Signal Update for Wednesday, January 13th

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Folks, I've cought the flu bug so I've been out of commission.  I rarely get sick so this is hitting hard.

In looking at the GGT LCR change timer, with the action on Tuesday we've signaled a change from Long (+1) to Long-Cash (0).  This change arises because within the underlying database, more stocks are falling in their recommendation than are rising.  Presently, we have a LCR value of 2.400, based on 2683 stocks with a long recommendation and 1118 stocks with a cash recommendation.  This value fell Tuesday from Monday's value of 3.203, a significant drop.

The 13D EMA of the LCR is horizontal in slope; continued weakening will cause it to point down and intersect the other EMAs, a clear sell signal for long positions.  All of the other EMAs (21/34/55/65) are all slowing dramatically and if they move horizontal contra ETFs will look attractive.

I picked up another 25% position in TBT, for a total of 50%.  Picked up positions in CELG and BRS, both of which look good in terms of GGT (both are long), both meet Elder's entry for today, and both have upward pointing RR-Track patterns for their 65 EMA slopes.

I've sold HL and MNRO, both for a loss, b/c both have turned to New Cash.  RT's on HL are poor, which should have prevented me from entering, and RTs on MNRO are breaking down to the lower side.

None of the New Long stocks from 1/12 look appealing at this point.

Regards,

pgd

New Year 2010 Weekend Update

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Summary:  Incredibly low volume on Thursday more or less negates the falling prices concern.  Despite this, the velocity of price change continues to be upward, but the rate of change is slowing, which if it continues, will indicate a more ominous market but present an opportunity for contra ETFs.  Although the price of the GGT index is above the 50DMA, the slope of the 50DMA is almost horizontal, which is intermediate-term cautionary. The Long-Cash Ratio trend upward is slowing, showing fewer stocks have been moving to the long side, which supports the nearly-horizontal price action that we saw this past week.  The LCR Change Timer has transitioned from a +1 to a 0-state; any continued weakness on Monday would signal this timer to a CASH recommendation, potentially closing our longs.  Strength values of various indexes and the BRICs dropped by a significant amount Thursday, but not enough to warrant new long positions in ETFs -- in fact, contra positions could still work for a few indexes.

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GGT Price Index (and Derived Indicators)

The GGT price index, which is comprised of 4339 stocks with:

1. prices above $1 (when originally added to the database), 
2. 50d average volume > 5K shares (ongoing), and 
3. only from the AmEx, NYSE, and NASDAQ exchanges

fell from Wednesday's value of $21.01 to $20.85, on extremely low volume of 754K shares.  Normally, falling prices on increasing volume is reason for concern; since we have the exact opposite situation I do not think we need to hit any panic buttons.  Here's the graph of GGT Price and Average Volume for 2009; as with all my graphs, click on the image for a larger view:

I believe that we can get a view of the market by looking at the GGT pricing exponential moving averages (EMAs).  Here is a graphic of primary EMAs:  13D, 21D, 34D, and 55D:

The above graphic indicates that from the perspective of our rear-view-mirror, that all primary EMAs are pointing upward, which is bullish.  You can see from past behavior that we'd expect the slope of the 13D to move horizontal if we were to see a change outlook, so this is something to keep on our radar concerning the overall market.

I've had a question this past week about the slope of an EMA -- specifically, what does it tell us?  When we see an EMA, and we mentally look at whether it is point upward or downward, we are looking at the slope -- the direction of the trend.  Slope is change, literally "rise over run", and in the case of the GGT Price EMAs, we're looking at "change in price day over day".  Obviously, the steeper this slope, the larger the price gain/loss on a day-for-day basis.  Because the markets do NOT rely on yesterday's action to behave today, just because an EMA is pointing upward does not mean that tomorrow will be an "up" day -- the markets could certainly reverse, causing the trend lines to move horiztonal, then point downward.  Hence, the risk here is that although all GGT EMAs are pointing upward, there is NO guarantee that Monday, January 4th, 2010 will be an up day.  Nevertheless, we can look at some other indicators to help us decide what has been going on within the internal market.

This next graph is the change of the various EMAs -- what the eye would interpret if it looked at the pricing EMAs and if the brain said they were pointing upward or downward:

The chart above is interesting to me because it tells me the velocity of price change:  how fast our pricing EMAs are changing on a day-for-day basis.  We hit a peak pricing change on 12/24/09 in the 13/21/34 EMAs.  Note the positive values of the the primary EMAs, they are all above $0.00/day.  This is important -- day-over-day, the EMAs are pointing upward, which is what we saw in the previous figure.  What this graphic gives us over the previous graphic is that now the eye can see the slope of the ROC, and what we see since 12/24 is that the daily rate of change values are falling, which is deceleration.  Remember though that the trend is up -- as indicated by the Thursday 12/31 value of ROC(13) = $0.044, but is simply slowing.

Look carefully at the peaks and valleys of the GGT Price, and correlate them with peaks and valleys of the GGT price EMAs.  There is no question that when we see levels like 12/24 that the market rarely starts a new bull leg, and there is no question in my mind that when we see ROC levels that are less than ($0.05) on the 13D EMA we typically start a new short-trend run upward.

What we're seeing now is indicative, but not necessarily predictive, of a market that is slowing down, but we have no indication that it is going to correct.  I think it rather unlikely that we'll see a new, sustained bull leg from here although we may see a launch upward the week of 1/4; more likely we're going to see some form of very short term bump up, then a period of consolidation.  Volume is the wildcard here -- we simply have not had any participation across the board, and this clouds my crystal ball.  Nevertheless, we simply need to be ready for this period of consolidation because that is when our contra ETFs can play an important role. 

The graphic above gives us the rate of change of the EMAs, and the slopes of those lines are indicative of acceleration when pointing upward or deceleration when pointing downward.  We obviously want these trend lines accelerating to the upside -- prices would be moving upward -- so as of right now although prices are advancing at a constant to slightly upward velocity, they are not doing so on a day-for-day basis.  This deceleration needs to be in our mindset going forward for the upcoming week.

If you don't want to rely upon me and if you have HGSI software, you can look at the moving average of a slope of any indicator.  Here's a chart that shows three different slopes -- 5/21/34 -- of the 65D EMA of price for the GGT index:

In the top pane I've plotted the smoothed slope of a moving average -- velocity or ROC -- of the 65D EMA of GGT Price.  The 5D EMA -- red -- is topping out and looks like it could fall.  The 21D EMA is still positive and trending upward -- the intermediate-term trend (1 mo) is still upward.  The 34D EMA is also positive in value and trending upward -- the longer-term trend (7-weeks) is still upward.  For now, we should stay the course on the long side, but we may be topping in the short term.

This next graph takes what I've done on the previous two slides and gives us the ROC of the ROC... or acceleration and "jerk" of price:

The important thing to realize from the graph is that acceleration is slowing -- deceleration -- and when this value drops below 0, prices are under corrective pressure.  Expand the graph above and look at price action every time that the acceleration dropped below 0 -- when this occurred, prices also dropped.

The downward slope in this value indicates that we need to vigilant for a reversal of the short-term trend.

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GGT Volume

As I have indicated above, volume is poor.  How poor?  754K shares represents being -42% lower from the average of 1.3M +/- 265K shares.  Aside from Friday, 11/27, which was -50% lower than average, we've not seen levels this low since this time last year (1/2/09 was -51% lower).  Gently downward prices, such as Friday, on lower volume should not be a cause for concern, so I plan to stay the course.

Of particular note is the application of On Balance Volume concepts to GGT.  I've been watching a divergence lately, which although is still a test, suggests that the market is going to move higher for the New Long stocks.  Here's something to ponder:

Take a look at the right side of the OBV graph --  we see that prices have remained horizontal to having a slight upward bias over the last week, and with the OBV moving aggressively upward, we potentially have a setup for prices to move significantly to the upside.  In a ranging market a breakout of OBV to the upside signals a bullish divergence ...

As a counter-point to this potential upside move, please review the following OBV chart:

Here, I've plotted all of the GGT stocks and OBV.  What we see is that the database, as a whole, is topping out -- the multiple up-down-up-down transitions, combined with a less-than proportionate move to the upside, as with OBV, shows that we're tired.  Hence, while New Longs look strong (as they should), the database is tired overall.

Here are the OBV charts for the other classifications of GGT; note that the only relevant data is very close to the right side of the graph since these are all using GGT data dated/classified. 12/31/09.

• Affirmed Long:

• Long 

•  Cash

• Affirmed Cash

• New Cash 

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GGT Long-Cash Ratio (LCR)

The GGT LCR, which reports the number of stocks in the database that have a long recommendation (2676) compared to those with a cash recommendation (1663), has fallen from Wednesday's value of 1.885 to 1.609.  This is a 1-day change in trend ... we've been steadily climbing since 12/18.  Will the trend continue?  Who knows ... LCR is a lagging indicator.  What we do know is that this is a lofty value, relative to recent past, but there is nothing prevent it from going higher.  Here's the chart:

If you look at the right side of both series, you'll see I've added some parallel channel lines.  What is important to me is that

1. the channel lines are pointing upward in a very steep pattern -- this typically cannot be sustained, and
2. the distance separating the lines is very small, showing very low breadth in the advance.  

I'm concerned about these two things, but as you can see, we're at the bottom of the channel, so risk is very, very low relative to other locations.  Also note that we spanned the entire channel in one day as far as GGT LCR Change was concerned, so this is a very narrow channel indeed.  This appears to be a perfect time to enter a long trade, provided that suitable candidates can be found.  Simply keep in mind that if these channel lines are violated to the downside, then it's possible that we could see a change in the primary trend in the short-term future.


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LCR Rate of Change

Much like what we see for pricing ROCs, we can apply to the LCR.  I missed this in my daily scan this past week, but the rate of change of the LCR has been slowing since 12/28.  Take a look at the following graph of the LCR Change and GGT pricing index:

As you can see, the LCR change is still positive, so overall, the LCR is moving higher -- the trend of stocks in the database is that more are becoming "long" on a day-over-day basis.  The fact that the EMAs of the LCR lines is pointing downward means that on a day-over-day basis, fewer new stocks are moving long.  In fact, this slowing ties very well to the advance or decline of the GGT price line ... when the LCR advances, GGT price advances, as we would expect.  I think what important to see here is that we are sitting just above 0.00-change in the LCR, and if this trend continues downward into the area I colored in rose, we'll see the price index begin to drop. 

Note that within the last week that GGT price peaked on 12/24 and the LCR change peaked on 12/28; now price has held steady but the number of stocks per day participating in a New Long + Affirmed Long + Long status is falling.  This divergence may present an opportunity for us in the upcoming week.

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GGT Strength of Various Indexes

Of particular note was the significant change for all domestic indexes with Thursday's action.   The chart below captures the major indexes I track:

With Friday's change we're in no-man's land ... somewhere between sitting on contras as a hedge (I have positions in TWM and MZZ), and somewhere between holding our longs (which I have positions in ATHR, ERJ, MTRX, MYL , MAA, MNRO, MFLX, and BAS).  Here's what the graph above is indicating to me:

1. The GGT LCR Change timer has transitioned from Long (+1) to Long-Cash (0).  If Monday is a down day as far as the database is concerned we will see this timer transition to Cash (-1).  The timer is right more than it is wrong as long as we're in a trending market, so I would follow the signal as long as volume picks up across the GGT database.
2. The DJ30 fell from a strength of 0.611 to 0.233 in one day.  This is a significant hammer on large-cap stocks, and continued weakness here, e.g., a drop below a less-than-scientific-value of 0.2 could be cause for serious consideration of DDM, which is the 2x leveraged ETF of the DJ30.  Note that the DJ30 is now sitting in the middle of it's Bollinger Band channel. 
   
3. The NASDAQ-100 fell in strength from 0.73 to 0.40, again a significant drop, and is still above the middle of the BB channel.  Watch for strength in QLD if we reverse to the upside.
   
4. The SP500 fell from a strength of 0.629 to 0.263, and is still above the middle of the BB channel.  Continued weakness here could be an argument for SSO if we reverse to the upside.
5. The SP400 Midcaps fell from a strength of 0.692 to 0.394, so it has a ways to go before I would consider MVV.  It is too late to jump onto MZZ.
6. The SP600 SmallCaps fell a large amount, from 0.915 to 0.574.  Again, we need to fall a significant amount before considering entering the long side with SAA, as the volume is still low on SAA and it is still in the upper 25% of the BB channel.  Note too that using SDD could potentially have merit if we see any continued weakness in the market/strength in the contra side.
7. The Russell 2000 SmallCaps fell 0.86 to 0.57, resulting in nearly the same situation as the SP600.  It's way too early to consider UWM, since we're in the upper BB channel, but TWM may still have some play, especially if we see any weakness in the markets.

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GGT Strength of the BRICs

The BRICs represent an interesting opportunity, but the strength trend has been becoming weaker and weaker with these stocks.  Here is my BRIC strength chart:

Every one of these countries is struggling, more or less horizontal trending, and what is more important is that we've been seeing lower highs in strength for the last two months.  Nevertheless, here's my read:

1. Brazil:  Fell from 0.53 to 0.42 -- in no-man's land.  TAM and GOL continue to be top performers, although TAM is a bit overbought and GOL is north of the channel center.  Proceed in Brazil with caution ...
   
2. Russia: Fell from 0.22 to 0.05 -- extremely oversold reading, but as far as GGT is concerned, the strongest stock is WBD.  Unfortunately, WBD is at the top of it's BB channel, being propelled there with Thursday's action, so I consider this a risky trade. MTL is my pick in Russia if I have to pick a stock, but overall, Russia has been performing very poorly so this is a very risky country and I will not be entering until I see the group turn upwards.
   
3. India:  Fell from 0.60 to 0.35 -- again, no-man's land.
4. China:  Fell from 0.48 to 0.37; top performers continue to be TSL, VIMC, GRO, HMIN, and FMCN.  FXI has been having trouble as of late; FXP isn't faring much better, as is evidenced by the mid-scale strengths.  Wait until we get some solid movement here before entering.

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Interesting GGT Stock and ETF changes from 12/31/09

• TYO, the Direxion 3x inverse of the 10-year treasury, is solidly flashing Affirmed Long while TYD, it's other half, is solidly flashing Affirmed Cash.  Volume is low so be careful of the spread.
  
• TMV, the Direxion 3x inverse of the 30-year treasury, is solidly flashing Affirmed Long while TMF, it's other half, is solidly flashing Affirmed Cash.  Volume is better with TMV.
  
• EEM is flashing an Affirmed Long, while EUM and EEV, the contra 1x and 2x respectively, are flashing Affirmed Cash.  EEM is very liquid at 36M shares traded daily.
• ZSL, the 2x contra of silver, is flashing an Affirmed Long, while AGQ, it's other half, is solidly flashing Affirmed Cash.  ZSL traded 624K shares this past Thursday.
• EEB, the Claymore BRIC ETF, just reaffirmed a long call.  I'm wary of this, but it is what it is.
  

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Remember, you are responsible for your own trading decisions -- not me.  Do your homework and communicate with others -- it's how you learn.

Regards,

pgd

Notables from Tuesday, December 29th

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Summary:  Short term strengths of mid-cap and small-cap stocks are falling from their lofty highs, putting the rally under tremendous pressure.  My earlier purchases this week are down 1-2%, yet my contra purchases yesterday are poised to rocket upward.  I intend to purchase additional contra positions this morning on any sign of weakness.  Based on intermediate and long-term trends I intend to hold onto my positions that are on the long side.

GGT Price Index

The GGT price index moved up $0.02 to $21.00, on low volume of 812K shares.  All price EMAs are decelerating, but are very positive, e.g., still upward but at a lower rate.  Intermediate and long-term trends are very much intact, so on those time frames, stay the course.

GGT Volume Index

Volume continues to dry up, and when combined with lackluster pricing, is generally no cause for concern.  Volume Tuesday was 812K shares, with average now falling to 1.32M.  We're in a historically slow period of volume, so we have nothing out of the ordinary.

GGT LCR

The GGT Long-Cash Ratio (LCR) inched upward to 1.87 from 1.82, indicating that 2826 stocks have a long recommendation and 1511 stocks are recommended as cash.  Like the GGT Price, EMAs are all decelerating or topping out, but mostly are pointing upward, so we'll continue to keep an eye on these.  The 13d EMA is obviously going to be the first to break down, but since we have a long way to go before crossing (LCR(13) = 1.441), we're still intact for this bull market.

LCR Change Timer

The LCR Change Timer is still indicating LONG at +1.  Given the pending New Year holiday, we will be here until at least Monday, January 4th.

Index Strengths

The following indexes fell on Tuesday: DJ30, NDX100, Russia, India, China, SP500, SP400, SP600, Russell 2K, leaving only Brazil with an incremental increase.  On a short term basis the lofty values within the SP400, SP600, and Russell 2K are indicating a downward movement.  I suggested contra positions yesterday as a hedge; any further decrease in the markets early today could be a good entry.  I'm holding MZZ and TWM, and will look further at others that represent the indexes.  For me, these are presently a short term trade.

GGT Notables from Monday, December 28th, 2009

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Summary:  From a short-term perspective, I'm placing hedge positions on contra ETFs if there is *any* show of strength in contras.  Many of my strength oscillators are showing overbought status.

GGT Price Index

The GGT Price index peaked on 12/24, even with the shortened trading day, at $21.02, the highest price attained since we started keeping track in September 2008 (16 months).  The 12/28 closing price was $20.98, barely a change to the downside (-0.2), but significant that we didn't push higher with more market participation (volume).  This slight drop has caused the 13/22/34/55d EMAs to slow in their velocity, but they are still moving upward (which is bullish).  The canary, the slope of the 65d EMA of price, continues upward at $0.035/day, which is long-term bullish.

From a GGT pricing perspective, there is nothing stating that the market is in trouble, low volume not withstanding.  I am staying the course.

GGT Volume Index

The GGT Volume index is at the lowest value and slope direction since early February 2009, and is coming in at 1.34 M shares, with a 19% (252K) standard deviation.  Volume Monday was 37% below average at 840K shares.  Possibly contrary to your expectations, the standard deviation has been broadening, meaning there are less high-volume stocks and more general-volume stocks, so the big boys are on holiday and the general database marches onward and upward.  Note that I am very, very wary of higher prices on lower and lower volume ... but since we bank prices and not volume it pays to follow the trend.  I'm very cautious of the trend though, and the week of January 4th will be important in terms of how we set the tone for January and beyond.

GGT Long-Cash Ratio (LCR)

The GGT LCR hit 1.82 on Monday, up from 1.521 on 12/24 and is now at it's highest level (and slope) since 9/10/09.  It certainly could go higher.  For now, it is indicating that 2814 stocks in the database have a long-call and 1546 stocks have a cash call.  All primary EMAs (13/21/34/55) are in an uptrend, and the long-term slope of the 65d EMA continues to march upward, as it has been doing so since 11/11/09.  Everything about the LCR is bullish.

GGT LCR Change Timer

The LCR Change Timer continues to indicate a +1 (Long) call, and has done so since the primary transition from Cash-Long to Long on 12/14/09.  Since this time the GGT index has increased just under +4.9%, and since September 2008 the timer/GGT index pair is up 84.7%.  There is nothing indicating that this timer will change with Tuesday's action.

GGT Long Strength Oscillator

The GGT Long-Strength oscillator has hit a high of 1.0, indicating that the database is overbought.  While it certainly can move higher from here in terms of raw strength, this strength is indicating that we need to seriously consider contra ETFs and/or consider locking in our profits.  I intend to do both.

Various Index Strengths and Trends

DJ30:  0.711, up from 0.544 and the 3d trend is upward
NDX100: 0.648, up from 0.524 and the 3d trend is upward
Brazil: 0.514, up from 0.368, and up from the low on 12/18.  Brazil seems to be recovering.
Russia:  0.333, unchanged.  Russia is struggling
India: 0.702, up from 0.488 and up from the low of 12/21.  India is recovering
China:  0.734, up from the low on 12/17.  China is showing strength
SP500: 0.816, up from 0.74 and has been marching upward steadily since 12/21
SP400: 0.959, up from 0.882, and is looking very overbought.  Consider MYY and MZZ as a contra
SP600:  0.970, up from 0.96, and is looking very overbought.  Consider SBB and SDD as a contra
R2K: 0.920, up from 0.865, and is looking overbought.  Consider RWM and TWM as a contra


Remember, you are responsible for your own investment/trading decisions, not me.  Follow me at your peril!

Regards,

pgd

Notables from Wednesday, December 23rd

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Our GGT Price index has made an all-time high of $20.71 on Wednesday, on volume that was 30% below average at 960K shares.  All price EMAs are pointing upward, but with such low volume, I think we have to discount the relative strength that we're seeing.  The rate of change (ROC) of the EMAs is incredibly high -- we're seeing levels approaching the peaking around January 2nd-5th 2009, and we all know what happened on January 6th, 2009.  Nevertheless, as I always say, trade the market we have, not the one we want, so from all pricing indications you should still be on the long side.  Note that I've been slowly taking money off the table over the past week.

The GGT Long-Cash Ratio (LCR) is at the highest value it has hit since October 19th -- 1.517 -- and indicates that 2717 stocks have a Long recommendation and 1791 stocks have a Cash recommendation.  The trend for the LCR is up on all accounts, again supporting that we are on the long side of the market.  The ROC of the EMAs is not unbelievably fast, so we may still have some life in this bull, we'll see.

The LCR Change Timer is indicating "LONG" and has been here or at "LONG-CASH" since 12/14.  Since that time the GGT price index has gone up about 3%, so the call is solid.

The Cash-Strength oscillator is at a very high level of 0.87 and the Long Strength oscillator is at a somewhat weaker level of 0.78.  Every instance since September 2008 of the Cash-Strength oscillator closing above 0.9 was followed by a decline within 2 days that lasted on average just over 3 days; we still have a bit to go with respect to the Long Strength oscillator telling us the same thing.  I consider this a divergence, so just be aware.

LargeCaps, as indicated by the DJ30, are not participating in this rally.  The strength of the various indexes I track is as follows:

• DJ30:  0.477, down from 0.533.  The down has not been above 0.6 since 12/2.
• NDX100:  0.745, up from 0.691.  The trend is a gradual up for the NASDAQ-100, and I'd give close consideration to a hedge position in QID.  Use Elder's methods to enter.
• Brazil bottomed on 12/18 and is now at 0.378, with a gradual up trend.  I own a position in ERJ, a Brazilian stock, that is presently underwater by 2%.  Elder's methods do not always work.
  
• Russia bottomed on 12/23 at 0 and to say it is in an uptrend is a misnomer.  Avoid.
• India bottomed on 12/22 at 0.214 and is now at 0.559.  Very volatile.
• China bottomed on 12/17 and has been showing strength since, with a strength of 0.599.  The trend is upward; watch FXI and FXP if you do not want to choose individual stocks.  My position in BIDU is down 3% since entry.
• The S&P 500 is chunking higher, with a strength of 0.722.  The trend is upward.  Watch SDS (-2x leveraged) or SH (-1x) if the strength continues; we should hit a local top and reverse if the trend continues.
• The S&P 600 is near an all-time high of 0.9964 and a contra position is warranted.  Contra for the S&P600 is SDD (-2x leverage) or SBB (-1x).
• The Russell 2000 is at a value of 0.923 and a contra position is warranted.  Contra for the Russell 2000 is TWM (-2x leverage) or RWM (-1x).

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A full summary will occur over the holiday weekend.  Enjoy time with family, friends, and loved ones.  Thanks for following along.

Remember, you're responsible for your own investment decisions.

Regards,

pgd

Notables from December 18th Weekend

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The Dollar

As discussed at our weekend meeting on the 12^th, UUP, an ETF that tracks the U.S. Dollar Index, had signaled entry conditions and was ripe for a core position. I trust that many of you took a look at this and hopefully paid heed; if you had used Elder's methods to get into this equity you would not have done so until the open on the 15^th, simply because the action on the 14^th was lower than the close on the 11^th. If you would have purchased at the open on the 15^th @ $22.76, with Friday's close you would be sitting at $23.01, or a gain of $0.25 per share, just over 1%. A few of you who know Elder to the letter would have seen that the FI(2) was positive, blocking entry. This is true, so either you're sitting with a 1% gain or no gain in the account, depending upon your view of how to enter. Here's the graph:

Is the run over in UUP?  No.  Here's Why:


While the use of exponential moving averages (EMAs) is a trend-following system, application of intermediate-term moving averages to VectorVest's Relative Timing (RT) value can give us some insight as to what the longer-termed trends are doing.  If you don't have VectorVest, then simply plot the 65 DEMA of price and smooth it using a 2 DEMA.


The RT of an equity is related to the 65 DEMA of the slope of the curve formed by price action of that particular equity. 65 days is 13-weeks worth of price information, and when presented as slope information, allows us to see whether the equity is in an uptrend or not. When this "slope" curve is smoothed, using another EMA, the slope of THAT line tells us the rate of change for the price action we are observing. Hence, application of a 21 DEMA to the RT line for a particular equity will tell us, relative to the past month, how fast the long-term slope of the price is changing.

In the case of UUP, we can plot three EMAs of RT on the graph simultaneously. When we do so, we get the graph below:

What the graph above shows us is that we've plotted 3 DEMAs on the RT signal: 13, 21, and 34. First, note how they are all pointing upward. This tells us that they are accelerating to the upside, even though the individual trends may still be downward.  This is necessary for price action to turn to the upside -- you want some indicator of slowing losses, which is what you have, starting back in late October.   When the RT or any of the DEMAs on the RT cross 1.0 that particular trend line of price has moved from trending downward to trending horizontally. The fact that the 13DEMA  has broken above 1.0 and continues to point upward indicates that the slope of the 13-day trend is clearly upward, e.g., prices are appreciating at a faster rate, day over day. The next EMA, the 21, is just clearing the 1.0 threshold, indicating that slope of price action for the last 21 days, weighted heavier the closer to present we are, is just beginning to turn up. When this 21 DEMA clears 1.0 we know that we are in an early-intermediate term uptrend for the particular equity. Finally, observe the 34 DEMA of RT as indicated above. Note that it is still below 1.0. This is telling us that on a longer-term basis the equity is still in a down trend, but because of the upward pointing direction of the 34 DEMA of RT, it is moving more positive with each day. All three of these indicators are bullish for UUP, and I'm a buyer of UUP the next time Elder's Force Index resets below 0 and then moves upward.


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GGT Price Action

GGT Price Action has continued to new, all-time highs, closing yesterday (Monday, December 21st) at $20.30, down from the quadruple-witching Friday value of $20.41.  Volume increased all last week -- whether due to the 4W-Friday or just good demand is unknown -- but at the end of the week we had experienced the highest volume since the beginning of the month. Note that overall volume is very poor relative to the last 6 months.  The "so what" about this is that this isn't a normal market -- lackluster volume usually would put the brakes on anything substantial in the market, but it obviously keeps chugging higher. 
Note that I don't expect high volume from here on out for the remainder of 2009.    Here's the chart:

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GGT Price EMAs

I've been getting asked by several what I think is going to happen in the next few weeks, and all I can say is that from GGT's perspective, which is a trend-following system, everything is looking very good.  One way to judge this is to look at the underlying strength of the EMAs that comprise the GGT price, and they're all pointing up.  Here's the chart:

Note how the 13 DEMA, 21 DEMA, 34 DEMA, and 55 DEMA are all parallel and pointing upward.  Just like in the UUP discussion above, when we see this type of behavior, we MUST be on the long side of the market, or else we're going to give up gains.  While we certainly can change on a dime, take a look at the following graph, which plots (are you ready for this) the change in slope of the 65 DEMA of GGT Price:

Notice on the graph above how the line is pointing upward.  The database, as a whole, is appreciating in value.  We're still in a bull market, according to the change in slope of the 65 DEMA.

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Elder's Force Index of the GGT Price/Volume

One thing that is giving me pause is Elder's Force Index when applied to the GGT.  Take a look at the graph below:

Note that over the latter part of the summer, whenever we had a spike downward in the FI(2), we had a launch to the upside.  This is indicative of being in a bull market, smart money sitting on the sidelines, seeing the major pull-back, then jumping onto the bandwagon.  Clearly, had you watched this indicator and had you jumped onto a broad-market index, selling when the FI(2) spiked over 300K or so, you would be up nearly 21%.  Nice indicator, eh?  Too bad it's not working now.

Note that Friday's action, largely due to the quadruple-witching (4W) date, caused the spike in the FI(2) to approach 400K. We've always had a pull-back within a few days of this occurring in the past, at least with respect to the market as we know it since July.  If anything, it may be time to take some profits off the table and simply be happy with what we have locked in.  If you don't take profits, at least adjust your stops upward (mental or actual) so that you know when you're going to get out.

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GGT Long-Cash Ratio (LCR)

Of particular interest is that with Monday's close (December 21st), the GGT Long-Cash Ratio is unchanged to three (3) decimal places.  What negates a call of churning is that GGT volume was -17% below the average value, so if we were churning, we're not doing it with respect to the big boys being indecisive.  While I'm coloring this as a "pause" color, we're clearly in the middle of many traders being on vacation and simply not participating with their portfolios -- why mess with bonuses and other benefits before year's end?

Here's the LCR graph, plotted with GGT Price:

With respect to the graph above, note the upward march in LCR with respect to the period from mid-October.   The trend is certainly upward; looking for an inflection point in the LCR at this time simply is impossible, especially with poor volume.  Hence, I think that we simply need to watch the LCR value, and keep track on the direction it marches with respect to time.

LCR Change Timer

If I put any doubt in your mind above concerning the actual LCR value, let it more or less vaporize when you look at the next graph.

We know we've been range bound for almost 6 weeks, and the graph above suggests that behavior.  What you're looking at is the GGT LCR Change timer superimposed with the LCR.  We haven't been on the negative side of this timer too much since early November, which indicates that overall the timer has been calling the trend in a fairly reliable manner.  Furthermore, the bouncing between +1 and 0 is simply indicative the choppiness that we've been experiencing -- the best time to enter the market long is when this timer is transitioning from a 0 to +1, as it did again with this past Monday's (12/21) action.  Note that due to the choppiness of the market, if you followed this timer, you'd actually be down in equity since it peaked in October 2009 and would be quite frustrated with me ... hence the problem with any trend-following indicator.  All I can say is stay the course ... if you invested in the GGT index (I know, impossible, so use the VTI) the timer is up 80.1% since the beginning of September 2008.

If you would like to start using this timer let me know and I'll make a special effort to post the daily readings of the timer.

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GGT Strength

GGT Strength has been strong, well above our less-than-scientific threshold of 0.6, indicating that somehow, somewhere, this database is still very strong.  Given this, I'm still a believer that since we're still range bound, it pays to buy when this indicator is in the low part of the range and think of contra positions when we enter the high part of the range.  Note though that every one of my contra positions has not done overly well as a whole since mid-October....  Here's the graph of the LCR with the Strength Index.

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Ever Get that Sinking Feeling?  No?  Then Take a Look at the BRICs

The BRIC stocks -- Brazil, Russia, India, and China -- are getting hammered.  Just because they're low in strength is not a compelling reason to enter.  Take a look at the following graph:

What should be obvious is the lower highs and lower lows in terms of strength of the individual stocks -- they're getting tired.  The fact that they cannot make it up above their previous peak gives me pause, and the fact that they're hitting bottom (e.g., look just prior to 12/13 marker) shows that people are bailing.  While I do think it possible to ride these upward if they rebound, my gut is telling me (as well as my position in ERJ, a Brazilian stock) that now is not the time to play these stocks.  By far China is the strongest, but over the last week the contra side has been doing very well.  You can confirm this quickly by looking at the relative performance of FXI / FXP, which are the 1x Long/ -2x Contra ETFs for China Xinhua 25.  Here's the graph of FXI/FXP:

Note that FXP, the -2x Contra ETF, is outperforming.  Click on the graph for a larger view.

Hence, my original assertion continues:  I'm staying away from the BRICs.

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GGT ETF Overview

I promise I’ll get better about loading the ETFs on the Yahoo! site on a nightly basis.  Life simply has been busy, and I’ve been spending a considerable amount of time on the west coast.  If you’re not a member of the GGT Yahoo! group then you need to send a note to:

NoVAVectorVest-subscribe@yahoogroups.com

It is the only location to download GGT files.

I always start with the dashboard view of the GGT ETF or stock file.  Here I list numerous pairs of ETFs, and if you’re interested in playing the pairs, it should be your one-stop shopping location.

ERX/ERY is the 3x Energy pair from Direxion.  ERX, the bull side of Energy, is holding firm with a cash recommendation but a strength of +3 – all it needs is volume, and ERY just signaled New Cash.  The lack of a simultaneous New Long from ERX simply means that volume is not there.  Keep an eye on ERX, as any further strength in Energy could move this into the green side.

MWJ/MWN is the 3x MidCap pair from Direxion.  MWJ just signaled New Long, showing that MidCaps are now trading above their historic optimum thresholds.  Of particular interest with this pair is that MWN, the bear side of this pair, is-and-has-been in cash for some time, so for MWJ to finally indicate the New Long is a positive sign for MidCaps.  Also note the following: 

• VectorVest’s RT / 65 DEMA slope just finished above 1.0 for the 2nd day straight as of December 21st.  I take this as a bullish sign.
• All three DEMAs (13/21/34) of VectorVest’s RT (or 65 DEMA slope) just turned positive.  This means that the slope of the 65 DEMA of MWJ’s price just inflected to the upside, which is bullish.

Gold, as measured by the DGL / UGL / DGP ETFs, is getting hammered on the long side.  On the flip side, GLL, the -2x contra of gold, and DZZ, a -1x contra of gold with more volume than it’s brother DGZ, are doing quite well.  Things to note: 

• DGZ traded Monday (12/21) just shy of 100K shares and has signaled a New Long.  This is obviously bullish.
• DGZ’s 13 DEMA is just crossing the 21 DEMA from below, a bullish sign.  If you enter DGZ, I would only do it with a 25% position until the 21 DEMA crosses the 34 DEMA from below (all in at this point).
• DGZ’s VectorVest RT is still less than 1.0, so caution is advised.
• DGZ’s DEMAs (13/21/34) on the VectorVest RT signal have turned to a positive slope, although all the DEMA values are less than 1.0, indicating that they are still in a downtrend.  The fact that they have a positive slope is important to note:  they are losing money less fast.  If the trend holds they will continue upward, and finally, price will reverse and trend upward.  Watchlist DGZ if it doesn’t meet your volume requirements, else this one is looking interesting.

• GLL traded 12/21 just over 824K shares and signaled a New Long on Friday, 12/18.
• GLL’s 13 DEMA is just crossing the 21 DEMA from below, a bullish sign.  .  If you enter GLL, I would only do it with a 25% position until the 21 DEMA crosses the 34 DEMA from below (all in at this point).
• GLL’s VectorVest RT is still less than 1.0 at 0.86, but is in an uptrend, and if it crosses 1.0, we’ll be in a full uptrend.  Until then, caution is advised.
• GLL’s DEMAs (13/21/34) on the VectorVest RT signal have turned to a positive slope, although all the DEMA values are less than 1.0, indicating that they are still in a downtrend. 

• DZZ traded 12/21 just over 590K shares and has been long for over 2 weeks.
• DZZ’s 13 DEMA may just cross the 21 DEMA from below on Tuesday, Decemeber 22nd.  This will be a bullish sign.  As above, if this crossing occurs, I would only commit 25% of the position, waiting for the 13x34 from below (another 25%), and finally, the 21x34 from below (100% all in).
• DZZ’s DEMAs (13/21/34) on the VectorVest RT signal have turned to a positive slope, although all are less than 1.0.  It could be early to enter, especially without the > 1.0 confirmation.

Contra Gold looks very interesting.

If you download the GGT ETFs from the Yahoo! site, you may have noticed that EWT, which is the Taiwanese ETF, has just signaled “New Long”.  From a pricing perspective this has been in a longer-term uptrend, as indicated by the VectorVest RT value > 1.0 (it closed at 1.09 on 12/21).  While this is good, a plot of the RT DEMAs (13/21/34) show that each is falling, indicating that EWT is decelerating, not accelerating, and hence, we should pass.

I’ll leave whether SLX ,another higher-volume GGT ETF,  is a candidate for entry or not to you.  Ditto IGE.
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Remember, you are responsible for your own investment decisions.

Leave a comment below if you desire.

Notables from Tuesday, December 15th

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... and the beat goes on ....

Do NOT let the appearance of yesterday's indexes fool you -- although they were down, the underlying database of stocks continues to march upward, which is bullish (let alone amazing).  Here's the rundown:

The GGT Price index has made another new high of $20.10 on volume that was 13% above average at 1.54M shares.  This is a strong signal, and I'm impressed.  ALL price EMAs (13/22/34/55) continue to march upward, and even the rate of change of the 55 DEMA (the slowest of the ones I track) is at an amazing level of $0.035/day.  Even though this is a trend-following system, it's pointed upward on all pricing indicators, with no apparent slowing even though the indexes were down, so I'm staying long.

The GGT Long-Cash Ratio *is* slowing, but still eeked out another gain yesterday, moving from 1.325 to 1.364, and thus indicating that 2648 stocks are LONG and 1942 stocks are in CASH.  While all LCR EMAs are pointing upward, there is a bit of deceleration in the 13 and 22 DEMAs, simply indicating a pause in the upward march.  If the *change*  in the LCR DEMAs turn down I'll become a tad more bearish, especially if prices continue upward.  As long as the LCR and pricing DEMAs are pointing upward I am short/intermediate-term bullish.

The GGT LCR change timer continues to indicate a LONG stance.  No surprises there.

The GGT database strength FELL on Tuesday, from 0.79 to 0.69.  This of itself is not too worrisome, but we'll have to watch it over the next few days to see if it continues to decline.  A continued decline from increasing prices cannot be sustained and the divergence would signal action on our part.

I did not discuss it over the weekend or yesterday but with Friday's action the GGT database is intermediate-term LONG, as measured by the LCR being above 1.00 and prices continuing to march higher.  I like to see this be "sticky", especially in sideways markets, and so with last night's close we have 3 consecutive days of being LONG.  For those of you familiar with VectorVest this is roughly equivalent to the Confirmed Up signal that is often issued on the VectorVest Composite index.  Note that VectorVest issued a Confirmed Down signal on 12/3, whereas our CASH signal was issued way back on 10/23.  The two signals are very different...

Large Caps, as measured by the DJ30, did not participate yesterday in the underlying increase of the LCR, falling in strength from 0.64 to 0.54.  The primary index was down, and since this strength is derived from the stocks of the primary index, there are no surprises here.  I'd like to see a bigger pullback before entering anything here.

The NASDAQ 100 dropped from 0.73 to 0.59.  Again, the primary index was down, and since this strength is derived from the stocks of the primary index, there are no surprises here.

Brazil was hammered on Tuesday, dropping from 0.60 to 0.427.  My position in ERJ is underwater.

Russia is showing strength off of their all-time low last week, closing Tuesday at 0.47.  I did NOT play the RSX for a reason, but obviously, it's been gaining ground on a short-term (3-day) basis.  My vote is to stay away from Russia for now.

India continues to slide, finishing at 0.166, down from 0.226.

The S&P 500 fell from 0.823 to 0.691.  The primary index was down, and since this strength is derived from the stocks of the primary index, there are no surprises here.

The S&P 400 is impressive.  It barely fell yesterday, finishing at 0.898.  Midcaps are certainly showing strength.  Correspondingly, my watch of MZZ yesterday DID NOT TRIGGER.

The S&P 600 fell from 0.97 to 0.86, and is showing strength like it's mid-cap brother.   My watch of SDD DID NOT TRIGGER.

Finally, the Russell 2K moved down from 0.885 to 0.770, and my watch of TWM DID NOT TRIGGER.

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It's early, but futures are pointing higher, so we appear to be in sync.  I'm holding my long positions, and may even add new positions as my research indicates.

Stay tuned.

Remember (in my best Smoky-the-Bear voice), only YOU are responsible for ... your investment decisions.

Regards,

pgd