Friday, February 22, 2013

Another Whipsaw; Models Confirm Move to Cash

Effective with the close of markets on Thursday, February 21st, my GGT model has transitioned the short-term timer and the intermediate-termed timer to CASH. The long-term timer is still long:

As indicated in my previous entry, the short-term timer whipsawed as of Tuesday, and continued to reverse again on Wednesday. I did not take any new signals on Wednesday despite looking for them in individual stocks -- a number of stocks did signal a possible Elder entry (see my earlier post) but the markets were down sharply and volume was quite poor to the upside.

From a GGT perspective, the GGT index has increased 6.19% from the entry on 12/3 through last evening (2/21), which is slightly above average for the intermediate timer. Although I acknowledge we could continue upward from here (POMO operations supporting everything), the GGT Long-Cash Ratio continues to strongly erode any underlying base of support and I believe that this advance in the indexes is purely a house of cards.

Here is the GGT LCR Slope Model table:

The LCR has fallen -22% and -25% relative to the previous day level during the last two days. Out of exactly 500 down days since September 2008 these represent the 111th and 90th strongest down days, and are indicative of warning shots being fired across our bow. We now are at a level of 1.327, down from a peak level on 1/10 of 4.212, hence we have a large number of stocks which are below their historical optimum threshholds and plenty of fuel to go higher. Although POMO could support us here I'm not overly optimistic, but that is simply my nature at this point.

IF the intermediate-termed timer remains in CASH today (Friday) the probability of it changing back to a long status decreases significantly. Like all MA-based timers, it too can whipsaw, and the horizontal nature of the markets lately causes havoc on MA and other threshold timer systems.

Related, but not often discussed, is a parallel model that I have for the Thrift-Savings Plan (TSP), which is my wife's government retirement account. It invests in what closely resembles the ETFs AGG, SPY, EFA, and VXF, and these equity values, along with their ETF proxies, all independently signaled a move to CASH last evening. There is no ambiguity here and remaining long in your TSP accounts is a poor risk/reward proposition. I had moved to cash in January, based on other R/R setups that were poor, and that move only left 2% on the table then -- I doubt you're going to get anything near 2% gains from today forward in those accounts before they significantly reset.

All of this being said, it's important to note that we're right at thresholds with respect to going short. From an ETF perspective, we had a POWERFUL short signal in the Q's last evening:

This is the dashboard view of the Q's from the ETF dropbox file, and it shows that the long and leveraged long variants on the NAS all signaled a move to CASH last evening (QQQ, QLD, TQQQ) while their inverse counterparts (PSQ, QID, and SQQQ) all signaled "NEW LONG" last evening. Volume is solid in these ETFs, so the GGT signals are going to be accurate. When we get a simultaneous reversal such as shown here the call to enter the other side is quite compelling.

In looking at the EV patterns for QQQ/QLD/TQQQ and PSQ/QID/SQQQ, the QLD/QID pair has the most favorable confirmation of TEV patterns, followed closely by TQQQ/SQQQ. I'm a nibbler/buyer of the leveraged inverse products in the Q's if they continue higher.

Note that we do NOT have across-the-board confirmation of moving short. The MF signal is not yet indicating short. The ETFs and leveraged products based on the SPY, DIA, and IWM are not all moving with the aggressiveness of the Q's, so capitulation has not occurred. Hence, we could move higher from here and a signal in the Q's could reverse to the long side.

I continue to hold my long positions, but now with tighter stops an/or with a protective put. I presently own:

BOFI, DLX, TIVO, CVLT, CRD.B, CTB, DK, GEL, NDSN, PIR and WGO. I recently have unloaded DDD, USG, ASGN, USAT, DORM, EGHT.