Sunday, October 5, 2014

Weekend Update, Friday, October 3 Close

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Timer Status:

Short-term Timer:  CASH
Intermediate-term Timer: CASH
Long-term Timer:  CASH
Long-Cash Ratio:  INCREASED +7% to 0.207
% Long-Rated Stocks in Database:  INCREASED +1.4% to 17.1% out of ~3000 total

Timer Table:


(right click on the image to open in a new tab or window)

Nothing new here -- although we had a one-day rebound, it was not nearly enough to reverse any of the timers.  The table obviously indicates that we should be extremely careful on the long side.

Slope Table:


We are still incredibly bearish and oversold in the markets.  The LCR reading of 0.207 is very low, but as I've said in prior posts, we can go lower.

The right side of the table now has two days of across-the-board "green".  "green" means that the slope of the slope is positive for the indicated time range, and this means that day-over-day, the left side of the table (all "red") is improving.  We need to continue this behavior in order to get the left side of the table to turn green (why?  make sure you understand why).

With respect to the left side of the table, the slopes show that while they are still negative, they are improving (becoming less negative, and this is indicated by the green on the right).  I'm specifically watching the 2d, 3d, and 5d moving averages on the left side of the table -- we are close to a transition, and when this occurs, it's time to enter the market on the long side (but not jump in with both feet).

Here's a graphical view of the left side of the table:


You can clearly see that the 2d is almost ready to move positive.  This, by itself, will NOT be a buy signal, but it will be an improvement over what we've had as of late.

I need the 2d and 3d to transition to positive territory in order for me to start buying.  The 5d will confirm either the same day or the next day.  There's a significant edge to catching this timing correctly:


The data used to create the table above spans from September 2008 to present.  The table above shows the number of buy signals that went on to yield a positive GGT index value (closely correlated to the Russell 2000 index or the ETF IWM) by the time a sell signal was generated.  Right now all the LCR slope moving averages are RED, which means they are in cash.

Let's suppose that the 2d does transition positive, but the 3d and 5d remain in the red.  The table above tells me that when the 3d transitions to positive (but not the 5d), that 71% of the time the GGT index, if it could be bought at today's close on the next day, would remain above the waterline for the rest of the signal.

Now, let's suppose that the 2d and 3d transition positive, but the 5d remains in the red.  On the next day when the 5d turns history tells us that 43% of the time that trades placed on the next day will end positively.

If the 2d, 3d, and 5d transition all at the same time, then 38%-40% trades placed on the next day (in the GGT index only) work out with a positive return until the next database sell signal.

Since I typically start selling long before the database issues a full sell signal my methods typically improve on these stats, but these are "worse case".

Note that the longer I wait to enter the market after the signals transition the poorer the entry does over the long haul.  This makes sense -- it's the initial rocket off the bottom that causes me to establish gains, not later after money has already rushed in and profits (selling) are being captured.

You can see from the table above that re-entry, once a signal is mature, can also be hazardous to your portfolio unless it is done carefully and in context.  Let's say that everything was "green", then we moved (temporarily) red on the 13d time frame (and everything shorter).  If we return to "green" on the 2d - 13d, with the 21d-65d already being green, buying on the day after the signal only works 14-19% of the time.  This means that 86%-81% of the time the signals fail when taken late in the cycle.  Food for thought.

For me, initial buying will start with the transition of the 2d and 3d.  I'll start ramping up fast when the 5d goes, but only to 50% invested, as I'll presume that the intermediate and long-term timers will still be in cash.  I'll increase to 75% when the intermediate timer goes long, and then to 100% when the long-term timer goes long.  With rare exception all the slopes will be green by the time the intermediate or long-term timers transition.  It typically takes me about 1 week (5 trading days) to go from full cash to fully invested, but of course, this is dependent upon the timer transitions.

Cumulative Tick Chart:


This is a slightly-different view of the cumulative tick chart than what I normally provide.  This one breaks apart the stocks of the SP500 (left), Russell 2000 (middle) and the NASDAQ.  The overall format is the same as my broad cumulative tick chart, which I'll present below.

In the above figure the SP500 ended the day with some strong buying, which I view as positive if you're in the SP500.  On the other hand, the Russell 2000 and the NASDAQ saw selling for a good portion of the day, which is NOT a healthy market.  Although the indexes were up Friday, the chart above proves that it was largely window dressing on the large-cap SP500, and the small-cap R2K and NAS both saw net selling.

Buyer beware if you are considering anything other than the SPY or options tied to the SPY.



Here's the more familiar cumulative tick on the NYSE.  52 Week New Lows still are outpacing the 52 Week New Highs, but at the smallest level all week, so while bad overall, this is the right trend.  Look for green over red for a more healthy market.

Overall, we had net buying in the markets on the NYSE on Friday.  This is good, and we need more of it, or at least, less net selling.

The bottom graphic is important as it shows improving conditions, but we are not out of the woods yet.  First, the slope on the longest moving average (red) is still negative, but it is less negative than the previous few days.  The real-time cumulative tick (white) is very close to crossing the red line from below, and this is absolutely required to turn the red line positive, and get the rest of the ribbons to turn upward.  Hence, we're much closer, but we are not there (yet).

We may get sustained white-above-red starting on Monday, as we did back on 9/30, only to fail, or it may continue higher.  Your crystal ball is as good as mine.  While this does not influence my timer status it does impact how I perceive the markets, and white-over-red is required for me to move aggressively into the markets.

Equity Capture



The chart above reflects the change in equity since I went live with my various portfolios.  I'm still honing some of these portfolios, so past results are no guarantee of future performance.  I expect that, because of GGT recommendations of moving to CASH on future holdings, that the near-term equity curve will look like the left part of the curve (the curve does not report unrealized profits).  Note that the large jumps upward in equity are due to positions being closed when my model issues a sell signal or a partial move to cash.

TradeStation allows me to report on Mark-to-Market rolling analysis, so this gives a month-to date performance so that I can see where the system models are converging.  Note that these percentages presume 100% investment of cash, which is not correct since I scale-in/scale-out, so actual performance per trade is better than indicated.  At the end of the day all that matters is what is in the account, so perhaps scale in/out errors in the reported calculations are moot.

The account is up +8.49% since 4/1/14 with a profit factor of 2.37, which appears to have stabilized.  We'll see if I can keep this up going forward - it's a considerable amount of work.



Watchlist:


The table above is my "Greenfield" watch list.  The stocks above the black line have solid fundamentals AND solid (recent) price performance.  The stocks below the black line have solid fundamentals BUT have been (recently) beaten down below their 50d MA.

Both sets of stocks are good candidates (in my opinion) for future gains when we get a new buy signal.  Indeed, some of the stocks in the top section are already breaking out (take a look at FNHC, CP, BABY, EW, KNX, AGN).  These early breakouts rotate depending upon the market, so if the market tanks here, expect that these too will see some hit.

Nevertheless, here are links to the two sets of stock files so that you can do your own diligence:

Greenfield Stocks:   http://goo.gl/iExJR2

Greenfield Bargains:  http://goo.gl/wFa0Wi

Strategy

No buying planned for Monday.  With the exception of my holding ABT, these stocks self-trigger using the GGT timing recommendations.  My present holdings in the only portfolio that is active -- the GGT Dividend Players Portfolio -- are:


I'm looking specifically at adding to all of these positions as well as adding TJX, NKE, PLOW, NVO, PEP, MCD, CBRL and BLK.  My addition/new position strategy is to buy strength, and I will only buy if the price after 9:40-ish a.m. takes out the previous day's high by 0.1% AND the purchase price is higher than this threshold.  I'll say it again -- I buy strength, not bargains.

As I said, ABT is a holdover from a different portfolio and somehow the sell order got cancelled and had to be re-initiated.

Late Monday is a travel day, and I'll be on the west coast all week.  There will be no blog entry Monday night unless we have a signal to move long.  Check Twitter (@grems8544) if you are interested in tracking the next signal (along with my other ramblings).

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As with all my postings, you are responsible for your own decisions and I am not.  Please take ownership for your actions, please do your own diligence, and above all, please understand WHY you are doing what you are doing.

Regards,

pgd