ST LCR Timer moves to LONG-CASH, Elder candidates are few

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Somehow the markets climbed out of the hole they fell into during the day, started by the open, and by 4 pm the Dow and the NASDAQ had finished in positive territory (S&P was only down -0.04%).  Nevertheless, the underlying secuirities fired a bow shot that we have to acknowledge -- the Long-Cash Ratio of stocks in the database fell a significant amount, so the window-dressing of the primary markets simply isn't going to hold water.

Here's the dashboard:

The GGT price index, which is made up of 2900 liquid stocks, fell -0.24%.  Volume continues to be light at -16% below the 50d moving average, and as far as I'm concerned, dropping prices on lighter volume is no reason to panic.

Of interest to me is that the LCR dropped -11% to 2.241, a significant drop when we saw stocks on the Dow and NASDAQ claw their way back.  There is clearly a disconnect in the markets.

Confirming the drop in the LCR is the strength index (6th column), which has continued to fall all week and indicates that the market is losing steam.

In general, we have falling prices and a falling LCR.  Whether this is a breather to a newer high or something more ominous is beyond the abilities of my crystal ball.

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Short Term LCR Change Timer

The ST LCR Change Timer has moved to LONG-CASH (0), and indicates that the ice has cracks in it.  Continued weakness today will cause this to move to CASH.  Since I do not update this value until after the markets close, use http://www.finviz.com/, specifically the ADV/DEC line in the upper left corner, to get an idea on what the LCR will do today.   If this value at http://www.finviz.com/ favors declining issues, then we know that this run is over.  Contrasting, if the LCR moves upward today, we'll be in limbo-land across the weekend, which simply means that Monday will be an interesting day ... :)

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Intermediate-Term Elder Timer

Our intermediate-term Elder Timer continues to indicate that it is okay for us to buy stocks long.  Unfortunately, only one stock -- KWR -- has positive slopes on the 13d MA and 34d MA (out of 60 candidates with positive 13d Force Index and negative 2d FI), so pickings are VERY slim.  When this has happened in the past we have been at a fork in the road -- either prices will plateau for a few days (consolidation) before they continue a run upward or they will start falling faster.

Again, while we may continue higher from here, there simply are no candidates that are available.  Given this, I'm placing trailing stop losses on my holdings that were acquired this week (MIPS, up 4.26%/4 days, NNI, dn -2.59%/4 days, and SIRI, up 3.55%/4 days) so that the exits are above 1% net gain for the two that are in the money and a 1% TSL for NNI.  If the TSLs fire on MIPS and SIRI I'll lock in small gains but on an annualized basis they will be over 100% each.

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Trading Plan for Friday, September 17th

I do not intend to purchase stocks today, as there is only one Elder candidate (KWR) that is worthy of consideration.  I've placed a 3% TSL on MIPS and a 2% TSL on SIRI, as well as a 1% TSL on NNI.  Time to let the markets do what they do.

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Remember, you are responsible for your own investment decisions, not me.  Please do your own work.

Regards,

pgd

Mid-day comments on Elder List

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Here at 2 pm, the only stock on the list from this morning that is up is SLH, but volume is terrible, at 127K shares, where 324k shares is the 10d MA.  At 2 pm I should be at 70%, or 226K shares, but demand just isn't there.  Hence I am choosing to pass.

Note that I sold my position in BIN, purchased Monday at $23.7299, for a slight gain at $23.99.  My other positions in MIPS, NNI, and SIRI from Monday are still active, but NNI is underwater and I may dump it.

Regards,

pgd

Short-Term Timer LONG (but long-in-the-tooth), Elder Intermediate Timer LONG

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Let's jump right into the dashboard view:

The fourth column over from the left is the Long-Cash Ratio (LCR).  The LCR continues to show great strength, rising daily and indicating that we are certainly in a bull leg.  Neysayers notwithstanding, this has been a good run (although I missed the majority of it because of my vacation when it launched).  The LCR moved upward a modest 4% to end the day at 2.529, and indicates that we now have over 2.5 : 1 LONG:CASH ranked stocks within the database.  From the LCR data alone we are continuing to move upward, but this sustained run of 10 continuous days of increase is getting old and I would not be surprised at some form of pullback.  Nevertheless, this is a great rally.

The sixth column from the left is the database strength, and it bears watching.  The present value of 0.718 is on the no-man's threshhold of 0.7-ish, which when we are below this, the market is ranging or indeterminant.  After Monday's spike upward we've been sliding backwards each day, and if this downward-slope in trend continues, we certainly could be in trouble from the long side.

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Short-Term LCR Change Timer

The LCR Change Timer continues on the LONG side, and the earliest we could see a move to CASH would be with the close of markets on Friday (expiration day).  To have this type of signal we need both Thursday to trade lower in terms of the LCR, as well as Friday.  Since the LCR Change Timer went long on 9/1 the GGT Price Index Equity Curve has moved from $1.552 to $1.63, or a change of over +5% (column 9).  As I presented at our meeting this past weekend, tying this with the VTI (Vanguard Total Index) ETF can be profitable, as this equity curve has moved from $1.745 to $1.803, a change of +3.3% (columns 10 and 11) .

This is all hindsight, as I was on vacation on 9/1 and did not participate in this bull leg.  Correspondingly, I do NOT chase this signal, as the duration is too short to do so and at the end of the day, chasing ususally means losses.  I am sitting on the sidelines with respect to this timer, and given that we have just completed our 10th day of gains, I think that we are long in the tooth on this leg and are due for a pull back.  Please review my blog of July 16th, where I talk about the average length of the short-term LCR change timer signals.

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Intermediate-Term Elder Timer

The Elder timer system continues to be LONG.  This is evidenced by our primary gate signal, which is a 13d EMA placed on the Elder Force Index (FI -- column 12).  This tells me it is okay to purchase equities on the LONG side.

The Elder FI(13) has a positive slope -- column 13.  This is bullish and indicates that through Wednesday's action, the market was growing stronger in terms of upward momentum.   Although you can't see it with the data I've presented, within the GGT system the FI(13) is at a value of +459K, it's highest level since 7/23.  We would literally need a market crash to move this value negative in the next day or two, so our intermediate-term timer position of LONG is most likely assured for the rest of the week and into next week, independent of Friday being an expiration day.

Note that the slopes of the 13d EMA and 34d EMA on GGT Price are positive (columns 14 and 15).  This is a necessary condition for a sustained bull and gives us confidence at this leg. 

Based upon the above, I will continue to hunt for equities that are good entry candidates.

The following stocks are not recommendations, but are on my watchlist for possible entry if they continue above yesterday's highs:

PCLN
AXTI
NBIX
LDSH
SLH
OPLK

My entry criteria on the above list is as per usual for intermediate-term holdings:

1. entry price must be a few pennies above the previous day high
2. volume must be up, relative to the 10d volume.  My minimum threshhold for volume is:
   
   10:00 -- 12.5%
   10:30 -- 25%
   11:15 -- 33%
   12:15 --50%
   1:15 -- 60%
   2:15 -- 70%
   3:15 -- 90%
   
   To answer a private question that came in (please don't send me private questions, use the GGT or Tri-State Financial Investor's forum), the LCR value has NO IMPACT on this investment timer, as it is done purely as a function of Elder's Force Index.

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Trading plan for Thursday, September 16th

I'm watching the Elder stocks above and will enter under the conditions I stipulated.

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Please, remember that you are responsible for your own investment decisions, not me.  Please take ownership for your decisions.

Regards,

pgd

Elder Intermediate Timer LONG, Too Late for Short Term LCR Timer

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For those of you who were able to attend, I want to thank you for your time Saturday.  As always, I left feeling energyized and focused, a feeling that had escaped me for several months while we got our act together.  I enjoy our meetings and time together, as it forces me to think on my feet in front of all of you, as well as ensure that I'm properly prepared and disciplined, which I always need to focus upon.  I also enjoy the fellowship and respect that we have for each of us, which is very unique for a diverse group of people such as ours. 

Again, thanks to each of you who could attend.

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I presented something new to all -- how to use the Short-Term LCR Change Timer with various ETFs, starting with the Vanguard Total Index (VTI).  The graph I presented is below (as with all my graphs, please right-click on it to view in another tab, window, or to save to disk):

Note that the data in this graph is slightly different than what I presented at our meeting:  In preparing this blog entry for daily consumption/macro updating I found an error in the timer calculation so the VTI/LCR calculator was not updating with adaptive values.  The result above is a larger equity curve than what I presented Saturday, with relatively the same amount of drawdown.

Here are the various traces:

• The top two traces are the VTI daily closing price and a 150d EMA on the VTI.  If you look closely, you'll see that the VTI is trading just above the 150d EMA.
• The bottom trace is the VTI timed with the short-term LCR Change Timer signal.  You can see that even though this timer does move you to cash (the flat periods), if the market is drawing down, this equity curve also draws down.  We see that the period of September 2008 to March 2009 saw nearly a 30% loss in this method, which would cause most people (including me) to abandon the approach.
• The red trace is adapted from Larry Connor's work and simply gates the short-term LCR Change Timer, the VTI, and the 150d EMA on the VTI, so that we only trade the VTI when the price of the VTI is above the 150d EMA AND we get a long signal from the short-term LCR change timer.

In reviewing the video tape I note that I did NOT make two items explicitly clear this past Saturday: 

1. if the price trades below the 150d EMA yet the LCR Change timer is LONG, this is a SELL signal.  No exceptions.  
2. if the price is below the 150d EMA and the LCR Change timer moves LONG, THEN in subsequent days the price moves above the 150d EMA, it is okay to go LONG as the price moves above the 150d EMA.

Correspondingly, I've added the VTI status and equity curve to the dashboard under the "Short Term Timer" area:

As you review the above Short Term Timer columns, note that the LCR Change Timer has been long since 9/1 (7 trading days) and that the VTI signal has been long the past 5 trading days.  This is because the VTI is bouncing above and below the 150d EMA line.  At the present time do NOT chase this signal, as it is nearing it's historical average and could move south at any time.

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Intermediate-Term Elder Timer

Under the column "13d Elder Force Index" you will find that we have been LONG since 9/1, indicating the the Elder 13d Force Index is positive.  This is our primary gate to enter stocks long on an intermediate-term basis.

The column to the immediate right of this one is the slope of the 13d Force Index (FI).  The 13d FI is trending upward from a positive value, which is bullish.  This gives me confidence that this leg is a real bull leg.

The next column is the 13d pricing slope is bullish, which means that it is positive in absolute value.  This means that day-over-day, the 13d EMA of price of the entire GGT database is moving upward.  A rising tide lifts all boats and all of that ...

The next column is the 34d pricing slope and it too is bullish, which means that it is also positive in value.

Having both the 13d price slope and the 34d price slope, with the 13d Force Index all being positive means that the entire database is in an uptrend and that we should be paying attention to the long side of the market.  Although somewhat risky at this point, the Elder Intermediate-Term Timer is indicating it is okay to enter stocks on the LONG side.

The question of course is "what stocks?"

The list is growing thin -- most of the candidates are losing momentum, as measured by the "slope of the slope of the 13d and 34d lines".  Here is the list, and I'll follow by an example of loss of momentum:

This is a list of stocks from the GGT Universe that have a positive 13d Force Index and a negative 2d Force Index, that have a Earnings-RelativeStrength-Growth (ERG) above 270, and that have volume > 50K shares.   The list above is sorted ERG descending.  Of somewhat of a concern is the column all the way to the right -- this is the Accumulation/Distribution index for the individual stock and reflects money flow in and out of the security.  Only three of these have money flowing in:  TSL, FFIV, and EGO.  Let's look at TSL:

Although the 13d FI > 0 and 2d FI < 0 for TSL, we can see that the slopes of the 13d and 34d EMAs on price, while > 0 (bullish), actually have a negative slope -- e.g., they are becoming less positive.  I interpret this as a lack of momentum in the stock and this gives me great pause for any long entry.  We can see this in the price action -- we've apparently hit a resistance right around $28.28, so Friday's action not withstanding, this is probably a poor candidate for an Elder entry.

Hence, I am modifying Elder's rules a bit -- we want momentum to be increasing, not decreasing, as measured by the "slope of the slopes" of a short EMA (13d) and a long EMA (34d).

If we expand the Elder criteria and scan rapidly through the stocks, looking for those with positive slopes on their 13d slope and 34d slope, I get the following downselected list:

BIN
BUCY
CIGX
JOYG
MIPS
NNI
NTGR
SIRI

Let's look at Sirius/XM (SIRI), as this has a compelling chart:

Despite the Doji on Friday (indicision), the slope of the slope lines are positive-trending.  This is a good sign, and any strength on Monday can be considered a bullish indication.

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Trading plan for Monday, September 13th

Short-term LCR Change Timer System:  the timer is LONG, and we've missed entry on the VTI signal.  Hence I am continue to be patient and sit in cash.

Intermediate-Term Elder Timer:  the stocks above look compelling -- if they move upward past their Friday's highs on significant volume (see below) I will enter a position.  My schedule for volume is as follows:

by 10:00 12.5% of the 10d MA Volume
10:30 -- 25%
11:15 -- 33%
12:15 -- 50%
1:15 -- 60%
2:15 -- 70%
3:15 -- 90%

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Remember, you are responsible for your own trading actions, not me.  Please do your diligence.

Regards,

pgd

ST Timer Long-Cash (0); IT Timer Long if Aggressive, Cash if Conservative

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I'm in Denver on my way to Sacramento so this will be brief and no graphics.

The GGT Price Index moved up on Wednesday +0.62%, ending the day at $24.37.  Volume continues to be very light, with the traded value -24% below the 50d MA.  Hardly a resounding bull but an increase is an increase, so I'll take it.

The GGT LCR inched upward Wednesday only +3%, so it has increased only +5% over the past two trading days.  Again, not a resounding bull but worthy of noting. 

Everything is in sync, e.g., price, LCR, and the strength index moved up, so the universe is whole.  I would consider this a very weak bull though, so I'm not yet betting the ranch.

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Short Term LCR Change Timer

The ST LCR Change Timer is presently LONG, and has been for the past 5 days.  The equity curve associated with this timer has only changed from $1.547 to $1.573, so this isn't a huge gain over this period of time.  Again, I think that this is a very weak bull.

I am not chasing this signal, and I am in cash.  I was on vacation when the signal changed and I do not play catch-up on a short-term timer.

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Intermediate-Term Elder Timer

The IT Elder Timer is signalling long for aggressive investors, but is still in cash for conservative investors.  I fall into the latter category, hence I am presently sitting on the side lines.  NONE of my watch list was up in volume AND price as of the close yesterday, hence I am not yet on the intermediate-term bandwagon.

As I am traveling today, with meetings this afternoon, I will not be participating in the market today.  If you are aggressive, please review yesterday's blog in terms of how to construct an Elder watch list of candidate stocks.  If you are conservative, there is nothing wrong with sitting on the side lines at the present time.

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Remember, you are responsible for your own trading decisions.  Please take ownership for your investment decisions.

Regards,

pgd

Mixed Signals

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Let's dive right in to the dashboard:

GGT price fell more than the average markets, which I take as a shot across the bow.  Recall that the GGT stocks are:

1. liquid, in that they trade at least 100K shares average volume
2. are above $1 in price
3. are on the three major exchanges

Higher volatility on what I would consider 3000 benchmark stocks is not what I want to see in a bull leg.

Volume was incredibly low, -29% below the 50d MA.  Declining prices on lower volume typically is a good sign, but I like the decline to be slight, not -1.49%.  My mental bear meter is increasing in value, unfortunately.

As part of a divergence we have the Long-Cash Ratio (LCR) moving upward 2%, causing another mixed signal to be thrown in the bag.  The LCR requires price, volume, AND rate of change of price to all be advancing, so when applied to 3000 stocks, and when they move up in a fundamental (albeit slight) manner, I take note.  We cannot sustain a price/LCR divergence for any length of time.  Either:

1. Price will resume an upward march, matching the direction of the LCR, or
2. The LCR will reverse and move down, matching the direction of the price index.

Your crystal ball is as good as mine as to what will occur.  Mixed signals like this are dangerous for new entries into positions, so caution is certainly advised.

While the LCR inched upward ever-so-slightly, the strength of the database fell from 0.7 to 0.6.  Sustained values above 0.7 typically portend a pullback of some degree, hence this could be what we are seeing.  I like bull legs to start when the strength value (presently 0.601) is below 0.3 or lower; we haven't been there since 8/13/10.

Based on these indicators alone, I think caution is advised.  I think a bull from here, absent of any major news from the White House or Fed, is a long shot.  I see more downside potential than I do upside at this point in the cycle, futures being up as I type this not withstanding.

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Short Term LCR Change Timer Status

The LCR Change Timer move to LONG-CASH (0) from LONG (+1), based partly on the lack of strength in the LCR movement.  A down day today (Wednesday), as measured from the ADV/DEC line at http://www.finviz.com/, will certainly drive this indicator to CASH.  Alternatively, if we have an up day, we will hold this status.

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Intermediate-Term Elder Timer

The Elder system continues to indicate that the 13d Force Index is positive, opening further consideration of other Elder variables.  Both the 13d price slope and the 34d price slopes are positive, which is bullish.  The 13d price EMA is still BELOW the 34d price EMA, which is bearish for our conservative/confirmation stance.  So while we are in day 3 of the aggressive Elder system saying we are long, the conservative approach is still holding us in cash, indicating we should wait.  I intend to do so, as NONE of my Elder candidates from yesterday cleared their Friday highs.  Hence, I'm still 100% in cash at the present moment.

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Trading Plan for Wednesday

On a short-term basis, I am in cash.  I missed the signal last Wednesday due to my vacation, and I do not chase signals.

On the intermediate-term basis, I will continue to watch for Elder candidates, but I'm skeptical.  In case you're interested, here is my watchlist:

Remember the rules for entry:  today's entry must be above yesterday's high (buy on rising strength), the 13d Force Index MUST be positive, the slopes of the 13d and 34d price EMAs MUST be positive.  You can't search on 34d price slope, so I use the 50d in my HGSI scan.

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Remember, you are responsible for your own investment decisions, not me.  Please take ownership of your work.

I will be traveling to Sacramento on Thursday on the 6 a.m. flight out of Dulles Airport so there is a high likelihood that I will not blog in the morning.  If the update is done tonight at a reasonable hour I will post a short note about today's action.  I return late Friday night.

Note that there is a HGSI/GGT meeting this Saturday at 10:00 a.m. in Alexandria.  Leave me a note below if you have not yet received information (log into our GGT Yahoo! site for details).

Regards,

pgd

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Perhaps I should go on vacation more often ... the market seems to be on a tear and I missed the past 3 days of action.  Well, lest you think I've been lollygagging around, here's proof that I've been working hard:

That's me, blue coat, 2nd from left, and my son Greg, age 11, is in the front row, red coat.

If you think that this was a cake walk simply google "Mount Whitney Mountaineer's Route"; elevation change of 6,300' in less than 6.3 miles horizontal distance is nearly a 19% average grade up (and down, which is actually more difficult on the knees....)

Sooooooooo, back to reality........

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Here's our dashboard view:

As luck would have it, the last three trading days have seen a significant increase in the GGT price index.  The value going into this morning's open (Tuesday, 9/7) is $24.57, a full $1.35 gain since last Tuesday.  Volume tapered off on Friday compared to Thursday, with Thursday less than Wednesday's action.  I'm somewhat concerned to see rising prices on lower volume, but we bank increases in price, not volume.  Nevertheless, if/when we have a pullback, we'd want to see lower volume on the declining prices, indicating that everybody is sitting pat.

Of particular relevance is that the Long-Cash Ratio (LCR) has jumped significantly, and has closed over 1.0.  This is an internal metric, and whether the value is 0.9 or 1.1 is largely irrelevant.  What is significant about this zone is that we now have a balance of stocks with a LONG recommendation, as well as those with a CASH recommendation.  Bottom line is that this is a necessary step to a bull leg, and we need to watch it.

The 5th data column from the left is the database strength, which is normalized between 0 and 1.  What is significant here is that we're holding strong over my less-than-scientific level of 0.7, which actually indicates that we are due for a bit of a short-term pull-back.  This doesn't mean that it will happen today, but it certainly suggests that the likelihood of dropping prices is greater as time marches forward.

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Short-Term LCR Change Timer

The short-term time signaled a move LONG with Wednesday's action, and has been solidly positive since then.  I WILL NOT CHASE THIS SIGNAL, e.g., it's too short and we're long in the tooth on this one to do us any good.  If you played it based on other signals/instinct, good for you.  I'd protect profits, especially since as I type this the futures are lower by a significant amount.

If today is another up day the timer will remain long.  If the day is a strong down day the timer could transition to LONG-CASH (0), which means you should consider locking in profits.

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Intermediate-Term Elder Timer

I divide the Elder universe into two parts:

1. Aggressive:  move LONG if the 13d Force Index is positive, the slope of the 13d EMA of price is positive, and the slope of the 34d EMA of price is positive, or
2. Conservative:  all of #1 above, plus I require that the 13d EMA of price be above the 34d EMA of price.

Hence, if you look at the graphic above, you see that:

1. the 13d Elder Force Index (FI) has been positive for 3 days (bullish)
2. the slope of the Elder FI is positive (bearish if too strong of a slope)
3. both the 13d and 34d pricing slopes are positive (bullish)

Note that these three things qualify the Elder system to give an aggresive LONG signal.  Aggressive means that it could be early, hence, it could fail.  It also means that if it sticks we may have more gain than the conservative approach.

To get a conservative LONG signal, I need condition #2 above to be met.  Here's HGSI's view of Elder to help in the visualization:

 This is a pretty important image, and it's one we need to look at closely.

At the top, Bull Power is very positive, much so than Bear Power.  This is BULLISH.  Under Bull/Bear Power we have the Elder FI, and we see that it has been green for 3 days, just like the GGT dashboard picture above.  This is BULLISH.  Under this we have the 2d Force Index as RED, which means that it is POSITIVE.  REMEMBER -- Elder advocates buying on a pullback, so this is effectively blocking us from entering the GGT index (we can search on stocks that have positive 13d yet negative 2d FI).  Of HUGE value is that the 13d EMA slope is very much above the 34d EMA slope, which I consider very bullish.  Finally, we see that the 13d EMA PRICE and the 34d EMA of PRICE are just crossing from below, and if today is an up day (it has not been so far), then we could have a confirmation of this bull leg.

Bottom line, I think it just a wee bit early to say that we need to jump in, but the market has my attention.

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Trading Plan for Tuesday, September 7th

If the markets are up today I plan to enter longer-term Elder positions that have a

• positive 13d Force Index
• negative 2d Force Index
• are moving higher than Friday's high value (e.g., my entry will be higher than Friday's high)
• has a 13d pricing slope that is positive
• has a 50d pricing slope that is positive (HGSI cannot search on 34d, hence 50d slope will be used)

Good luck hunting!

Regards,

pgd