Wednesday, March 6, 2013

New Short-Term Buy Entry Signal - Effective March 6th

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With the close of markets on Tuesday, March 5th, the Long-Cash Ratio model I employ, which looks at a database of over 3000 stocks and individually assigns a "long" or "cash" rating, has moved to a short-term "buy" signal. Entry on the long side into stocks is enabled when we have unanimously have several days (or weeks) of decreasing slopes on multiple moving averages of the LCR, then we get a reversal on the 2d, 3d, 5d, and most importantly, 8d:


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

On the far left side of the table you see the Long-Cash Ratio (LCR). It closed at 1.167, meaning that we have nearly a 1:1 ratio of stocks that are performing above their historical out-performance thresholds relative to those that are under-performing these thresholds. In the slopes area, Monday saw the 2d MA move barely positive, and then on Tuesday we had the 2d, 3d, 5d, and 8d moving positive.

Providing some confidence is the sea of green on the right side of the table. This is the slope of the slopes, e.g. acceleration, and as you can see, on most measured time frames the markets have been reversing their downward movement and stocks are pulling upwards above their thresholds, moving into "long" status. 

The 8d threshold is not without whipsaws -- look back at 2/19 and you can see that we failed in that signal and subsequently moved lower. It certainly could happen here -- your crystal ball is as good as mine.

Consequently, my timer systems are moving back into the long side of the picture:


Note that the long-term timer has remained long for the duration and has kept me in the markets for the most part. The short-term timer just transitioned long for the first time in two weeks -- but note that this is quite sensitive and could whipsaw. My Elder intermediate timer still is on the fence -- the markets have not resumed their move upward in an aggressive fashion across the board (indexes are driven upward, broad stock performance still is moving slower relative to the indexes) hence the model is saying "move long, but do so smartly".


This last table is an analysis that I did concerning the movement of LCR transitions. On the day of a transition use the left-most vertical column to select the row (or rows) of applicable moving averages that were already long prior to the day. Since Monday produced a 2d transition to the long side in the LCR table shown at the top of this blog entry, we're restricted to just the top row. Now, with the action of Tuesday which caused the 3d, 5d, and 8d to transition, select the columns under 3dt, 5dt, and 8dt and read off the range of values. 

Historically, when the 2d has been already long, and the 3d, 5d, and 8d move long on the next day, we have between a 47% chance and 76% chance of long entries working out. This used the GGT price index -- not actual stocks -- so mileage may vary.

Stocks that are good candidates today are (best Effective Volume setup at top descending to bottom):

SPF
AOS
SIRO
SMP
EVR
VRTU
AB
SEIC
CYNO
HES
MTW
CVI
DK
AHS
BLC
BOFI
TISI
VMED
CLMT
MTZ
PIKE
SAM
TRN
DXPE
HVT
LGND

I'm long in a number of names: CVI, DK, DRN, DUST, DXJ, GEL, PIR, SCO, USAT, and WGO.

Regards,

pgd