Tuesday, January 22, 2013

Continued Bearishness Creeping Into Markets - We're Slowing

Like a ball thrown upward, we're still moving upward, but suffice to say, we're nearing the apex.

I base this statement on the LCR Slope Model, which continues to stubbornly exude increasing bearishness in the face of prices grinding higher. Although we put prices in the bank, the LCR tells me what the underlying market is doing on a stock-by-stock basis, much like Pascal Willain's money flow indicator, and right now we're getting increasingly bearish.  Recall that the LCR is the Long-Cash Ratio -- and I take 3000 stocks, separate them into 2 primary groups (Long, Cash), and then based on past performance, equate their present performance to above or below historical normals.  The model continually self-optimizes and adjusts for market changes because each individual stock is self-optimized in terms of it's ranking:

Right-click on the image to open in a new tab or window.

Ignore the LCR values on the far left for the moment, and look at the slopes of the LCR side of the table. You see 3 days of the 2d, 3d, 5d, and 8d slopes all negative, and Friday was more negative than Thursday. On the right side of the table, you see far more red, but also, note that there is some green appearing. This side (the right side) is the slope of the slopes, e.g., acceleration, and we're bouncing around.

Hence, my interpretation is that we are kind of floating at the apex of the curve -- noise may push us higher, and certainly some leaders will continue to see a push higher -- but in general, the tide is starting to turn (to mix metaphors).  As further evidence, the % longs falling in the database is falling from a peak:

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

Further, the short-term timer remains bearish (e.g., do not buy stocks when the LCR/short-term timer is contracting), and hence, I'm raising capital but am ready to move in if we have a strong day:

Finally, as evidence of the slowing nature of the markets, note my HGSI chart:

Of interest is the MACD and 13/34d slope plots -- they are getting ready to turn bearish with crossings from above, so certainly, the writing is on the wall.