Friday, June 21, 2013

Gotta Love Whipsaws -- Confirmed Move Back to Cash June 20

With the close of markets on June 20th, my models have whipsawed completely back to the cash side.  I knew this signal was suspect, but as I indicated in my previous entry, I'm compelled to take every signal.

The damage has been quite light overall.  My underlying methodology when a new signal is generated is to do the following:

1) Update all candidates in terms of my "green screen".  I've presented the details elsewhere in this blog on what I look for -- I simply remove any stock that is not indicating "green" in my TradeStation scan and add new ones that meet this criteria.

2) I take this new list of "leaders" and I use a proprietary method of ranking 5d, 10d, 15d, and 20d Effective Volume.  I want EV to be indicating new buying in the stock, so 5d > 10d > 15d > 20d with all values positive.  This gives me a list from the best EV candidates to the "worse", although "worse" hasn't been proven as these are all good stocks from my list.

3) I ensure the stock is a GGT "Long"-rated stock:  New Long, Aff. Long, or Long.  Rare exceptions will allow me to review a CASH-indicated stock.

4) I buy on strength.  I typically place a BUY STOP order for the previous day's high price + 0.1%.  So if the stock was $20 high as of yesterday, I place a BUY STOP for $20.02.  If it was $150.00, the BUY STOP is $150.15.  The duration is for the next trading day only.  If the stop never triggers yet the stock is good as far as GGT is concerned I lower the BUY STOP and the process repeats, as long as my macro indicators are still showing an expanding market.

The last point is where we are now.  My macro indicators, namely the LCR (Long-Cash Ratio), have all moved negative in momentum.  I'm not buying stocks, I have no pending orders, and I'm exiting my holdings as GGT indicates.

Damage has been quite slight using this method.  I still have substantial gains in some of my positions, keeping the accounts above break even.  Nevertheless, I'm seeing the tides change, so I expect to be moving to Contra ETFs very soon.