Thursday, October 23, 2014

Thursday, October 23rd Close

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Overview:  Buying continued today but the intermediate timer is still MIXED, which is cautionary.  Operating on a target corresponding to 50-75% deployment of capital to equity.

Timer Status:

Short-term timer:  LONG
Intermediate-term timer:  MIXED
Long-term timer:  CASH
Long-Cash Ratio:  Increased +25% to 0.54 from 0.433, which is very bullish.
Percentage of stocks with a LONG recommendation:  35.1%, up 4.9% from Wednesday on 3031 stocks in the database.  This is bullish.

Timer Table:


The mixed status of the intermediate-termed timer gives me pause.  The longer this timer keeps this status, the greater the chances that this signal will reverse to the down side.  "Mixed" occurs when the internal signals of this timer are not aligned, meaning that one of the indicators is suggesting weakness while all the others have moved long.  The next few days will be critical to this signal; a reversal to the downside, given that this is the 8th trading day that we've seen an expansion, would not be a surprise to me.

Slope Table:


The LCR slope table looks good.  I am showing continued expansion of the database in terms of "Long" rated stocks, and you can see that the slope of the 34d moving average just turned positive.  You can see this on the left side.

We have a sea of green on the right, which is necessary for an expanding market.  In isolation, this is a great figure.

Transition Probabilities

A slight wrinkle to the moving long story is that it's important to get invested as soon as possible.  This has been more difficult with this signal, as the leaders are not surging to new highs across the board.

The transition table above shows historically, since September of 2008, what happens when the 2d - 21d LCR moving averages are already long (positive), as can be seen in the previous table, and the 34d moves to positive territory.  This is the situation that we have with today's action.

Historically, trades placed tomorrow (the day after the transition of the 34d transition) only work between 17-18% of the time to the end of the macro signal (e.g., when the timers all transition to CASH).  The set of stocks is much larger now than it was last week, so that is partly to blame (not a perfect system), but also, we're getting long in the tooth on this signal.  Again, I would not be surprised at a slight pullback here.


Cumulative Tick -- S&P500, Russell 2000, and the NASDAQ


On the good side, each of the major indexes showed more new 52-week highs than lows, with the NAS doing so by a thin margin.

The SPX putzed around today and didn't do much algo buying despite the high index gains.  Unless you are investing in a mutual or ETF tied to the indexes, you should ignore their action.  I ignore the major index values in general because the underlying stocks do not show the massive gains in terms of Cumulative Tick that we saw in the prices.

If you're not familiar with the Cumulative Tick, read more here.

The positives in the chart above are that the S&P500 and the NASDAQ finished strong for the day in the last few minutes.  This jump upward means that there was considerable buying and that the bid prices were advancing for the constituent stocks after each tick transaction.  This is bullish.

The Russell 2000 was a laggard in this regard.  The R2K is comprised of smaller-cap stocks, so the bigger, dividend paying and larger market cap stocks were the winners today, along with tech.

Cumulative Tick - NYSE


The NYSE Cumulative Tick looks good overall.  Not nearly the gains that we saw in the index increases, which should give you pause.  Algo buying was not overly present on the NYSE today.

Strategy

I'm a buyer, but with some caution.  I have many positions that are up, for a collective 1-2% on my portfolio, but these gains could fade quickly.

I'm continuing to deploy capital, but I'm not aggressively going after stocks that haven't yet fired.  I received a note about this today and what this means is this:

1) under normal conditions, when an order does not fill for the day, the stock did not break out.  My normal procedure is to re-adjust the price for entry downward to 0.1% above the day's high (which will be lower than my present price), and if the stock take out today's high with tomorrow's action, then I'm in.  This is what I consider "Aggressive".

2) What I plan to do tomorrow is different, e.g., less aggressive.  My orders that I have standing tonight will sit with the higher valued trigger prices, e.g., the levels that correspond to 0.1% higher than YESTERDAY's high.  This means that the stock has to work hard to get to this higher level before my Buy Stop will trigger.

Yes, I'm giving up some gains.  More importantly, if the stock is headed downward, GGT will fire a "New Cash" recommendation and I'll kill the buy order, and then the cash is safe.  For now though, with an expanding LCR, there are few "New Cash" recommendations.  In fact, out of a database of over 3000 stocks, today only produced 23 "New Cash" recommendations, and NONE of them were in my present holdings nor were they in my watch lists.

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Remember, you are solely responsible for your actions, and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

pgd