Monday, January 11, 2016

Ending last week on a selling note - no buying on Monday

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Summary

We are in the correct "zone" to buy, as prices are certainly oversold.  This being said, there is room to fall from here, so until we get some indications of internal buying, cash is king.

Cumulative Tick

We ended the week with Friday being somewhat neutral as far as the algorithmic buying/selling is concerned but the retail components certainly continued to sell, especially into the close:


Click on the image to enlarge.

The top plot shows 52-week new highs (green) and new lows (red), and you can see the net in yellow.  New lows dominate, net is negative, and the bottom line is that the markets are being sold hard here, causing stocks of the NYSE to hit these new low points.  While a bottom-feeder's paradise, I don't bottom feed, so this is not a good climate to buy stocks.

The middle plot is more/less horizontal.  This represents computerized buying/selling, and the bottom line is that we see net neutral for most of the day.  A bit higher than neutral, a but lower than netural, but more/less neutral.  Nothing remarkable here -- no sustained buying/selling as far as the programs are concerned so the markets did what they did due to manual actions.

The bottom plot is where the money is, or specifically, where it isn't.  It isn't flowing into the markets -- it's flowing out.  The net for the day was negative, showing net selling.  Furthermore, the risk of the weekend is apparent -- the markets sold into the close, which is bearish in the sort term.  Everybody was unwinding positions into the weekend, most likely to remove headline risk from their positions on Monday morning's open.

The negative slopes on all the moving averages tells you money is flowing out.  Until we see the white cross back above red from the bottom upward, it simply is not worthy of our effort to be in this market from a momentum perspective.

The chart shows a bearish cumulative tick pattern and the markets are continuing to be sold from an internal perspective (at least on they NYSE).

Per my comments last week I have moved to the sidelines and I have raised a considerable amount of cash.  Very little of my portfolio is invested -- most is in cash.

Long-Cash Ratio (LCR) Table

The following table tells me that Monday is not a buying day, despite the oversold nature of the markets:

Click on the image to enlarge.

The left side of the table shows that the long-cash ratio (LCR) value has fallen to 0.193, indicating that for every 1000 stocks that are rated in some form of "cash" (avoid)  status, that 193 are in some form of "long" (okay to hold as far as price action is concerned).  Friday's move was another 24% drop (day over day) of the LCR, and this was the 121st strongest drop since 2008.  Again, significant, and there is acceleration to the downside.  Not a good buying climate.

The middle of the table shows a sea of red.  These are the slopes of the moving averages of the long-cash ratio, and the multiple time frames tell me what is happening on a short-term, intermediate-term, and long-term basis.  In all time frames the market is contracting -- stocks are being sold -- and hence, Monday is not a good buying opportunity.  While we are nearing a floor, we haven't achieved it yet, at least from the LCR slope perspective.  The number of stocks that are falling into a "CASH" ranking continues to dominate the database of 3000+ stocks on a day-over-day basis.

Confirming this is the right side of the table.  The right side of the table shows acceleration, or slope of the slope, and the "red" on the right side indicates that there is strength into this day-over-day movement of stocks into a "CASH" ranking.  Until we see green appear on all time frames on the right side of the table we will not get green in the middle of the table.  We have *some* semblance of this possibility occurring on Friday, but not in a strength that is meaningful.

I need to see the right side of the table turn green before I will start buying this market.  This will turn the middle of the table green if it is sustained, which means prices are moving upwards on volume buying.  

Percent Longs in Database

All of this being said, I believe we are in a great spot for buying, no matter what your strategy:


Click on the image to enlarge.

The table shows the percent long-rated stocks in the database -- 16.2% -- and as you can see, when we get to these levels we are generally oversold.  The green area represents historical areas for buying, and the pink area the values where selling could be prudent.

Also note though that we're on the left-side of a downward pointing dip -- we need a bit of time to form a bottom then start moving upward.  This isn't to say that we couldn't reverse today  and start upward (futures are up as I write this Monday morning), but if history is any indication, we nee some time to really force the bulls out of the market and get some form of a capitulation.  We simply aren't there yet, and the LCR table confirms this.

Another good indicator that I have developed and used is the slope of the 8-day LCR:


 Click on the image to enlarge.

I have circled the present value of the 8-day slope of the LCR moving average.  It is pointing DOWNWARD, which means on a short time frame, we have more stocks moving to the sidelines in terms of recommendation than the opposite condition.  Until this indicator hits a bottom are reverses, I will not be buying.  There are rare exceptions to this rule but in general, you see what I see and it's not confirming any form of an entry for Monday.

Strategy:

I continue to unwind positions that are recommended as "New Cash".  Of my holdings, HCKT, LGND, LMAT, RNG, SFBS, and UVE are all flashing exit signals.

I've set my exit criteria and will be out of the positions if they hit their stops.  For those of you subscribing to the real-time alerts, you'll get automatic notification when the positions are exited.

For the non-Collective2 accounts, I will set a 1% trailing stop loss, GTC, effective after 9:45 a/ET and will forget about these positions until they either 1) reverse to a "New Long" recommendation or 2) are sold.

For the Collective2 accounts, I will set a 1% stop loss, GTC, effective after 9:45 a/ET and that will be adjusted upward (never downward) nightly until triggered.

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These recommendations are posted in a daily file that I attempt to share by the following morning with all subscribers. To review the stocks that you are holding and see how I evaluate them, 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 "vt.edu".  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, if the need arises.

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Here's how to find me:

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New Meeting Announcement

We will be holding a face-to-face meeting on 2/13/2016 for all interested parties at the following location:

Burke Centre Library
Room: Burke Centre Meeting Room 116K
Address: 5935 Freds Oak Rd, Burke, VA 22015
Library Phone:(703) 249-1520
Time: 10:00 AM to 1:00 PM
Meeting Start Time: 10:00 AM

I will attempt to stream the meeting audio, and perhaps video, as per past meetings, via GotoMeeting.  Attendance via GotoMeeting is limited to the first 25 call-ins.  The ability to do this is completely controlled by the library and I have no say in Internet access.

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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.

Regards,

pgd