Sunday, August 10, 2014

August 10 Weekend Update

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Summary

Long-Term Timer:  Moved to CASH on 8/1
Intermediate-Term Timer:  Moved to CASH on 7/25
Short-Term Timer:  Moved to LONG on 8/8

Graphically, here's the same information:



Discussion:

We just experienced a first test of breaking the downward movement in the markets with the transition of the short-term timer to LONG on Friday.  Whether it will continue is unknown.  To a certain extent the markets appear to have bottomed -- this is evidenced by the upward movement of the "slopes of the slopes" as shown in the table below:


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

The right side of the table shows the "slopes of the slopes", or SoS.  You can see "green" for the past 3 days, indicating that the selling in the market is moderating.  The SoS table is a measure of about 3000 stocks and whether the entire database of stocks is moving upward or downward in recommendation (Long or Cash).  This is my LCR (Long Cash Ratio) measure and it is very reliable overall -- it is adaptive so as the markets change, so does the underlying data upon which it makes decisions.

This "first test" of a thawing of the markets will be key here for a number of reasons.  If you look back at 7/22, you see essentially the same presentation on both sides of the table.  The left side had the 2d and 3d slope of the LCR turning positive, and the right side had been foreshadowing that this was going to occur.  It lasted 3 days and then on 7/25 bam!  Another nail in the coffin.  The action on 7/25 was the confirmation that things were not going well and that cash should be raised, and this is exactly what I did, starting with Monday, 7/28.


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

The figure above is an equity curve from TradeStation.  The x-axis shows the "trade number" and the y-axis shows the account equity change.  The general "drift" downward shown from trade 0 to trade 320 or so is due to normal GGT behavior -- sell stocks that move to "New Cash" and hold those stocks that are in some form of "Long" status.  What is not shown here is that equity is building during this period, but due to the way Tradestation reports, only those completed trades are logged and plotted.

Around 7/21 a few of the big winners in the portfolio triggered a sell signal and were closed, causing the equity curve to move upward a dramatic amount.  This is the cause of the major jump from -$40K to +$10K in a relatively short period.  A few more trades were executed between 7/21 and 7/25, and on 7/25, with the failure of the LCR to continue to advance, I placed a number of orders to exit the market on Monday, 7/28.

Exiting positions is done the same way, day after day.  I enter a 1% trailing stop loss (TSL) order, to be valid after 9:45 a.m. on the day that the order is placed.  This causes the first 15 minutes of the market behavior to be ignored, and allows the opening volatility to be ignored.  The TSL orders are Good 'til Canceled (GTC), so they persist until the position is unwound.  If the position moves higher it drags the TSL with it, and if it reverses, the intent is that it will hit the TSL level at a higher point than a simple market sell order would have accomplished.  In general this is the case and unless there are really good reasons I do not unwind positions using any other selling strategy.

Between 7/28 and 8/1 the positions unwound.  A large percentage were in positive territory, hence why the equity curve was growing while the markets were dropping.  With the action of 8/1 my long-term timer transitioned to CASH, causing me to unwind the last 25% of my positions.  Using the same 1% TSL GTC methodology I was able to unwind all of my positions by 8/6.

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The obvious question is "what now?"

We're not out of the woods yet, but we're looking better.

As justification for this example, aside from the LCR SoS table shown above, there is evidence that the markets are buying stocks:


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

The second panel from the top in the figure shows an indicator that only moves up or down if 100 stocks trade in a minute.  It is based on the NYSE TICK indicator, and it simply tells me if algorithms ("algos") are buying or selling stocks.  You can see that on Friday, 8/8, the indicator moved to the positive after 11:00 a.m. and essentially kept moving positive.  This tells me "who is winning the battle on the Street", and the bulls clearly won.

The top panel of the figure says "not so fast".  This is a plot of stocks making 52-week highs (green) vs. 52-week lows (red), and the difference (high-low, yellow).  It indicates that although there was strong buying on the markets, 168 stocks still hit new 52-week lows -- this is not a good sign.  Until the number of stocks hitting new 52-week highs exceeds those that are hitting new 52-week lows caution is advised.

The primary indicator from the figure is in the lower panel.  This is the Cumulative Tick Ribbon, and it basically shows on a minute-by-minute basis (raw, white) what the market is doing in terms of the battle of the bulls and the bears.  The white line moving upward is bullish, and it moving downward is bearish.  You can see that it bottomed near the end of markets on 8/5 and has more/less been climbing since.  It just climbed above the solid long-term average (approximate 10-day, red), and this means that we're changing stance in the broad market.

Of course, the LCR SoS indicator in my chart told you this too, but now we have confirmation from multiple sources.

So, we could be in for another "test" to see if we can continue higher.  The cumulative tick indicators need to keep climbing, the NH/NL indicators need to dominate in terms of New Highs, and of course, the LCR table that I track has to show improvement.

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The next item is to get your shopping list ready.  My shopping list is simple -- it's my published "Greenfield Stocks" list that I post nightly in the GGT Stock file in the shared Dropbox folder.  Here is the table:


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

To save you the trouble of typing the symbols, here they are:

AFSI
ARII
ASM
BABY
BFR
BIDU
BIIB
CGNX
CMG
CP
CW
FB
FCH
GILD
HBI
HEES
HTLD
IG
LAD
LUV
MAR
NEO
NFLX
OTEX
PJC
RFMD
SAVE
SHPG
SKX
URI
USAK
VIPS
WRES
XCRA

Not all of these stocks are GGT "Long"; some are being stubborn and have lacked volume to make them transition to a long status:



Again, all of these stocks are solid stocks, but the ones in "Cash" or "Aff. Cash" status should be carefully reviewed before you enter.  In fact, anything with "Aff. Cash" should be avoided, as it is in some form of a pricing free-fall.

From an Effective Volume (www.effectivevolume.com) perspective, I'm watching the following stocks:

HEES
AFSI
LAD
BABY
IG
SHPG

Each of these stocks is seeing a large amount of volume that is of the "big order" type, meaning, money flow is picking up for these stocks.  Note that LAD and SHPG are GGT-avoid stocks right now, so we could see these move upward in time.  Again, SHPG is a GGT-avoid stock, so be careful with this one.

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I don't have any orders placed for Monday.  With my long-term signal in CASH, and my intermediate term signal in CASH, I'm in CASH.  If Monday is a solid up day I'll know by the end of Monday whether I should place orders for Tuesday.  You will see this in the GGT Stock file that is in the Dropbox folder:  on the "Portfolio" tab, you'll see yellow where you presently see white for the allocation matrix: 


So, for example, if I get a short-term entry signal with the market's close on Monday, you'll see MAR above appear yellow in the right-four columns -- this is my internal signal that I've entered a trade into TradeStation for the specific line item.  Obviously, red means I'm not entering, and white means that I've figured out what the position sizes for the entire portfolio should be but have not designated the number of shares or the BUY STOP price.

Another thing -- I only buy strength.  Under MAR you see that the BUY STOP is $65.03.  IF I place an order, it will become valid at 9:40 a.m. -- after the opening volatility slows down -- and the price will have to move up and touch $65.03 before the order will trigger.  I enter at the market price after the trigger since they are generally one and the same.  If the price does not get touched then that evening I will adjust the BUY STOP downward to 0.1% above the day's high and the process starts all over again.  This ensures you get the best price commensurate with strength.

At any rate, this is all in the Dropbox file that I post nightly or early in the morning.  If you are not a subscriber, then send me a note to pduncan [{at] v t (dot} e d u   (clean it up, you know how) with the word "Dropbox" in the subject line and I'll add you.

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As with all my postings, take all of this with a grain of salt.  You are responsible for your own investment decisions, and I am not.  Do your own diligence, and please take ownership for your actions.

Regards,

pgd