Monday, May 23, 2016

The Earliest of Early Signals to Enter Long

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Outlook: short-term improving

Short-term:  bottoming characteristics are visible
Intermediate-term:  downtrend
Long-term:  Uptrend, but weakening

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Cumulative Tick

Click on the image to enlarge.

Previous blog entries, as well as my latest newsletter(s), discuss the Cumulative Tick presentation.  Here is our current state:

1) the number of new 52-week highs and new 52-week lows are more/less equal.  This is to be expected as we move south, and although Friday was a "strong(er)" day, we are at the bottom of the range so I would expect that these two metrics would be at parity.  This indicator needs to improve with the number of 52-week new highs (green) significantly outpacing 52-week new lows (red).

2) The markets started buying right out of the starting blocks on Friday and sustained buying all day.  The rate was constant and cumulative.  This is a good sign (middle plot)

3) The instantaneous cumulative tick (white) has pulled above all moving averages and is above the slowest one (solid red line).  This is significant and the indicator has been tuned over years of use.  When we cross the red line from below we have met a significant criteria -- now we need the markets to follow through and maintain the upward trajectory.  If we continue to meander horizontally it will not be good for buying stocks; we need continued strength.

I will post a Cumulative Tick update via Investfeed or Twitter if I see something significant.  For now, note that we have the short-term makings of a recovery, but of course, your crystal ball is as good as mine.  We are very, very early in this, and I expect the short-term recovery will fail again before it advances.

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Long-Cash Ratio Table

Click on the image to enlarge.

Long-term readers will take a glance at the table and know we are not in a buying position for Monday, May 23rd.

The Long-Cash Ratio (LCR) is constructed by individually ranking over 3000 stocks in terms of historical outperformance and assigning a "long" or "cash" moniker to each.  Take the ratio of the two values (long divided by cash), apply moving averages, and look at the slope of the moving averages and you get a sense of how the table functions.  The left/center shows slope; the right/center shows "slope of the slope", or rate of change.

The far right shows a new indicator for publication -- simply a composite to get an idea of price trend, slope trend, and overall table trend.

  • The far LEFT shows the raw LCR.  It moved up +5% from Thursday's value and is now at 0.629.  For every 1000 stocks in the database, only 629 are long.  This is a snapshot in time and does not tell us which direction we are going, but it does help us understand where we are.
  • The left/middle is the slope area, and it is a sea of red.  All the slopes are pointing downward, which is indicative of falling stock prices across the board.  I do not advocate buying stocks when I see this type of presentation, except for Leaders.
  • The right/middle is the slope-of-the-slope area, and Friday was an up day, relative to Thursday.  This is the first step of a bottom being formed, and seeing it across all measured time frames is good.  We need more of this in order to turn the LEFT side of the table green.
The new presentation on the far right simply shows that we have positive movement in price trend AND some improvement in slope and the overall table.  We are not out of the woods yet.  I have highlighted recent periods in the past where this same presentation has failed ( "F" ), so beware.  

I believe that entering stocks right now, except for leading stocks, would be a mistake, at least on a short-term basis.  If your holding period is longer then I do believe it is time to get shopping lists ready.

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Percent Longs

Click on the image to enlarge.

This table is another view of the LCR, but shows the percentage of stocks that are "long" rated.  On the far right we are "in the green", so we are in a historically favorable area for buying, as far as statistics are concerned.  The number of observations is nearly 2000 so the indicator is significant.

Note that we are on the LEFT side of entering the green zone -- we need to make a turn and play around in this area before we get a rapid and sustained movement to the upside.  We are early and this is why I do not advocate buying stocks right now.  Nevertheless, we typically move higher once the turn starts, so I watch this indicator closely.

----> In the end, of the three figures, the LCR Table is the most powerful predictor for knowing when to enter the markets.


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All this being stated, there are stocks that I am watching for possible continued movement to the upside, independent of the broader market.  Remember, leaders LEAD:

ORBK
PLPM
WBMD

AOS
BR
OC
EBS
FRC
SYK

BSBR
CORE
FIVN
TRUP
PRMW

GPN
ISRG
SYK
CBSH
ORI

Here is the group performance, relative to the S&P500:


Click on the image to enlarge.

The upward-pointing blue line shows that this batch of stocks is worthy of further consideration in this market.  Whether they continue their upward march is anybody's guess -- it is important to have stop criteria in place if you invest counter-trend.

As always, none of these stocks should be considered recommendations to buy.  I am presenting my work for your continued research and diligence.

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Newsletter:

I intend to finish the most recent edition later today (Monday) and will email to registered subscribers.

I will be going into some depth on what makes a "Leader" and how I select them.  You'll probably want to register for the letter -- just sayin'.

If you want to be on the newsletter distribution, then please send an email to GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, with the word "NEWSLETTER" in the subject and I'll add your email.

As stated above, the most recent edition is here:  goo.gl/e75Ayj

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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.  The stocks I have listed here are not recommendations -- they are seeds for you to do your own research.

Regards,

pgd