Sunday, March 1, 2015

Short-term Timer Transitions to CASH - Feb 27 Close

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Summary:  the short-term timer has moved to a CASH status, requiring that exposure to equities be reduced.  Cash target levels are 25% - 33% (66% - 75% invested).

Timer Status:

Short-term Timer:  New Cash
Intermediate-termed Timer:  Long
Long-termed Timer:  Long
Long-Cash Ratio:  1.602, falling for 4 of past 5 days

Here's the Timer Table:

Commentary:  As stated above in the Summary, the transition to "New Cash" in the short-term timer suggests a short-term defensive stand.  The transition is from 100% invested to no more than 66% (if conservative) or 75% invested (if more aggressive).   If you are really conservative there is no reason that you couldn't raise 50% cash, but until the other longer-termed timers transition, I wouldn't go any lower than 50%.  The "Long" status of the intermediate and long-term timers suggests that we are still in a rising market, but this could easily change if the short-term trend downward continues.

The falling LCR is normal once we have achieved a local top and is indicative of digesting recent gains.

Long-Cash Ratio Slopes:

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

Commentary:  The -10% drop in the LCR on Friday, February 27th is notable in that it's the largest one-day drop since 1/30.  I have no idea if we will continue lower from here -- your crystal ball is as good as mine -- but the drop is notable in that it caused the 2d-13d LCR slopes to all transition to negative.  This is what triggered the short-term timer to a CASH status and should not be ignored.

You can see that the right side of the table has a good level of red -- we've been decelerating for a number of days, and the action last week simply confirmed what was going on.

Cumulative Tick:

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

Commentary:  For all intensive purposes we're still in a buying market.  I base this statement on the solid red line that goes from lower left to upper right -- this is a day-over-day buying on the NYSE.  If you're not familiar with what a "tick" is you can read about it here and about the cumulative tick here.  This red line is a simple moving average of the cumulative tick and it shows that more stocks are being bought than are being sold.  The solid white line is (generally) above all the other moving averages, so they are being pulled upward.

Until the cumulative tick indicator reverses there will not be a clear confirmation of the downside.

With the LCR pullback, and the cumulative tick lower-left/upper-right, we have a weak pull-back and this suggests that we should remain in the markets, at least for Monday, March 2nd (and probably longer).


As I indicated in my webinar that I conducted today (Sunday, March 1), I intend to sell positions that are 1) underwater, from the weakest to the strongest, until I have raised at least 33% cash, and if I exhaust those prior to reaching 33% cash, then 2) the weakest positive-performing holdings.  Whether you choose 25%, 33%, or 50% is up to you, but my rules suggest that raising some cash would be prudent.

My underwater positions only total 9.2% of my portfolio.  Hence, I need to cut into my winning positions.

Selling positions is tricky, so here's what I have done to take the emotion out:

1) It does not make sense to sell portions of positions -- the bookkeeping becomes a royal PITA.  Hence, sell the full positions, which makes basis calculations a bit easier.
2) For the positions that are underwater, I have placed a 1% trailing stop loss (TSL), good-'til-canceled (GTC), effective after 9:45 a.m. ET on Monday, March 2nd.
3) For the positions that are above the water line I have placed orders for a 1% TSL, GTC.

If all orders execute Monday then I'll be almost to 34% in cash.

We'll look at Monday's action and determine what to do on Tuesday.  As I write futures are up slightly but the Nikkei is down -0.4%, so don't try to guess the markets.

I have no intention of buying any stocks on Monday, period.

Orders are placed, so there is nothing to do for Monday.  I doubt that I'll check the markets except for curiosity ...


Thanks to those who attended the webinar today.  The recorded video is in the Dropbox folder.


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