Thursday, January 7, 2016

Never attempt to catch a falling knife...

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Yesterday morning, before the markets opened, I commented that the dip was being bought.  Yesterday's action did not continue that accumulation -- the falling indexes and the market being sold were pretty much in sync throughout the day, although the selling was not nearly as ferocious as the drop in the indexes would have you believe.

Click on the image to show a larger version.

The middle plot is most telling -- the markets opened with some strong, algorithmic selling, then maintained that area well into the lunch period.  I tweeted in the late afternoon that selling had resumed -- you can see the steady selling kick in around 2:30 p/ET and continue to almost 3 pm exactly, where we saw some buyers step in within the last hour.

The Cumulative Tick is showing that this market is under pressure, with some of the CT moving averages now with a negative slope.  Obviously, if this continues, we'll cross negative and the ribbon will look like this:

Click on the image to show a larger version.

This presentation, where the white crosses the red from above, would be my exit signal and would tell me to unload anything below the water line.  This presentation shows what sustained selling across all market segments looks like and when this occurs, we generally will not have any positions unscathed.

The presentation above is the equivalent of pulling the plug in the bathtub.


The Long-Cash Ratio continues to show solid bearishness:

Click on the image to show a larger version.

The LCR has fallen from 0.480 at the close of last year to 0.347 last evening, indicating that another 133 per 1000 stocks have fallen to the dark side (recommended CASH).  The trend, on all timescales, is down.

The middle and right side of the tables are bearish, and you can read entries from the previous three days here and catch up on what it means.

With red galore and no green appearing, I intend to keep my powder dry with no new buying.  I will not attempt to catch the falling knife.

On this thought -- the following chart shows that recent history suggests that we could continue down if the market wants to continue the exit through the doors:

Click on the image to show a larger version.

The chart shows the percent long-rated stocks in the database, and as recent as the past three months (since October 2015), we have precedence for strongly selling the markets from this position.  The blue trace is an equal-weighting of price of the stocks in the database and you can see that we are forming some sort of right-shoulder on a classic head-and-shoulder pattern.  You can also clearly see the lower highs/lower lows that were formed on the percent longs, which is not good for a longer-term market trend.  This being stated, there is a natural floor to how low things can go -- the bottom of the green zone and the right scale indicate that things can get much worse if Mr. Market wanted to get ugly.


Obviously, my short/medium/long-term timers are indicating that caution is prudent:

Click on the image to show a larger version.

The "green" Enter signal on 12/23 was not followed by a corresponding short-term "Long" signal until 12/29 -- and this was due purely to the lack of volume over the Xmas holidays.  The delay told me that the enter signal was tenuous, and with Monday's action of "Exit", the risk models are in full force to the downside and there should be no net new buying.  

As I stated above, the CT crossing the longest moving average from above would be my personal capitulation signal and the point where I'd move aggressively to a full cash position in all accounts, including my Thrift Savings Plan account.


Strategy Today:

1)  No buying.
2) A few positions that I own are indicating to exit:

AHS A M N Hthcr Sv Business Svc New Cash
HEP Holly Energy Lp Petroleum New Cash
LOPE Grand Canyon Ed Business Svc New Cash
NEON Neonode Inc Computer New Cash
NVDA N V D I A Corp Electronic New Cash
TNET TriNet Group Business Svc New Cash
URI United Rentals Business Svc New Cash
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 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.


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 "".  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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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.


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.