Tuesday, April 22, 2014

April 21 2014 - Short Term Timer Confirms Long

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My short-term timer has confirmed a move to the long side; the intermediate-termed timer is "mixed" (I'll explain that shortly), and the long-term timer is still in cash:


Although the short-term timer moved long with Friday's action, it was a weak signal and was not confirmed.  Monday's action confirmed it, at least to the extent that the short-term trend is intact.

First order of business:  how reliable is this timer?

It's a short-term timer, so you have to be agile.  If you can't move intraday, then it's probably not for you.  Here are the stats:


This is not a stellar timer because it takes every signal.  Hence, the 45/53 win/loss record.  Despite this, it does have a good expectation of making money over the longer term (ME = 0.56 > 0 ---> positive means money maker), and the SQN value of 2.44 means that it outperforms random chance (random chance ~ less than 1.7-ish).  I'm not betting the farm.  I'll commit no more than 25% of my non-TSP monies to this signal, and I'm going to do it in a liquid ETF.  Which one?

GGT is an equal-weighted index comprised of nearly 3000 stocks.  It behaves differently depending upon the focus of the markets, so keeping an eye on how it is performing relative to the markets is important to me.  To do this I look at the VTI, SPY, QQQ, and the IWM.  The VTI is literally the total market index, the SPY tracks the S&P500, the Q's track the NASDAQ technology stocks, and IWM tracks the Russell 2000.

Here's the latest correlation matrix between the GGT index and the VTI, SPY, QQQ, and IWM over the past 34, 65, and 100 days:



What this is telling you is that on a performance basis, the IWM and the GGT index are tracking each other incredibly well over the last 34d, 65d, and 100d.  A value of 1.00 would be a perfect score -- a value of 0 is no correlation.  Values of 0.957 - 0.976 indicate that there have been no "disconnects" between the two, so the choice is simple:  IWM.

I plan to purchase IWM in my accounts, not to exceed 25% of my holdings.  I'll hold onto this position until the short-term timer signal reverts to CASH.

For the math to work, I'll want to enter at last night's close of $113.45 or lower.  Hence, I'm setting a buy limit of this amount.

From the timer statistics table above, if this is a winning trade, I have a reasonable expectation of making about 3.49% on this transaction.  If this is a losing trade, I have a reasonable expectation of losing -1.46%.  Your crystal ball is as good as mine.

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The timer statistics table also indicated that the intermediate timer has moved to "Mixed".  What does this mean?

Mixed means uncertain.  Internally, there are a number of conditions that are necessary to move the intermediate timer to "LONG".  When these conditions are met in part, but not 100%, we have a mixed condition.  We see mixed status when the signal is weak -- when the market is at thresholds and not moving aggressively one way or another.  It's also a cautionary time, as the market is not confirming a move.

Volume yesterday (Monday) was incredibly low -- 25% below the 50d average for the GGT index.  So while the GGT index was up +0.34%, the volume that moved us here was not confirming.  Whether folks were still on Easter holiday or whether they are on the sidelines if for you to guess.  When trend-following systems lack on volume, noise creeps in, and this is what we have now.

The "Mixed" signal is just that -- we need price and volume action to confirm movement.  We're not seeing it -- only price -- and hence, the yellow flag.  Tread carefully if you decide to move long in this market.

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I am quite some distance from committing 100% of all my available monies to the market.  The main "gate" on my decision process remains with the 13d/65d timer "gate", and this is still in the "off" position, effectively blocking any full-scale commitment.



Critics are writing me telling me that I've missed the last run-up.  No, I haven't because I'm not a short-term trader.  My systems are designed for the longer-termed horizons, and for now, it is better to wait for the long-term trend to recover.  This 13d/65d signal is incredibly simple:  it looks at the difference of the 13d/65d MAs:


Note that it's negative, and until it turns positive, I'm mostly on the sidelines.  The risk does not justify moving long with 100% of my monies at the present time.

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Recapping:  I intend to move long in the ETF IWM with no more than 25% of my monies at a price limit of $113.45.  I'll stay in that position until the short-term timer transitions to CASH.

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

Regards,

pgd

Saturday, April 12, 2014

April 11 2014 Long-Term Timer Signals a Move to Cash

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Read here first, then come back ...

All my timers are now in cash with the close of markets on Friday:


Note that this latest transition of the 13/65 day MA timer could be "late", e.g., the markets recover on Monday and shoot upward, or it could be the start of something relatively painful.

As this timer is my last line of defense, I'm out of the markets as of the close of business on Monday.  I have placed orders on all accounts that I manage to move into cash or cash equivalents.

My performance this year has been flat.  Our TSP account is up about 3% for the year to date.  One of my equity accounts is up +1%, while another is flat.  For the accounts that I manage, I'm down between -1% and -4%.

The NASDAQ index is performing the worse of the major indexes and is rapidly approaching the 200d MA.    It is below the 20d and 50d MAs, if it doesn't find support there it will be ominous for the longer haul.  Our close Friday at 3999.73 now sets a mental resistance at 4000 AND the 200d below at 3936 isn't too far away at about 2%.  The fact that the 20d MA is below the 50d MA is a problem all onto itself -- this is a huge boat anchor going into this earnings quarter.

The DJIA is also in the same shape, with the 20d MA below the 50d MA.  Next stop is the 200d MA which is only 2% below present value at 15,747 (we are at 16,026).

The S&P500 is holding up the best, relative to the three.  It closed at 1815.69, and the 200d is sitting down at 1761, about 3% away.

These are major support levels.  We will test them once or twice and if they hold, we'll see a good buying opportunity.  If they do not hold, well, "sell in May and go away" ...

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With respect to buying, it's too early.  This being stated, I always keep track of what I would buy if a signal occurred tomorrow.

Here's my "green screen":



As always, right click on the image to open in a new tab or window.

As a group these are holding up nicely.  As a larger group, e.g., the one that existed last week, these are the remaining survivors.  Last week saw nearly 100 stocks on both lists, now you can see the full list above.

Stocks of this quality will most likely comprise the new leadership once the markets turn (or more accurately, stocks meeting the green screen criteria will be the first to break out -- not THESE stocks per se).

Compare these two charts.  The top is chart is the performance chart of all stocks meeting my fundamentals screen but failing the moving average criteria (e.g. quality stocks that have been hit very hard in the last couple of weeks) vs. those stocks that meet both my moving average criteria as well as the fundamental criteria:

Probation:


Winners bucking the trend:


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

Of course, you'll want to pick stocks that comprise the bottom chart when the next signal comes.

If you want to subscribe to this list simply send me an email at pduncan [at] vt {dot} edu with the word "SUBSCRIBE" in the subject line and I'll add your email address to the Drobox access folder.  You'll also be forced added to a Yahoo! group called GGT, as I need to communicate with the dropbox subscribers from time to time and that is the only way I can do it.

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As always, you are responsible for your own investment decisions and I am not.  Do your diligence, take ownership for your actions, and make sure you think through your action in terms of your long-term goals.

Regards,

Paul

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?


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

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:



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

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:



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

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.


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

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:


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

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:


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

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

Wednesday, April 2, 2014

New Long Signal for 4/2 Entry

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A technical glitch delayed my analysis until late this morning.

With the close of markets on Tuesday, 4/1, my intermediate timer has signaled that I should enter the market today on the LONG side.


The table above shows the performance statistics for this timer since 11/21/08 and overall, it's a good signal when to get in to the markets.  It's not perfect, but no system is.  The important thing is to have a system.

I'm watching the following stocks closely this morning and any breakout, then rebound off the VWAP (Volume Weighted Average Price) will most likely force me to take the bait.  There have been numerous entry points the past two days.


MTRX
FEIC
WX
SBNY
AIRM
MNTX
OSUR
PVTB


Here's what that looks like for a stock on my list, PVTB:



Another stock on my watchlist that I didn't get into (darn) yesterday was HPJ:


My combined leaders list is part of my Dropbox share folder and nightly GGT postings, so if you subscribe, you should be able to use my information for getting into some quality positions.

Projected volume for today needs to be estimated to be over 200% of the largest down-day volume over the past 10 days (a Pocket Pivot).  If I see a breakout on low volume I won't bite.

To put this in perspective, FEIC floated around 700% volume all day and was up nearly 3%.  Only in the last hour of the day did volume jump to over 1800%.  I have a position in FEIC.

The distribution counts for the major indexes remains high across the board.  I don't like jumping in with both feet when this is the case, but my system does not account for distribution count in terms of dollars to commit:


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

But, with the DOW and the SP500 closing at new highs, the momentum cannot be ignored.

In full disclosure, I presently hold positions in the following equities:

FEIC
SAVE
TRN
WDR
GBCI
MCO
HP
AEL

All positions are in positive territory.  My stops are relatively tight so if the market reverses I'm out again.

I have day-limit orders pending at the open this morning on the even 100-share boundaries so that they are easy to pick up.  If executed, they will be at deep discounts to their close.  I give it a 50/50 that they will execute.

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As always, do your own diligence, and take ownership for your actions.  You are responsible for your efforts, and I am not.

Regards,

pgd