCR Slope Model is also quite bearish:


Monday should be relatively easy. There are no compelling signals aside from sensitive 3x leveraged instruments telling us to go short. Hence, cash is king, and aside from my UVXY positions, I intend to focus on other things.

I will be in Spokane, Washington all week next week. Postings and Dropbox files will be updated as time allows.