Thursday, March 29, 2012

Update for Thursday, March 29th - Short Term Timer Moves to Cash, Intermediate and Long-Term Still LONG

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With the close of markets on Wednesday, March 28th, my short-term timer, which is based upon the 4d simple moving average (SMA or MA) of the Long-Cash Ratio (LCR), has transitioned to cash. Long equities (which are not contra ETFs) which were purchased since 3/26 will be closed, as the probability of their success from here is considerably lower. The GGT index performance since the last signal (3/26) is poor at -1.22% and is indicative of a weak market, but I do note that it is less than the average losing trade (count = 30 since 1/2/09) which is -1.79%. A minor flesh wound.

In my opinion (worth what you pay for it) any long equities bought since 3/13 are also candidates for closure if they are showing any form of weakness.

Here is the timer summary:






As you can see, the Elder intermediate-termed timer and the simple 5d / 65d timer are still long. The Elder timer is within a hair of triggering to Mixed conditions (a major warning) or Cash (an event marker) depending on today's action, but of course, stay in the profitable trades if you are holding longer than a few days. The 3/9 or 3/12 long signal from the Elder timer was the last transition (depending upon which signal you follow), so play accordingly.

The 1/5/12 long move in the 5d / 65d timer is still the most profitable. If you placed orders around this signal and they are profitable, this signal is telling you to continue to hold your longs. 

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The LCR model is completely bearish across the board from the 2d EMA to the 65d EMA. The LCR dropped -11% on Wednesday, which is slightly below the average of -15%. This is not a panic-selling market. We are accelerating downward in the LCR on a day-over-day stance, which is simply telling me that this is not a time to move long in equities.

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As you might imagine, the price-slope model is becoming more bearish, but is still holding on to some bullishness on the 13d and longer time frames. This is why it could be prudent to hold stocks on the long side in accordance with the 5d / 65d and/or the Elder timers.

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I intend to sit on the sidelines today. Of my holdings, I am net short, but realize that I have almost 60% of my holdings in cash at the present time, so if we continue upward from here the damage is certainly recoverable. We've not made much progress in the last week and when this occurs, the sidelines are a good mental spot for me.

Regards,

pgd

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

Thursday, March 22, 2012

Update for Thursday, March 22nd (belated) -- Short Term Timer Moved to CASH

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With the close of markets on March 21st, the GGT 4d LCR timer has transitioned to CASH:



This timer is the shortest of timers in my arsenal, and as you can see, it fires quickly. This is a long-only timer -- contra trends are not signaled using this method. 

This last signal, which was from 3/13/2012 to the close last evening, was -0.13% if using the GGT index (0% if using the SPY, +1.2% if using the QQQ, and -0.16% if using IWM). Compare this to a historical average of +3.75% average wins and -1.81% average losses per trade.

Cumulative performance since 11/25/2008 is 73.3% or 18.1% compounded. The rest of the stats for this timer are below:



These numbers are slightly different than what I've posted in the past and reflect my best estimates of past behavior with this signal as of my latest calculations and rules. 

The timer is constructed from the performance of the Long-Cash Ratio (LCR), which is unique to the GGT universe. If the 4d Simple Moving Average (SMA) is crossed from above by the LCR, we have a sell signal such as today. The signals since the beginning of 2011 are shown below:



On a short-term basis the timer is good at getting you into the markets, but because of the short MA duration, does pull you out too soon if the trend continues. Shorter-termed timers also whipsaw, and if you get frustrated by this, you need to lengthen your timer duration (e.g., this isn't the timer for you).

When this timer fires to CASH it is a wakeup call that either:

1) a buying opportunity for any pullback is developing
2) a change in overall trend (short, intermediate, long) could develop.

Your crystal ball is as good as mine at predicting which one of these cases is actually in the works. Pascal's Real-Time Money Flow gives us some insight -- here is the chart over the last 5 days:



Overall, we've returned to the levels of 5 days ago, and since the sell-off mid morning this morning, we've stabilized and money flow is balanced. Unless we see a major influx of money into the markets in the remaining time today, I do not think the 4d signal will whipsaw.

I will not enter a position under this timer until the 4d LCR average is crossed from below.

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

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Regards,

pgd

Friday, March 9, 2012

Update for Friday, March 9th

Yesterday at the EV site (www.effectivevolume.com) I showed a chart from EdgeRater of Ian Woodward's %B * BW for the US Markets. I like continuity so here's the updated chart:




The obvious visual queue is that this sell off may be "all there is" and it's time to go long again. Well, history isn't as clean cut as you may like to infer:



This is the same application of the template back into the Sept/Oct 2011 time frame. Note that we kept high on the NASDAQ but the other markets flashed negative for a few days, we recovered with a terrific day on 9/27, only to retest bottoms a few days later. 

I intend to let the market dictate my actions but be aware, dropping again would not be unprecedented.

There are other events in the past that behave just like the above, so while it may be prudent to put some long positions on, I would not do full positions. Note that GGT is indicating to remain in CASH or on the short side until a clear signal is derived.

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The GGT price slope model has resumed a bullish stance with all of the slopes and all of the slopes of the slopes positive for the price series. We put prices in the bank and nothing else, so we have resumed our uptrend on multiple time frames. Here is the price slope graph:






Note that we've achieved higher levels of short-term price slopes relative to the past two weeks -- I'm looking for continued behavior of higher highs and higher lows with respect to the price slopes as a confirmation that the short-term trend is intact. If you're holding longer-termed holdings with gains I would continue to hold them.






The Long-Cash Ratio had it's first up day in 9 trading days, which isn't a record but it's enough to be notable. While the gain was only +6%, we're near the balance in the database where the number of LONG recommended stocks is nearly par with those rated CASH. A snapshot in time, but historically, this could easily set the stage for a move up from here, as there is plenty of fuel to move higher now.

Of interest to you should be the solid 2 days of the LCR slopes of the slopes all being positive. This has caused the significant drop in the LCR to reverse and start moving upward, which is bullish. The Slopes of the Slopes precede any positive action on the LCR slopes (make sure you understand why), so we are setting up with the proper conditions to move long in the market.

Here are the slopes of the LCR:






My timers are unchanged. The short-term timer is in cash, the intermediate-termed timer is in cash, and the long term timer is long. I'm waiting for the LCR 2d, 3d, and 5d slopes to transition positive before I re-enter the markets on the long side with any passion.








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As an aside, I watch the action of the 5d and 8d LCRs, as this has indicated (in previous times) what "could be". Of course your crystal ball is as good as mine. Take a gander at the following chart and I'd be interested in your thoughts -- the chart seems to portend some further weakness for a short duration, then perhaps it's off to the races again. You decide.




You can see where we are at with the orange horizontal line; you can also see that during periods of strong bull markets we're nearly an area where the probability of reversal increases.

Regards,

pgd