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The Long-Cash-Ratio (LCR) has fallen into the single-digit measurement range, indicating incredibly oversold conditions. Acceleration indicators are not plunging downward but are starting to ease and show mixed movements upward / downward depending on the analysis time frame. It's only a short period of time before we see broad market participation regarding buying.
What is the LCR?
The LCR is an indicator that I created that compares the number of stocks in the database that are rated "Long" to those that are rated "Cash". It is a ratio, so in today's example, we presently have 260 stocks that are in some form of "Long" and the rest (2762) are in 'Cash". This is a ratio of 260/2760 or 0.094. Stocks assignments are adaptive to individual market performance (price, volume, price rate of change) so the individual stocks are evaluated first, then aggregated together to form the LCR. The global behavior of the stocks in the database in no way influences the individual stock recommendation -- this is performed in a "brick-by-brick" analysis and a big summation sign is put in front of all the stocks. This makes the LCR superior to other methods of understanding market behavior.
Single-Digit LCR -- What does it Imply?
Simply, it suggests that this could be a good buying opportunity, although there are limited observations using the approach described below:
1) Buy the GGT index (looks most like the ETF VTI, or Vanguard Total Index) at the closing price the following day the LCR index enters single digits.
2) Hold the GGT index until the LCR index moves back above parity, that is, when the number of "long" rated stocks exceeds the number of "cash" rated stocks.
There have been 3 of these events since 2009. All have made money. All take a bit of fortitude because every one has dipped from the buying point to underwater before they recover.
- New Long -- previously in some form of "cash" recommendation, these stocks *just* converted to "long" recommendations on higher volume AND price. These stocks are attracting attention in the present climate. They may be undervalued, overvalued, or have something else going on with them -- all that I know is that they are appreciating in price and doing so on higher-than-average volume.
- Affirmed Long -- previously in some form of "long" recommendation, these stocks are moving higher on combined higher volume and prices. These stocks have already been firing on all cylinders, and these stocks are showing strength in the present market. These are what some people call "leaders".
- Long -- These stocks are in some form of long but do not have enough downward price pressure to kick them into "cash". They could be moving upward or downward, but are moving in a low-volume environment. Specifically, there is not enough downward forces to drop prices dramatically, and there is not enough upward demand (due to low volume) to drive prices higher. Higher volume on these stocks would kick them up to "Affirmed Long", while severe dropping in price, with or without volume, would kick them into "New Cash".