Tuesday, March 22, 2016

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


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Admin

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"

I intend to stream the session via GoToMeeting for those of you who are too far away to travel.  Send me a note to GreekGodTrading [ a t ] gmail {d o t] com, making the appropriate changes to the email address, and I'll send you the call-in invite.  The call-ins are limited to 25 people, so first come first served.

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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.

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Observations

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.

Strategy

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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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






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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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

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.  

~~~~~~~~~~~~~~~~~~~~~~~~~

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
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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