Monday, April 4, 2016

Whipsaw? Upcoming Buying Opportunity? Let Us Be Careful Here

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Timer Table

With the close of markets on Monday, April 4th, my timer system has reverted to a conservative position, specifically a target of 67% cash, and the short-term and intermediate-term timers moving to cash.


In taking a closer look at the long-term timer, we could be as close as 11 days (or shorter, of course) if we continue dropping at the rate that we saw day.

Price action today was not that bad.  The Russell 2000 eeked out a 0.01% gain, the DOW dropped -0.31%, the NAS dropped -0.46%, and the SPX dropped -0.32%.  Volume was lighter today than the previous two days.  So what gives?

First, we are close to thresholds.  The timer structure is built such that the short timer is independent of the intermediate, and both are independent of the long-term timer.  What this means is that we can get the pattern you see above -- where the intermediate fails for a significant period of time -- yet the short-term remains intact (more or less; 3/28 was an exception).  The reversion of both the short-term and intermediate-term timers with today's action points to a significant reduction in the number of stocks that are long -- price action on individual securities moved them to cash.

Let's look at the Long-Cash Ratio table:

LCR Table:

Here's the updated table after tonight's close:


Click on the table to view a larger version.

I wrote about the table in my latest newsletter; download a copy here ( https://goo.gl/CtQfQU ) if you are interested in further details.

The left side of the table shows that we moved from 3.225 to 2.793.  Presently, we have 2257 stocks long in the database and 808 that are in cash.  107 stocks actually moved to the "New Cash" side, meaning that they experienced a price or price/volume collapse, whereas only 24 achieved "New Long", which means they moved up on price and volume.  What is important here is that the net is downward, and hence, the large drop.

The middle of the table reflects the slope of a number of moving averages of the value on the far left.  When the value is pointing up it is positive and green; when it is pointing down it is negative and red.  You can see that today's action was strong enough to take the left side of the table to the same level as on 3/28.  Any further continued action downward will add red to the left side of the table, and this may/may not be a good thing, e.g., we may encounter a buying opportunity, or perhaps it will pass us.

The right side of the table shows more red.  This is the change in the left side of the table, or the change in slope.  Again, this is done on varying time frames, and is important.  Red on the right always precedes red on the left, and you can see that we have two days of solid red indicators.

Conclusion?  The markets are slowing -- the number of stocks that are outperforming their historical behavior (optimized) is less and less on a day-over-day basis.  This is not an expanding market when this occurs, but it could be a buying opportunity.

What I'm interested in seeing (for a buying opportunity) is that we get a complete set of red rows on both the left and right side, then we see green start on the right, eventually leading to green on the left.  We're not close to this as of today's close.  Here's an example of what the "signature" table looks like:


Click on the table to view a larger version.

Notice the green on the right, and it leads the green on the left.  Note that the table on the left is red and then turns green.  This is a good setup, provided other conditions exist too.  I'd like to see that before I move aggressively back into the market.

Cumulative Tick

Today's cumulative tick chart was the weakest that I've seen 3/24 and before that, 3/15.


Click on the table to view a larger version.

The white trace is the most important component of this chart.  It fell rather aggressively today, showing that there was net selling on the NYSE.  Another day of this same behavior could force it below the solid red line, which will certainly put this market under pressure.

I will post, after the close, if this chart turns more bearish.

Strategy

Compared to my previous entry, as well as my newsletter, my strategy is slightly modified:


  1. (Modified) I am not going to buy stocks on Tuesday with the LCR and Timer Table changing state.  I still have alerts set.
  2. (Modified) I presume the up-trend will continue, until it doesn't.  
  3. I am reviewing selling cash-secured puts on liquid contra ETFs for April expiration.  While volatility drops prices for options are dropping too, which improves metrics.
  4. I am reviewing selling cash secured puts on quality stocks that I wouldn't mind owning at a lower price.  Many stocks have moved higher in this market, and I missed some of the action.  Selling a CSP will allow me to collect a premium and if put to me, would allow me to purchase the stock at a lower price.

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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 GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, with the word "DROPBOX" in the subject and I'll add your email.  I also ask that you subscribe to this list using the link to the left (if you are on the blog), 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