Sunday, March 13, 2016

16MAR11 Weekend Update

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Summary
The ECB's actions this past week placed a "Put" under the market.  This being said, we are overbought from a Leaders perspective, but still have some room to move with respect to other classes of stocks.

VLOG

I've prepared a video blog for those who want to view on their electronic media.  It's 54 minutes long, so grab your favorite beverage and relax.  The text that follows the video highlights some of the areas I touch in the video.

UPDATE:  YouTube downsamples the quality, so here is a link to the MP4 file on my Dropbox file system.  


  1. Click the link:  https://goo.gl/c1K7rR  
  2. In the upper RIGHT corner, click the "Download" then "Direct Download" option to bypass YouTube.




Market Leaders -- Short Term Resistance Apparent

I define market leaders as those that are growing REVs and EPS on a quarter-over-quarter (QoQ), trailing 12-month (TTM), and year-over-year (YoY) basis.  These stocks must also be trading in the upper 25% range of their yearly movement, and the 50d MA > 150d MA > 200d MA.  Volume must be at least 100K share average for the past 3 months.

When you apply that filter, you end up with the following basket:

Click on the image to enlarge

The list of Leader stocks is available in my Dropbox "stock" file, If you are not a subscriber to my Dropbox (free), then directions are below on how to become one.  The table can be found on the "Watchlist" tab.

These are all good stocks, and the have consistently been performing well within this market.

When I take that basket and create an index using HGSI, I get the following:

Click on the image to enlarge

I think that this is a really important graph.

The "Leaders" became leaders back in late January, when they broke out and started to pull their related moving averages upward.  At the same time the 13d and 34d moving average slopes crossed and turned positive, which is bullish.  Additionally, the MACD histogram also moved positive in this time, and has been positive since then, except for Friday, March 11.

There are a few take-aways that you need to study from this graph:
  1. the MACD histogram has turned negative.  Conclusion:  momentum of this basket of stocks is waning.
  2. the slope of the 13d MA (price) has now moved below the slope of the 34d MA (price), but both are still positive.  Conclusion:  on a shorter-term basis, capturing some gains may be prudent, as prices are under pressure.
  3. the highs of the index, starting back on 2/29 and continuing through 3/11, are hitting resistance.  Conclusion:  the leaders have most likely run as far as they can on this present leg.
Note:  this is a short-term observation.  If you are a long-term holder then all this means is that the paper gains in your portfolio could drop a bit.  I personally believe that we're good on a medium- and long-term basis.

In support of that last statement, I offer the following:

Greenfield Dividend Stocks -- Long Only

My stock classification system throws stocks into two major buckets:
  • Long:  these are stocks that are outperforming their historical averages and are doing so on increased volume and prices
  • Cash:  these are stocks that are underperforming their historical averages and are doing so on lower prices and perhaps lower volume
I think we would all agree that dividend-paying stocks are typically viewed as safer than non-dividend-paying stocks, largely because dividend paying stocks often are from companies who are larger, more well established, and are often considered medium-to-large caps with respect to overall market capitalization.

I further restrict my dividend-paying universe to stocks that are showing QoQ, TTM, and YoY improvements in REV and EPS.  Further, dividends must be constant to accelerating on a YoY basis, meaning, this year the stock must be paying at least the same dividends as they did last year, and preferably, a higher dividend this year than last.

Finally, I restrict by dividend stock list to those that are "Long", as defined above.

When I do this, and again, I load the list into HGSI and create an index, we get the following:

Click on the image to enlarge

While you may think this looks like the previously-shown Leader's graph I urge you to look closer.  Your take aways are these:
  1. The MACD Histogram is still quite positive.
  2. The slopes of the 13d MA (price) and 34d MA (price) are positive, with the 13d > 34d (bullish) -- overall price appreciation
  3. The index is trading well above it's 200d MA -- longer-term bullish
  4. The index is trading well above it's 13d MA -- short-term bullish.
  5. The index started it's breakout much later than the Leader's index, showing that longer-termed investors needed confirmation of this market cycle before they moved off the sidelines.
While the Leader's portfolio is to be considered a momentum portfolio, the dividend list that comprises this index can be considered a true grouping of solid dividend-paying stocks that is somewhat isolated from momentum concepts.  What this means is that most investors in dividend paying stocks are there for the longer-term, so the late movement into these stocks, realative to the Leaders list, and the continued upward performance of this list suggests more staying power for the markets, vis-a-vis the Leader's portfolio, which is showing weakness.

This being said, there are a couple of highs over the past two weeks which appear as the same type of resistance that we saw with the Leaders index.  Friday was a breakout day, so it is possible we will continue higher with dividend paying stocks.

A full list of the dividend paying stocks is too big to post here.  A shortcut to the file is here.

Timer Table

Supporting the statement that a broader move upward may be underway is that my timer system has just confirmed that I should seriously consider being 100% long in the present market, on a short-term, intermediate-term, and long-term basis:



While I like to see this, we are at extremely overbought conditions:

Click on the image to enlarge

The Percent Longs chart tells me how many stocks in the database, on a percentage basis, are rated "Long".  We've moved from single-digit values in January to over 72.7% in March -- a large change for a short period.  I would not be surprised to see some weakness in the next week or two, and I will use that weakness to add to as well as establish new positions.

Ideally, I'd like to see the Percent Long chart drop back into the green zone, but that may be too much to ask for the strength in this market.  At a minimum I will wait until the Percent Long value drops below the solid red line, which is one standard deviation above all the major turning points (the solid red line is currently at 63.3%; the bottom of the pink zone is at 54.9%, which is the average of all the turning points).

Strategy

I'm waiting for "red" to appear on the right side of my Long-Cash Ratio (LCR) table:


Click on the image to enlarge

I talk about this table in the VLOG so watch it for more details.

The right side shows the slope-of-the-slopes, or acceleration, of the number of stocks transitioning from Cash to Long (movements in the LCR indicator).  You see some red on the right side, and the corresponding rows on the left side of the table are still green.  This is good -- we have a slight pullback but not enough to lose the momentum in the markets.  Friday was a strong day, it basically reset us to move upward, so we're not set up for entry on Monday.

I added to only a few positions this past week and while the incremental portions are up, I think I got lucky.  I seriously think we are quite overbought here and I'm intending to wait until we drop below 63.3% longs before I aggressively add to positions.

I need to see "new" red on the right side of that table before I will get my buy list together.

I buy strength, not weakness.  Period.  There are no exceptions to this rule.

I do not buy with a limit order.  I buy with a BUY-STOP order.  This means that the stock must move past a higher level than the previous day before I purchase.  If the order never fills and it is the end of the day, and I'm still interested in the stock, then I lower the BUY STOP to a new level.

I never buy at the open.  I always wait for the book to clear, so I never place orders that activate before 9:45 a.m. ET.  There are no exceptions to this rule.  Same goes for selling.

I only buy GGT Long-Rated stocks.  Period.  I can't think of any exception to this rule.  You can get access to about 3000 stocks and 500 ETFs by subscribing to my Dropbox folder.  Instructions are below.

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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