Monday, December 21, 2015

Weekend Update, December 18th Close

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Still No Buy Signal

For those of you who receive my real-time alerts, you know I've been slowly unloading positions as my GGT system indicates a transition to CASH for the individual stocks.  Last week saw continued weakness, despite the indexes going high then going low.  Underlying this volatility were clear indications that the big boyz and girlz were not participating, and hence, I stayed to the side lines.

Cumulative Tick

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Refer to other blog entries for more detail but here's what I'm seeing:

  1. Top plot:  52-week New Highs (green) and 52-week New Lows (red).  Red above green is less than ideal; more stocks are hitting new lows than are hitting new highs.  We are not in an expanding market at the present time (indeed - it's contracting).  Risk grows when this is the case, but so do buying opportunities (that risk/reward thing exemplified).
  2. Middle plot:  algorithmic buying and selling.  Flat line means lack of broad participation by the algos, in either direction.  Thursday and Friday were both flat, and as you recall, we had a fairly significant sell-off both Thursday and Friday, at least as far as the indexes were concerned.  THIS WAS NOT A BROAD SELL-OFF; I liken it to a retail whipsaw.  Even with Friday's quadruple witching options expiration we simply did not have the algos selling the market.  Volume was quite high Friday, so don't listen to the talking heads that everybody is on Xmas break -- they are not (at least as far as last Friday was concerned).
  3. Bottom plot:  Cumulative Tick plus moving averages.  White below red and horizontal for the past two days.  Markets are not buying nor are they selling, despite the indexes.  If you are invested in the indexes I feel sorry for your pain (note that my wife's TSP account is index driven). This plot tells me we are about to break -- either we will start to see movement to the upper right (white crossing red from below, which is bullish), or we will break further south (white continuing to drag all the moving averages down to the lower right).  Historically, we never stay in this position more than a couple of days, so I'm expecting a move either way.
Cumulative Tick Takeaway:  Institutionals are sitting pat and did not participate in last week's buying and/or selling frenzy.  There's a lesson here.

Percent Longs in Database

There are about 3000 stocks in my database.  Each is assigned a status -- broadly -- as either a CASH recommendation or a LONG recommendation.  The recommendation is based on a serious of individual optimized parameters (price, volume) for each stock -- the market indices do not matter.  When grouped together, I get a view of the actual market, not the market that is advertised on CNBC or other financial markets.  This is my own indicator and I could care less about what is in the WSJ or what the talking heads are saying.

When the number of LONG-rated stocks is high, relative to the number in CASH, the market has less fuel to move upward.  This isn't to say that buying in this zone is bad -- it simply means that risks of a reversal are higher.  Conversely, when the number of LONG-rated stocks is lower, buying opportunities are greater.  

Note that when the number is low we can remain low, and note that when the number is high we can remain high.  Here's Friday's chart:

Click on the image to open a larger version.

I've colored the chart above to show higher-risk (light red) and lower-risk (light green) areas.  When the percent LONGS is in the light green area, like now, we have a larger pool of stocks to choose from.  This is where we are currently in the present climate.  The actual value is 25.9%, and as you can see, historically, we're entering an area that has supported a rally up into the light red area.  Buying early during this period -- ONCE I GET A BUY SIGNAL -- has typically been better than buying aggressively when we're in the light red area.

Percent Longs Takeaway:  when I get a buy signal, I'm going to move fairly aggressively into the markets to capture the relatively low number of percent longs.  We're at a good time overall, but we need a buy signal.  See the next section.

Long-Cash Ratio Table

Related to the Percent Long chart is the following table.  When I take the number of LONGS and divide by the number of CASH-rated stocks, I get the LONG-CASH Ratio (LCR).  When I apply a moving average to the LCR -- actually a large number of moving averages -- and look at the slope or day-over-day change in the moving averages, I get s feel for the rising prices and volume increases in the database of stocks.  This is also known as the velocity of the LCR.  When I take the slope of the velocity -- the day over day change of how the LCR is changing on a day-over-day basis -- I get the acceleration of the LCR.

Click on the image to open a larger version.

The table above tells me three primary things:

  1. Left column:  RED means that it is less than parity -- more stocks are rated CASH than are rated long.  If you look closely, we're seeing a LCR of 0.349.  For every 349 stocks that are rated LONG, 1000 are rated in CASH.  That means that the market is getting beaten up, that there is lots of fuel, and that it pays to watch for buying opportunities.
  2. Middle area: Slope of the LCR moving averages (velocity).  Red means a negative slope, and as you can see, this is from the shortest of time frames (2d) to the longest (143d).  The database is contracting, which means prices are on the collapse for the entire database.  This is a negative velocity and means DO NOT BUY THE PRESENT MARKET.  
  3. Right area:  Slope of the slope (or slope of velocity, or acceleration -- all mean the same thing).  The right side just turned all red, again on all time frames.  Acceleration is negative.  For those of you who studied physics, if we have negative velocity, it's impossible to change to a positive velocity if acceleration is negative.  Think about it.  If the water is flowing out of the bay the boat sinks and will continue to do so until the water starts to change direction.  Only then will the boat begin to rise, not before.
If you look closely you can see that the action on Monday (Dec 14), Tuesday, and Wednesday looked fairly optimistic from the acceleration point of view.  We started to see green on the right, and this led to green for the first couple of measured periods for velocity on Wednesday and Thursday.  Note that Friday's action reversed it all -- effectively a reset -- so now I'm looking for solid green on the right side, which will precede green in the middle of the table.

LCR Table Takeway:  No buying on Monday.  With everything red, go Christmas shopping.  You are not going to miss anything in the markets today.

Shopping Lists

All this being stated, we're in prime shopping territory.  I have my lists ready, and they are comprised of quality stocks.  Some lists are better than others.

To view the lists (and individual stocks), you need to be a member of my Dropbox.  Send an email to pduncan [ a t} v _ t (dot] e du, fixing the address of course, with the word "DROPBOX" in the subject and I'll add your email.  I attended Virginia Tech many moons ago and it is my alumni address, so it should be easy to see how to fix the address -- simply use "".  I also ask that you subscribe to this list using the link to the left, as it's the only way I can communicate with Dropbox users.

Here are the cumulative group behaviors of the stocks in each of my shopping lists:

Active Buy List:

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The list is comprised of stocks that are "LONG" rated and that have a positive expectation of price appreciation.  The lower-left / upper-right (LLUR) group price action is desired.  The green above indicates that it is a favorable list of stocks.

If we get a buy signal this is my primary discretionary list of stocks to choose from.  I will move aggressively to buy every stock on this list if it still looks favorable.

Dividend Champions

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My Dividend Champions portfolio is experiencing considerable price pressure.  This being stated, they are quality stocks, and as you can see, when they dip they never stay "dipped" for any length of time.  Selection criteria is that the stocks must have constant to rising dividends, earnings, and revenues to make the list.  For most of the stocks in this list, they have been paying constant to accelerating dividends for at least 5 years, and some greater than 15 years.  Revenues and earnings are measured in terms of the present quarter compared to the previous quarter, as well as the present quarter compared to the same quarter one year ago.

Key here will be to hold the longer-term moving average on price as a group -- failure to do this will make picking the individual stocks more difficult (a rising tide lifts all boats).  Price appreciation is a secondary consideration of this portfolio -- this is a longer-termed portfolio whose goal is to provide dividend income first, then move on to price appreciation.

This is a "live" portfolio and you can subscribe to it at Collective2:

Greenfield Dividends:

The link has the good/bad/ugly performance since I started the live portfolio in June 2015.

I am raising cash in this portfolio.

Accelerating Dividends

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The Accelerating Dividends portfolio, like the Dividend Champion portfolio, is experiencing price pressure right now.  It has a significantly lower number of stocks available to it than the Dividend Champions portfolio, so it has greater price volatility.  This being said, the goal with this one is both income through dividends as well as price appreciation, and as you can see, price action has topped and the set of stocks is decreasing in value.

The selection criteria is the same as the Dividend Champions portfolio as a foundation (the Dividend Champions portfolio is the seed for this one), but one more set of criteria is applied -- the stock must be trading in the upper 25% of the 52-week price range.  If you want stocks to make new highs then start picking stocks that are close to making new highs....

I am raising cash in this portfolio.

Greenfield Leaders

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The Greenfield Leaders group is doing well, as you can see in the graphic above.  Historically, this portfolio does well, but presently, it is seeing some pressure.

If we get a buy signal I will move aggressively to fill this portfolio.

Greenfield Low Beta

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The Greenfield Low Beta portfolio is on the ropes in the present market climate.  The group behavior is showing lower lows and lower highs, which is bearish.    The portfolio is designed to provide lower volatility than the S&P 500 but have a higher potential gain, and in 2015, I've failed to achieve that goal.  The chart above shows why this is the case, at least over the past month or so.

I am raising cash in this portfolio and as you can see above, if we drop much lower, there is little support to keep prices high with the current list of available stocks.  While these are quality stocks, they do not necessarily pay a dividend, so incentive to hold drops.


Here's how to find me:

Stocktwits/Twitter:  grems8544

Greenfield Dividends:
Greenfield Leaders:
Greenfield Low Beta:


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