Sunday, April 6, 2014

Short- and Medium-Term Timers Move to Cash, but...

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This has been a tough market environment this week in context of attempting to re-enter.

The end of March saw a renewed surge in equity prices across the board, on increased volume, indicating that traders and investors were attempting to get back into the market.  The challenge of course is that every one of these signals is prone to collapse -- we simply do not know whether that will occur until it actually does.  I've seen signals fail after about 5 days of up trends -- this one failed on the 4th or 5th day, depending on how you count.

Adding a bit of timing confusion to this is that my methods want me to jump into the market when a number of criteria line up, as they did on Wednesday and Thursday of this past week.  So, I started entering, per normal, as my system indicates.

So here we are -- we have a collapse and I'm back to nearly 100% cash in my trading accounts.  Note that I am still about 63% long overall.



Looking above at the figure, the Intermediate-termed timer snapped back to cash before the short-term timer.  This is unusual but not unique.  It occurs because the intermediate was just above positive threshold, and the markets did not move higher before it transitioned back.  This was a warning that was fired Thursday night, but due to family obligations, I didn't get to see it until mid-day Friday.

On a long-term basis we're still long (but weakening, of course), but my short-term timer as well as intermediate-termed timer have both flipped back to cash.  The UWM slope, which is the slope of the 65d moving average on the Russell 2000 2x ETF, has also moved negative again, and this bodes badly overall if this condition continues.   Because this is leveraged it has higher sensitivity than the general market, and is a good "canary".  Note though that 1 day of negative slope for UWM does not mean "sell".  It simply means "wake up".

Overall, as of Friday close I lost -1% in this last round of jumping in, and have a paper loss of another -0.3% pending if I exit Monday morning at Friday's close.

Bottom line:  my GGT tracking index is indicating that we should get out of newly-entered short-term positions altogether, and for intermediate-termed positions, that they should be considered on a case-by-case basis.  Long term holdings should remain in place.  I'm well on my way to this state.

Friday was a Distribution Day - So What?


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According to publicly available online fodder, Friday notched another set of distribution days for the major indices.  The DJ is now up to 5 in the last 25 trading days, the NASDAQ is up to 8, and the S&P500 is up to 6.  These have not been going down relative to the past 25 days -- on the contrary -- and in a historical sense, the DJ and S&P are in their historical mid-range area for distribution-day count, with the NAS being a bit lofty than it's average.

Overall, I watch Distribution Days, but I don't get too excited about them. In an UP market they don't really matter -- they are part of a normal reset process that occurs and I feel they are generally healthy.  Yes, they indicate that considerable volume was occurring and that the big-lot players were selling, but if prices continue higher within the 25 day period, okay then.  This is more/less what we have with the DJIA and the S&P500- take a look at the above figure at the far left and far right graphs.

The NASDAQ ($COMPX) is a bit different here though, so I'm starting to pay a bit more attention.  I'm not so much concerned about distribution days -- I *am* more concerned about LOWER HIGHS.  In fact, let me make this clear:



Note that we're not able to take out the high of March 7th, and the local highs of March 21st and April 3 are successively lower.

Interpretation:  The NAS is eroding faster than the S&P500 and DJIA, and since a normal occurrence is to rotate from high-beta technology (NASDAQ) to lower-beta blue chips (DJIA, S&P500), we may be seeing a significant defensive posture developing as we head into the next earnings season.

If this is true we want to to experience continued growth in the DJIA and S&P500 as we march through next week.

Major ETFs are Still Aligned on the LONG SIDE

Take a look at the following graphic:



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This shows my GGT indicators for the major market ETFs -- these are the mini-indexes that can be traded by everybody.  As you can see, the SPY, QQQ, IWM and a few others have huge volume associated with them -- nothing "thin" about these equities.

The first thing to note is that the major LONG ETFs:  SPY/SSO/UPRO, DIA/DDM/UDOW, and IWM/UWM/TNA, are all still recommended as long.  Only the NASDAQ ETFs are indicating a move to the CASH side.

What is more telling is that within the QQQ/QLD/TQQQ complex, the TQQQ, which is the 3x of the QQQ, is still LONG.  It did not follow the QQQ/QLD change, yet is more sensitive.  This is telling you the NAS has issues but certainly, there is no reason to sell at this time.

The other telling aspect is that the short side of the NAS -- PSQ/QID/SQQQ -- are still all in CASH.  They haven't made the change over.

Until I see a change of the long side across the board to CASH, and a corresponding CASH to LONG of the short side, I do not intend to exit the market on the long side.  I will remain in hunt mode, and this is my plan for the upcoming week.

Sectors to Watch for the Week of April 6th

Real Estate

Take a look at the following graphic:



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This shows Real Estate ETFs that are transitioning to the long side, most doing so over the last week.  Some of these are leveraged ETFs, so do your diligence (you've been notified).  You can see that two weeks ago the SHORT real estate ETFs (DRV and SRS) were exited, with 44.6 % and 31.9% yearly gains with fairly good reward-drawdown ratios (known as the Calmar Ratio -- CR) of 2.6 and 2.8.  Value of 3.0 or grater are considered very good.  Note these values are calculated on CLOSING values, not intraday.  You can also see that shortly after the shorts were exited the longs started firing.

IYR is the largest traded ETF of the lot.  It is also a 1x ETF, with no leverage.  Past performance is no guarantee of future performance but over the past year this ETF has returned 9.1%, not counting dividends.  It currently yields 1.84%, and pays dividends quarterly.  It just paid a dividend at the end of March.

IYR just fired a "New Long" status.

TWO stocks are on my "green screen" list that are in this industry group:  HF, which is HFF, Inc., and HHC,  which is Howard Hughes Corporation.


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I'm not overly excited about the failure this past week of HF to keep above the $34.74 value, which was a prior 52-week high.  It closed Friday down at $34.09.  Volatility has been increasing too, and when this occurs on negative price advances, is generally considered poor behavior.

Nevertheless, I have an alarm set to alert me on prices above $36.10 and projected daily volume in excess of 200% of the 21d average volume, around 350K.

HHC is behaving a bit better in the Real Estate group:


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HHC is within 2.08% of hitting my by level of $147.86 on volume that is projected to be above 320K or so.    Volatility has been decreasing, which I like.

Despite the Real Estate group going up according to the ETFs, and the strong overall performance from these two stocks, HHC has issues.  The primary one is that over the last 3 days the buying/selling has been at the retail level, e.g., the large-lot transactions have been selling and the retail boys and girls (you and me) have been buying.  This is opposite of what we want to see:


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As always, go to www.effectivevolume.com to read more on the SEV/LEV indicators.  Simply put, we want  SEV DROPPING and LEV INCREASING, and we have the exact opposite right now.  This is a warning, hence why I like to buy on increasing prices and volume.

European-Asian-Far Eastern (EAFE)

EFA is another equity worth watching.  $67.90 seems to be local resistance ceiling for this one, but it continues in a general uptrend and volatility has been dropping significantly.  While Friday's drop in price was on increased volume relative to the previous 3 days, GGT has it as an Affirmed Long with a recent "New Long" occurring this past Monday, so take a look.  There is nothing exciting here about EFA, but the past year have returned 9.3% not including dividends, which are currently yielding 2.53%.

The effective volume charts for EFA are attractive:


Note in the chart above that even though prices have been horizontal to down that LEV (large effective volume -- the big boys) has been quite positive.

Some other quality stocks worth watching:


HAIN
UIHC
ZBRA
HPJ
SWHC
TSU
BWS
DLPH
DECK
CBI


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As always, you are responsible for your investment decisions, and I am not.  Please do your homework, and please take ownership for your actions.

Regards,

pgd