Sunday, November 23, 2014

Potential Buy Signal - History Says Avoid. Close of Nov 21

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Overview:  The Long-Cash Ratio of 3000 stocks is reversing to a buy status, but history says to avoid this signal as it generally fails.  Holding at 50% equity invested at the present time.

Timer Status:

Short-term Timer:  New Long as of November 21 close
Intermediate-term Timer:  LONG
Long-term Timer:  LONG
Long-Cash Ratio:  Rising 8% from 1.249 to 1.346, indicating that for every 1346 stocks that are rated "LONG", there are 1000 that are rated CASH.  We have been rising two days only.
Percent stocks that are rated long:  57.4%, up 1.9% over Thursday

Here is the Timer Table:


Note the "Avoid Adding to Posn" recommendation.  This stems from backtesting this system over the past 8 years, and when this condition has occurred in the past, the GGT index has only risen in one out of five times, or about 21% or less.  Buying stocks with these conditions is prone to failure 79% of the time.

Slope Table:


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

The left side of the slope table shows that we've had two consecutive days of the Long-Cash Ratio (LCR) moving upward.  This has caused the 2d and 3d moving averages to develop a positive slope, as indicated on the left.  Note that the 5d, 8d, and 13d are still negative, although the transition of the 21d from RED to GREEN is a move in the right direction.

Note on the far left that all the slopes of the slopes, or accelerations, are positive.  This is good, and we need more green on the right in order to turn the left side of the table green.

It's prudent to get a shopping list together, but it is not prudent to move into the market at this time.

Cumulative Tick

The markets have been struggling the past week:


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

Friday's buying/selling activity did not match up with the performance of the major indexes.  At (1) you can see that the market actually started to sell off, and it sold off most of the day.  (2) is ominous because the moving average ribbon began to invert -- the shortest period moving averages moved from the top of the graph to the bottom, which is not good.  Selling was abated later in the afternoon, at (3), but you can see that net-net, we were far below where we started the day.

This is not a robust bull market, and re-entry on Monday is ill-advised, especially with the instantaneous white trace below the longest-period moving average (solid red).  I don't buy stocks when this is the case.

Equity Capture


The signals to move to 25% then 50% cash over the past couple of weeks have allowed me to capture significant gains as well as pare some serious underperformers.  A large position in AKRX, combined with a slam at earnings time wiped out nearly $20K in paper profit, and the resulting GGT "NEW CASH" signal on the stock forced me to sell it well under my purchase price.  Despite this, the upward slopes of all the little trades from that time (about trade 1050 onward) show that the overall process works well.  Green dots indicate new equity highs.

On a month-to-month basis, I'm looking at the following:


The dip from 10/14 to 11/14 is due mostly to losses in AKRX and ATHM, and is also due to where the calendar falls.  Overall, the lower-left/upper-right slope is what we want, and presently, the system is on track to deliver an annualized 14% with only 2% drawdown.  Win/loss ratio is 2.23, and fluctuates between 1.8 and 2.5 (so far).

Go Forward Strategy

The Friday after Thanksgiving is typically very strong, and it pays to be invested in the market.  This being stated, the present setup with the Cumulative Tick is quite poor, and until the LCR slopes all turn green (positive), and the Cumulative Tick Ribbon turns positive on all measured time frames, I'm going to hold at 50% cash / 50% equity.

By the rules, the transition of the Short-Term Timer to New Long as of Friday's close is the signal to move back into the market.  With the Intermediate-Term Timer also Long, the rules state that I should be trying to get to 100% invested.

The number of quality stocks passing my screens is actually quite small -- I would expect many more than this in a really robust market.  Here's the list of stocks that are "leaders" according to my criteria:


Here's the symbol list so that you don't have to type:

AMBA
ANIP
BFR
BIDU
BITA
CAVM
CORE
ECHO
EPAM
HDB
HOLI
LEAF
MDXG
MFRM
NRF
PLNR
POZN
RFMD
RH
SAIA
SAVE
SKX
SMCI
STRP
SWKS
UA
UEIC
URI
UVE
ZUMZ
ATHL

All of these stocks are solid performers and I'm watching for breakouts.  You can check the GGT Stock file to see if they are rated Long or Cash.

Other stocks that are on my watch list that could become leaders, e.g., they are rotating into this position and have only one or two issues going on, are:


Again, here's the symbol list:

FB
ICLR
LCI
LTS
ATHM
ENPH
APT
SANM
HCLP
DXCM
DANG
AFSI
AGIO
GBX
KR
PPC

The top of this list really has my attention:  FB, ICLR, LCI, and to some extent, LTS, ATHM, ENPH and APT are all within striking distance of becoming leaders.  It's worthwhile to watch them, and I do.  The others on the list, mostly with yellow, are pushed to the bottom only because TradeStation does not have relevant data as of this analysis -- this generally clears when the market opens

I'm not a buyer on Monday.  I'm watching these two groups -- I have alerts set to ring my cell phone when they trigger, but I'm not a buyer.  Again, I need the Cumulative Tick and the LCR slopes to all be positive, and they are not.

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As with all my ramblings, you are responsible for your own decisions and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

pgd