Tuesday, March 22, 2016

Intermediate Timer Confirms Move to Sidelines - as of 3-21 close

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I'll be giving a presentation at the following location this Saturday:

Great Falls Library,
9830 Georgetown Pike,
Great Falls, VA 22066
10:15a/ET - 1p/ET

The topic will focus on my new cheerleader role as the AAII Computerized Investing Special Interest Group wrangler as well as "Identifying Long-Term Income Opportunities: Using Trailing Performance to Weed Out Potential Underperformers"

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I spent the weekend wrapping up my initial newsletter hence did not post here.  If you want a copy of my Actionable Ideas, the link is here.  https://goo.gl/gezuEM  Instructions on how to subscribe are contained near the end of the downloaded document.



As noted in my newsletter, my intermediate-term timer transitioned to "Cash" as of Friday's close, and I observed that Monday's action with respect to the timer was going to be critical.  The intermediate-termed timer has now provided two consecutive days of "Cash" rating, so I am expecting that this leg up is going to fade.  Here is the timer table:

This is not an indication to do anything other than look carefully at your portfolio and if any positions are "weak", e.g., underwater, you may want to consider reducing the size of those positions.  I do not think that we're going to continue upwards as a group from this point, so unless you've picked a really remarkable set of stocks, any positions that are presently underwater will simply sink deeper.

My Long-Cash Ratio (LCR) table is also showing the first signs of weakness:

Click on the image to enlarge.

The right side of the table is most important right now.  This is a measure of acceleration, and simply put, Monday's action was slowing on an across-the-board perspective.  Continued red on the right side could either be an opportunity to buy, especially if the left side remains green, or if we see red on the left side too, then I would expect my timers to transition to "cash".

If you look closely at the far left you see that the Long-Cash Ratio is at 3.421, down -3% from the previous day.  If you also look you see that' Friday's jump was +22% from 2.902 to 3.527, which is a huge number of stocks that moved to the "long" side.

Moving "long" for a stock (within my system) requires BOTH price movement upward (e.g., demand is driving prices upward), and volume increases.  Friday was a big day.  Whether it was a climax top or not is to be seen -- a value over 3.xxx is an incredibly overbought value and we usually do not stay up that high very long.

To get a sense of this, I watch the following indicator very closely:

Click on the image to enlarge.

This graph plots my GGT index, which is comprised of about 3000 equal-weighted stocks, and the 8-day moving average slope of the LCR.  Over the years I've observed that the 8-day slope of the LCR is a great indicator of leading overall market behavior.

On the right I've circled where we are now.  The value is positive, so the slope is upward.  It keeps moving up and down aggressively, which is somewhat uncharacteristic but it is what it is.  I've also placed a bright red arrow at a point in recent history where the value was in the ballpark of being this high.  Of relevance to you is that the GGT price continued to meander sideways for weeks after we peaked, and then it dropped about 5% or so.  If you look closely at the LCR 8d slope MA, you see it leads the broader market peaks (in general).  It also leads the dips.

There's a pony in there somewhere.  As I said in my newsletter, I'm not a buyer of stocks right now, for increasingly obvious reasons.


1) I am looking closely at stocks that I hold that are underwater.  If they do not move upward in the next few days I'll probably unload them, despite just having added a few new positions last week.  I'm specifically talking about my positions in ESS (down -0.51%), GBX (down -1.13%), PSXP (down -2.67%), LTXB (down -3.04%), and XIN (down -3.79%).  The remainder of my portfolio is doing well at the present time.

2) I'm not buying stocks.  

3) I did buy a covered call in VXX yesterday.  Here's the math:

BOT VXX @ 18.83 and STO VXX 160401C18.5 at 0.90 (credit)
This position has a breakeven of 18.83-0.90 = 17.93
The return on the option is 3.1%

We'll see.  I continue to look at VXX puts too; I don't think the VXX is going much lower from here even if we stay in this overbought zone.


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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.