Wednesday, March 9, 2016

Calling the short-term top, close of March 8th

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Summary
With the close of markets on Tuesday, March 8th, I'm calling a local top.  We've been rising in terms of the number of stocks getting a "new long" recommendation for a number of weeks, but the day-over-day amounts are decelerating.  The actionable thing here is to look carefully at your portfolio and if you bought stocks when I did, around the 12th of February, if any of those stocks are underwater, there should be some serious research on whether you are a long-term holder or attempting to ride short-term waves.

My call is that most stocks that are underwater at this point will go deeper underwater as markets digest recent gains.

Do your homework folks.

Justification
The following chart is the slope of the 8-day moving average on the long-cash ratio metric that I've developed.  The sensitivity of the 8-day is good for short-term evaluation -- it means nothing if you are a long-term investor.

Click on the chart to enlarge.

The key takeaway is that we are at the highest levels in 2 years and we've started to drop -- and drop fast.  Looking back in time, sure, we could bounce around here with up and down days, but I think that we're going to see weakness in the coming days/weeks.

Note that the VALUE is positive -- it is still moving upward. Note that the day-over-day change is less than the previous day -- it is decelerating.  You can see this more clear in the next table:


Click on the chart to enlarge.

This is my Long-Cash Ratio table, and it shows all the slopes of the moving averages on the left, and the slopes-of-the-slopes (acceleration) on the right.

On the left we see a sea of green across multiple time frames.  The moving averages all are positive in slope and are moving upward on a day-over-day change.  Overall this is bullish.

On the right we see the start of red appearing -- the day-over-day changes are negative with respect to the previous day, again for the various moving averages.  This means that although we are moving upward, we are doing so with less strength.  The analogy is a ball that you throw in the air -- it still is moving upward, but it is slowing every second.  Eventually, it reaches the apex, and starts to move downward.

The cumulative tick chart also is starting to show one day of weakness:


Click on the chart to enlarge.

First of all, let me say that this is a really strong chart, except for yesterday.  The top shows many more stocks hitting new 52-week new highs than are hitting 52-week new lows -- a buying environment.  The middle plot, with the exception of yesterday, is showing strong algorithmic buying on the NYSE, especially into the end of the day.  The bottom shows the real-time cumulative tick (white), with moving averages, and simply put, we're seeing horizontal buying/selling over the last three trading days but the trends are still positive and pointing upward.

The cautionary signals from above occurred on Tuesday, especially the algorithmic chart in the middle.  It shows that there was strong, net selling into the close, and it started around 2 pm ET.  This is significant, and shows that there were profit takers to the long rise.  In fact, the relatively - flat white CT line over the past three days shows that the bull/bear war is more/less balanced, so there are net buyers AND sellers here.   Finally, the convergence of the moving averages with the slower, solid red line shows the slowing that I've been discussing, so again, caution is advised.


Click on the chart to enlarge.

We've come a long distance in a short period of time.  The chart above plots the percentage of stocks that are "long" rated -- historically outperforming their optimized price and volume levels (e.g. are in demand) -- and you can see we're in the 70% range.  Go back a few blogs and you'll be reading where we were in the single-digit range (it wasn't that long ago).

While we certainly can play up here -- simply look back at history -- over the long-haul buying stocks when we are in the pink zone has not always been a great choice.

On the other hand, buying stocks when we're below the bright green line has always been a great buying spot, and most of my holdings have solid gains right now.

It's far better to buy when we are in the green zone, and almost a sure bet to buy quality when we're below the solid green line -- and we're a great distance from that place right now.

Perhaps this time is different -- perhaps it is not.  I don't know -- your crystal ball is as good as mine.  What I do know is that *I* am not buying stocks right here, but I keep my shopping lists up-to-date.  Money management here is crucial.



This timer table still shows that we're targeting 67% investment and 33% cash.  I'm actually well above the 33% cash level right now -- we changed states into the new target around the 25th and 26th of Feb and we were already outside of the "green" zone in the Percent Long chart that I showed above.  I've been slow to get more invested here, but after getting nailed in Nov/Dec/Jan, I want to edge back into the markets with longer-termed holdings.

Strategy
For those of you who are new to this blog, I'm not a short-term guy, and I'm transitioning to holding stocks over a much longer period.  I do not invest according to the Cash/Long signals of my timers -- I use the timer states to indicate when I should be entering the market.  Exiting the market is done on an individual stock basis, and I also look at the money management levels of the timers to determine equity/cash targets.

There are a number of stocks that I'm watching, and those lists are in my shared Dropbox folder.  Instructions on how to join are below.  Newly developed leaders that are worthy of further research are these:

CMN
HPY
JBSS
VLRS
IESC
LMAT
XRS
AVNU
BAK
DRD
HTHT
VCRA
ZAGG
HOFT

Note that CMN reports earnings tomorrow, before the open.  Also note that HOFT has lower volume than I like, but the underlying performance of these stocks in this recent market cannot be debated.

Do your own diligence.

My personal holdings are doing well overall:


The stock file in the Dropbox has comments/notes on each of these, and you'll be able to see what I'm thinking in terms of longer-term prospects.

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I am launching a newsletter that will be updated on the weekends and will focus on longer-termed portfolio holdings.  If you are interested in this let me know and I'll put you on the early list for comments.  I'm still working on the Paypal setup and website security configurations and don't have everything completed yet.  Send me a note to the address below in the next section with "NEWSLETTER" in the subject field and I'll add you to the trials.  Note, this will not last forever -- it will convert to a pay status.

Note, if you are a subscriber to my Collective 2 portfolios then you'll automatically get the newsletter -- I've already added your name to the list.  

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Stock updates 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.

Here's how to find me:

InvestFeed/Twitter:  grems8544
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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