Tuesday, January 29, 2013

Slope of the 13d EMA of the Long-Cash Ratio Now Negative

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With the close of markets on Monday, January 28th, the 13d EMA of the LCR has transitioned negative. All of the slopes -- 2d through the 13d -- are now negative and have a bearish acceleration downward.

The LCR is a measure of the internals of the market -- making higher prices on a lower LCR value means that a disproportionate amount of stocks are doing the work, and as Pascal noted today (Daily Commentary, http://www.effectivevolume.com), higher prices were not confirmed with a higher money flow (just the opposite).

Here's the LCR table:

As with all my images, right click on the figure to open in a new tab or window.

The raw LCR values are on the far left; when these are decreasing it historically has not been a good time to enter stocks, good EV patterns notwithstanding.

If you have trouble visualizing the table, here are the curves of the same:


Although we are still in a long-term uptrend (LCR 65d EMA still positive), the accelerations of the EMAs (right side of the chart) are negative, and so we're slowing on all major time frames. As I said in my other post, "Let's be careful out there".

Finally, I think the following graph needs no supplemental commentary -- it's a graph of the number of "long" rated stocks in my database:


Regards,

pgd

Thursday, January 24, 2013

LCR Keeps Dropping Despite New Highs in Major Indices

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The GGT Long-Cash Ratio is exactly that: a ratio between two values. Understanding how these two values are derived is the key to understanding the power of the LCR.

GGT is an optimized system -- it constantly optimizes, day over day. It SELF optimizes at the stock level -- each stock looks at its own price, volume, and price rate of change performance, and if the values are above some threshold, then it gets some form of a "long" recommendation. Conversely, if the values are below this magic threshold, then the recommendation is cash.

When we take about 3100 stocks and do this calculation, we can separate stocks into two main groups: those with a long recommendation, and those with a cash recommendation. Hence, the LCR.

I've been doing this daily since September 2008 and the LCR is a powerful indicator of what is occurring in the database. It does not predict, it does not forecast, it only tells us what is happening up to the data it has been given. BUT, when combined with momentum, projections can be made that have a high degree of correlation to the SLOPES of different moving averages, as well as SLOPES OF THE SLOPES on the LCR.

For those of you who paid attention in Physics 101, you'll recall that slope is rate of change, or velocity. It's a measure of how fast something is going, and in the case of the LCR, the slopes of different moving averages tells me how fast in stocks per day are becoming long (positive values of LCR), or alternatively, how many are moving to cash (negative values of LCR).

If you really paid attention in your college days you'll also remember that the slope of the slope was the rate of change of velocity, or acceleration. For my purposes, a positive acceleration with respect to LCR means that we're starting to become more optimistic, and conversely, a negative acceleration means more pessimistic.

Take a look at the following figure:


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

On the far left, next to the date, is the raw LCR value. We closed Thursday down another -4% at 3.638. This means that for every 36 stocks that are long-rated, 10 are in cash (or 363/100 or ...). We peaked on January 10th at 4.212, and we've been slowly unwinding our way down to the 3.6 level ever since. 

Note that we took a few pauses and jumped back up to 3.9 and change a couple of times. Good, solid, healthy bull market.

What is concerning to me is that we are dropping in the LCR values but we are making new highs on the S&P500 and Russell 2000. GGT index also, but you're not as familiar with that as I am. This is a divergence, and it's not necessarily sustainable. Think about it. In order for individual indexes to go up the constituent stocks must be going up, but if an increasing number of those stocks are underperforming (dropping LCR), then the stocks that are performing well must have to disproportionately increase to keep pushing the indexes higher. 

The conclusion here is that if the same number of stocks were present on 1/10 (the LCR high) that are being calculated now on 1/24 (market highs), and the indexes are higher but more of these stocks are underperforming (lower LCR than on 1/10), then fewer and fewer stocks must be pushing the indexes higher and higher. This is a problem and is not sustainable.

Take a look at the slope fields. We have bearishness creeping in to the 2d, 3d, 5d, and 8d. The 13d is 1% away from flipping to 0. The negative value of the 8d slope is telling you that 3% of the stocks in the database (3098 * 3% = 93 as of 1/24) are moving to cash status every day, yet we continue to make higher markets day over day.

Because slope of the slopes must change before the slopes (why? ask if you do not understand), seeing as much red on the right side of the table across all measured time frames is worrisome. Continued red on the right side tells me that the day-over-day change is more negative, e.g., we are accelerating day-over-day downward in the number of stocks transitioning to cash (underperforming). Again, not the view we want to see.

To get your head around this, look back up at the presentation around 11/19. Look at the slopes, which were JUST beginning to move positive, but look at the slopes of the slopes, which were green long in advance.  We have the converse developing now.

We're turning more and more red in the slopes of the slopes, and this is not good for our profits.

All of this being presented, we certainly can continue to grind higher. POMO injections, irrational behavior by the retail market ($DDD), all can fuel us higher. As long as the LCR continues to drop but we keep making new highs in the indexes we are getting on thinner and thinner ice.

I strongly suggest that you tighten stops, take some profits, whatever makes you feel good about the work you've done since November. Sure, you may leave a few percent on the table. It's better than giving it up in one day and hoping that the markets have overreacted and will continue upward.

My 3 cents (jumping off my soap box).

Regards,

pgd

Tuesday, January 22, 2013

Continued Bearishness Creeping Into Markets - We're Slowing

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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.

Regards,

pgd


Tuesday, January 15, 2013

Short-term GGT Timer Signals Exit as of Close Monday January 14

With the close of markets on 1/14, my GGT short-term timer has signaled that positions opened since 1/3/13 should be closed.

This timer call is based on the 4d SMA of the GGT Long-Cash Ratio (LCR), which is a simple average of 3101 stocks with respect to their overall Long/Cash status. A stock gets a "Long" rating if it is outperforming it's historical, optimized, moving average, rate of change of price, and volume action. It gets a "Cash" rating if it's price action falls below the optimized moving averages of price. 

The database started a deceleration on Friday, continued Monday, and has fallen from a LCR of 4.126 to 3.916. This is a 2-day reduction from the peak of 4.212 and is indicative of a short-term pullback. Short-term pullbacks can turn into long-term pullbacks so positions opened recently will be underwater fairly quickly.

This short-term signal call resulted in a gain of the GGT index, which closely resembles the performance of the VXF, of 1.08%.



If you have questions please post them in the comments field below.

Regards,

pgd

Wednesday, January 9, 2013

Update for Wednesday, January 8th

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I continue to be bullish on the market.

From a cumulative tick perspective, and as indicated by Pascal yesterday (www.effectivevolume.com), algo buying ceased the past two days but the trend remains intact and we keep advancing. There are no crossings from above in the moving averages, so there is no weakness, just coasting:


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

Further, the middle plot of this chart shows a "threshhold" accumulator that I've built that looks for sustained buying/selling, and right now is set to 250 stocks per minute in either direction. When we get greater than 250 stocks on all markets being bought/sold, we increment the counter accordingly. You can see for the past two days that the counter has been relatively flat, indicating the lack of buying/selling. You can see 3 and 4 days ago the impact of sustained buying -- a healthy uptrend.

This chart alone should give you some confidence.

From a GGT pricing perspective, we have had a short, 2d period of weakness develop in the slopes, and there clearly has been some price deceleration over the past 6 days, with three of them clearly negative:


In context, I'm not worried about the 2d price slope turning negative, but I do think it bears watching.

With respect to GGT Long-Cash Ratio analysis, all slopes are green (positive), and this means that the database continues to expand in terms of the number of stocks participating in this bull cycle:


We had our first day of deceleration on Tuesday, 1/8, but we are significantly above the 0-line in slopes on all measured time frames so the database has room to move.

Consequently, with the Cumulative Tick, Price Slope Model, and LCR Slope Models all indicating relatively bullish, I see no reason to even think about shorts, despite being overbought on many metrics.

My leader's list is available here and it continues to perform well in this market. Here's the most recent graph:



The green on the 2d Force Index indicates that today could be a good day for re-entry to the markets if prices take out their previous highs.

Finally, my timers are all green:



I'm nearly 100% invested in all accounts. I have no positions that are underwater, having sold them as GGT flashed "New Cash" within recent days. My holdings are listed daily in the Dropbox file for stocks, on the dashboard tab.  If you would like to subscribe to my Dropbox folder, drop me an email with "dropbox" in the subject line, a brief description of who you are in the body, and I'll send you an invite.  Send the request to pduncan [at] vt dot edu

Regards,

pgd

Sunday, January 6, 2013

Weekend Update -- Looking at Monday, January 7th

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I'm presently nearly fully in the market at the present time.  I hold the following stocks, all with gains except for CVLT, which is being stubborn with a loss just over 1%:

ASGN
CTB
CVI
CVLT
DDD
DORM
EGHT
GEL
KKD
LAD
MTZ
NDSN
PII
SCS
TDG
VMED
VPFG
WGO

I have room to add two or three more, but may simply sell the weaker performers and add to my leaders as the list is getting almost too big to manage.

My leaders list for the upcoming week is as follows:


EXP
SWI
LAD
VMED
ASGN
HW
KKD
GHL
ONXX
ALJ
CVLT
DSW
PBH
RAX
VPFG
BRLI
MDAS
MTZ
TCBI
TOL
WAL
CTB
AHS
MOV
USG
SPNC
CAMP
COG
ARMH
CXW
CPA
LGND
IPGP
APOG
CVI
PDFS
PIKE
DDD
DK
HBI
HFC
HVT
VVI
DORM
BBSI
BOFI
CRD.B
LEDR
LNDC
PRAA
USAT

The order is implied "most favorable effective volume setup to least", and is of my own design and analysis.  This means that EXP and SWI ... are exhibiting some setups in effective volume that are favorable to their longer-termed appreciation.  If you are so inclined EGHT, PIR, EXP and SWI all have the "same" internal score, and if you have the TradeStation EV plugin (or are a member of www.effectivevolume.com) you can look at the large effective volume levels for the past 5d, 10d, 15d, and 20d intervals and you'll see what I mean.

For those of you familiar with my screening criteria, we have a sea of green:



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

From a performance point of view, these stocks are firing on all cylinders in one form or another:



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

Of interest to me is that we keep powering higher on the MACD, as well as the overall slopes of the 13d and 34d EMA on the group (MACD/upper, SLOPES/middle of figure).  See how the slopes are fully positive?  All that is changing with respect to the slopes is the value above 0 -- sometimes the wave is growing (increasing acceleration) and sometimes it starts to dip down (deceleration).  

Note too that the group price consistently performs at or above the 20d MA, which itself has a significant upward-trending slope.  

For you Elder types, note that the Bull and Bear Power are both significantly positive, hence, the group has great characteristics, and has had since we initiated a long call back in November.

If you have a basket of stocks you are watching, and they aren't performing like this, then I would suggest that you reevaluate your stock selection.

In case you are wondering, I like to buy when the 13d slope has hit a minimum and the next day has a higher value.  This is the RED trace in the SLOPE graph.  We're peaking in terms of the 13d, so entering new positions right now is tenuous and highly specific on the individual equity being considered.

All my timers are LONG:


The short-term timer signaled to re-enter the markets with the close of action on Wednesday, January 2nd.  I was already holding stocks long due to the intermediate and long-term timers staying on the long side (intermediate by a thread), and that has paid off.  The intermediate-termed timer moved long on 11/28 after 4 consecutive days of "mixed" mode -- e.g., weak market behavior.  We received a long-term confirmation on 11/30 and although we've tested the short and intermediate timers, we've not been close to moving short again.

Looking forward into the crystal ball for the week, I see nothing but a cloudy crystal ball.  Guess I'll let the individual stocks tell me what to do, and for this I use my GGT timer system:


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

Note that most of these have already fired long (as evidenced by the green), so new entry pickings are few and far between (risk/reward is relatively poor compared to the day that they changed from red to green).  This being said, my strategy for entry is to carefully watch for those stocks which meet Elder entry criteria.  Stocks setup for this to occur on Monday are as follows:



Note my Elder entry criteria is as follows:
  1. We must be in an uptrend.  Your tolerance for risk decides the time frame of the uptrend.  Right now all my measured time frames are LONG so market risk is low.
  2. The equity's 13d EMA slope must be positive.  This is the first (leftmost) column indicated above, and DK, HFC, and LGND do NOT meet this criteria.
  3. The equity's 34d EMA slope must be positive.  This is the second column indicated above.  All the stocks in the table meet this criteria.
  4. The 2d EMA of the Force Index (daily price change * volume) must be NEGATIVE.  Yes, NEGATIVE.
  5. The 13d EMA of the Force Index must be POSITIVE.
If all of these conditions are true we'll see a "TRUE" in the "Ready" column (second from the right).

So, take APOG, since it's first on the list.  Friday's close was $24.17 and the high was $24.39.  Given that we're later in this bull cycle I want to see some strength here, so I'd place a BUY STOP for $24.39 + $0.02 = $24.41 for entry on Monday, expire END OF DAY.  Do not enable for pre/post markets, as price swings can trigger you and the price can drop at the open.  If the price moves above $24.41 we'll execute at the ask, and we're in.  If price never hits $24.41 AND all the conditions are the same on Monday night, then I'll lower my BUY STOP for Tuesday and play the same game until either:

1) conditions change and the stock is no longer a leader nor is it meeting Elder criteria, or 
2) my short-term timer moves to CASH, indicating that I should not buy stocks right now.

Of course, how you play this is entirely up to you.

As with all my ramblings, you are responsible to do your own diligence, and I am not.  I am not recommending anything you read here -- I am only conveying what works for me at the present time.  Do your own diligence, take ownership for your actions, and of course, let me know if this works for you.

Regards,

pgd

Friday, January 4, 2013

The Market has Taken Off, Now What?

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For many, going into the New Year's dates without an agreement from a dysfunctional Washington was too much uncertainty and many of you told me you moved to cash before we hit 2013.

So the markets take off on 12/31, 1/2, and perform well on 1/3.  I received a note this morning asking how to enter at this time.

First, start with a quality list of stocks.  My intraday (Jan 4) scan table looks like the following:


Right-click on the image to view in a separate tab or window.

For those of you who are not familiar with the criteria of the columns, you can download a PDF here.

If you had rather not type the list you can download a copy here.

I'm a big fan of Elder, and I've taken his concepts and put them to use.  Using an Elder entry methodology in the present market makes sense.  Here's the overall guide on rules:

  1. The equity must be in a short term and long term uptrend.  To quantify this I use the slope of the 13d EMA, as well as the slope of the 34d EMA.  Both must be positive.
  2. The 13d EMA of the Force Index must be positive.
  3. FOR CONSIDERATION, the 2d EMA of the Force Index MUST BE NEGATIVE.  This is your short-term pullback, e.g., the rubber band created by the 13d and 34d trends being positive.
  4. CONSERVATIVE:  Set a BUY STOP at the high of the previous, full-day range.  I typically add a few pennies to this, e.g., if the high was $21.23 I'll add $0.02; if the high was $123.45 I'll add $0.12.
  5. AGGRESSIVE:  Set a BUY STOP at the CLOSE of the previous, full-day value.  No need to add anything here unless you want to.


Hence, at 11:38 a.m. on 1/4/13, here is what the Elder entry table looks like:






















CXW is indicating that all conditions were ripe for entry and that it has surpassed the previous day's high.

Would I enter CXW at the present time?

Generally, yes.  In this case, no.

Someone dumped a good section of shares yesterday (1/3), with little impact on price, so it was quite stealthy.  I know this from reviewing Effective Volume:


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

Note that this is a considerable amount of Large Effective Volume selling -- basically it has wiped out all institutional buying for the last 5 days.  That makes me nervous when I see this, as the dollar mounts are in the millions in a very short period of time.

Further, today's gains in price are WITHOUT institutional support -- basically the small investor (me) is driving price, and I don't like to see SmEV moving up with LEV remaining steady on increasing prices, when LEV is usually the driver of a stock's price.

The only good thing that CXW has going for it (besides solid fundamentals and overall technicals) is that the for the last 20 days it has seen a considerable amount of accumulation by the institutionals.  You can see this in the bottom EV chart -- the LEV is much larger than SmEV, telling us that 225,000 shares have been attributed to the institutional side, and at $35 average price, this accounts for $7MM-$8MM in dollar value being committed to the market.  Small, but significant.

As always, do your own diligence.  The list of Elder entries changes in real time, so you'll have to work to identify candidates.

Regards,

pgd

Tuesday, January 1, 2013

Update for January 2nd: I don't think we're out of the woods yet ...

Happy New Year everyone! I took my family to New York City to watch the ball drop. While I recommend that everybody should experience this, I can also say that we'll most likely never be back for this event -- simply too many people and it was incredibly expensive for the value received.

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Monday's action, despite being after a weekend and before a holiday, performed well with respect to price and volume. Given that many professional traders were still on vacation, the volume number was respectable too. The GGT price index rose +1.66% on volume that was -8% below the 50d MA. The prior 5 days of trading averaged -18% drop in volume per day, so -8% was an increase relative to the holidays. Noted.

The GGT price slope model, which looks at various slopes of moving averages on price of the GGT index, went from being almost 100% in cash to signalling that we should move aggressively in on Wednesday. I don't agree across the board but let's start with the facts:


Right-click on the image to open in a new tab or window if you want to view a larger version.


Right-click on the image to open in a new tab or window if you want to view a larger version.

Of significance here is that the slopes (left side of the table above) and slopes of the slopes (or acceleration, right side of the table above) are all green. When this occurs on volume we have a signal to move into the markets. Further, if you look closer, the Database Strength, which includes price, volume, and price rate of change information into one index, also rose a substantial amount. This is quite significant and is worthy of digging deeper.

I've performed a study of price movements of the price slopes and when the 55d and 65d are already long with everything else in cash, and when we see a transition across the board like we did with price slopes, what results in the trade placed on the next day is interesting:



This table indicates that historically, since November 2008, that trades placed on the day after the transitions seen Monday have only a 12-35% chance of turning into positive trades. Note that this was with the GGT price index and not individual stocks, but it does suggest that we are in for a rocky road as far as the broad indexes are concerned.

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The GGT Long-Cash Ratio, which incorporates moving averages of the LCR of the entire database, did not move as aggressively as price, so there is more emotion in the markets than there is substance:


Right-click on the image to open in a new tab or window if you want to view a larger version.


Right-click on the image to open in a new tab or window if you want to view a larger version.

As you can see in the table view, the 2d and 34d-65d slopes turned positive, but everything else is still negative. While I will be the first to state that we're certainly moving in the right direction, it is hard for me to justify moving all my cash into the market at the present time. Being selective is key.

Note that Monday's LCR change was the 199th strongest 1-day change out of 550 measured values on the positive side, so hardly a resounding "jump with both feet" sign.

I've also done some work with looking at the edges of investing when the LCR slopes change -- and the mixed table status tells us that we're at a crossroads. Although I'll not present the data in detail, the analysis is much like the price transitions edge model shown above. The LCR being in this present state has only produced gains 19-22% of the time, again since November 2008. 

We need some clear leadership and "knock the skin off the ball" performance over the next week in order to have confidence that the activity on Monday will continue. Of course, this is all tied to the activities in Washington.

===================

Given all of this, my timers are still mixed:

1) short term is in CASH
2) intermediate term just moved LONG
3) long term remains LONG



If we continue to move upward I expect the short-term timer will flip long, indicating to move into the waters again on a short-term basis. We'll see.

==============

The obvious question here is what stocks are on the radar?

My short-list of favorable stocks, already screened for what I consider "highly-interesting" effective volume patterns (see http://www.effectivevolume.com), from top to bottom (top being most interesting), is as follows:


Right-click on the image to open in a new tab or window if you want to view a larger version.

Here is the list if you do not want to type it:

LAD
USAT
USG
CVLT
DSW
IPGP
ARMH
VPFG
ALJ
EXP
HW
RAX
WAL
MTZ
TYL
GHL
CTB
APOG
PIKE
SPNC
AHS
ASGN

These are not all my leaders; these are simply the ones I've set various alerts on for Wednesday's action. The list could change dramatically by Thursday, so applicability does not extend past Wednesday, January 2nd.

I own positions in CVLT and MTZ.

I am compelled to pick up a position in CTB on Wednesday due to rules of an account I co-manage. Note that CTB is a GGT "New Long" with the close of markets on Monday, December 31st. Also note that of all the industry groups that these stocks belong to, CTB/Tires/Consumer Cyclicals is the only group that is up in price over the past 5 days. Money has been moving into this industry group/sector.

Here is the EV chart for CTB:


Right-click on the image to open in a new tab or window if you want to view a larger version.

I'm not overly excited about CTB -- it's been ignored by the institutionals and has largely not participated this signal, but recently the stock is seeing large effective volume and with the GGT "New Long", I'll be in soon.

I'm looking to enter positions on high volume and rising prices. Criteria is hitting 150% of the volume of the strongest down day (price and volume) of the last 10 trading days, and jumping in as soon as I detect this pattern.

As with all my ramblings, please do your own diligence. I am not responsible for your actions -- you are, and as such, you're on your own to make your own decisions.

Regards,

pgd