LCR is Bearish but Has Upside Room, as does Strength Index ...

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GGT Price went up Friday, ending the week at $26.41.  This isn't much of a week-over-week increase; Friday the 22nd saw a price of $26.23 and the week before that a close of $26.07.  We're obviously in a horizontal trend with fairly well-behaved excursions, so price simply isn't going to tell us much.

Volume continues to hold a steady-state, trading within a very tight range since the 50d MA Volume bottomed around 10/8.  Only two of the last 14 trading days have seen a volume below the 50d MA, and the volatility has been quite tame.

Given the mid-term elections and the FOMC meeting this Tuesday/Wednesday, I'm expecting more of the same at least through Tuesday.  What happens beyond Tuesday is pure guesswork for obvious reasons.  Let's see if we can present both sides of an argument:

LCR

The Long-Cash Ratio (LCR) continues to drop, and has done so on 11 of the 12 past trading days.  Even the February 2009 bearish collapse didn't see such a run, so this streak is remarkable.  In terms of raw numbers 1638 stocks have some form of LONG status and 1169 have some form of CASH status, resulting in a value of 1.401, down -1% from Thursday.  Those are the facts.

On the bullish side, there are a large number of stocks available from the CASH pool to provide a movement that could take the LCR upward.  We are below "midpoint" if you take a view of "where have we been prior to this?"; here's the graph:

The solid black line is a 4d SMA on the LCR values, since we started publishing values back in September 2008.  We've recently fallen from dramatically high all-time levels, and certainly, we could power upward from here.  Indeed, I can see at least two or three reversals that have occurred from this zone in the past, so there is a non-zero probability of this occurring and we must always be open to such behavior.

Another good sign is the left-most section of the graph below:

The data starting in column 5 above is simply the status of the LCR EMAs, e.g., are they aligned "properly" to sustain a bull.  The short answer is "somewhat".  Note that although the 5d EMA < 8d EMA, and the 8d EMA < 13d EMA, all the longer ones (columns 7-9) are still properly aligned.  While the markets have not been rocketing upward, they certainly have not been losing much ground.  Hence, if we do reverse from our present levels on Tuesday/Wednesday and beyond, looking for confirmation in the 5d > 8d and 8d > 13d would certainly add to the bullish argument.

There's always a converse.

The data in right-most columns shows the slopes of the LCR EMAs.  The slopes are REALLY important -- if they point down, then the data on the left side (LCR EMA crossings) will start to bleed more than it is.  Conversely, if these slopes turn up, they will LEAD THE BULLISH CROSSINGs -- they have to (make sure you understand why).  

I went back over the last two years+ of data to see if we had any other occurances like we are experiencing at the present moment with respect to the LCR EMA crossings and the slope, and the only other period that I have data is below, which is the 2nd quarter of 2009:

MAKE SURE THAT YOU REVIEW THE DATES ON THE LEFT IN THE FIGURE ABOVE -- THIS IS LAST YEAR'S DATA.  What we have here is somewhat of the same situation, and what followed was periods of peaks but also of dips.  We made money if we played the markets when the slopes were "green" and we moved to cash when they turned "red", which is the same situation as present.

To put this into another view, observe the following:

This view is constructed by taking the LCR RMAs and plotting the slope values.  Note how we're in the pink zone, which means that on these three time scales (13d, 21d, 34d) that we are losing LCR value at about -0.1 of full-scale per day.  Since there are 2807 stocks in the database right now, we're losing about 280 stocks per day on these time scales to the CASH side of the equation -- e.g., the database of available LONGS is shrinking this amount each day.

So, for the present moment, until the traces on the right side of the chart above move to the white zone (positive), you're better served by taking profits and sitting on the sidelines.  The pool of appreciating stocks is getting less day over day, hence you need to have IMPROVING skills to pick winning stocks.  

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GGT Strength Oscillator

When I take an individual stock and evaluate it in terms of price, volume, and rate of change, I get a value describing what I call the strength of the stock.  When cast between 0 and 1, we have a 0 being completely "avoid" and 1 being "buy me buy me buy me".  It's easy then to average the database and see where we are presently sitting.

Last week I wrote about the artificial trend line that was forming from the lows of the strength index.  Believe it or not, we bounced off the lower support, and as you can see in the figure above, this suggests that there is plenty of upside room available for a continued bull leg.  Hence, guess what, since we haven't yet penetrated the support line, my bull-meter has to lean more in favor of an upside bias than downward.

Correspondingly, I'm looking for the LCR ROCs and the LCR slope graphs to indicate bullish tendencies.  Failure to have the Strength Index, the LCR ROCs, and the LCR slopes (the latter two which are more or less the same thing) show us that conditions are improving would be a serious case of "Katie, bar the doors ..."

Stay tuned...

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I have parent-teacher conferences this morning and will continue my entry mid-morning after the markets open.  Check back before noon Monday for further thoughts ...

Churning, Elder is Long by a Thread, & How to Prune Your Holdings ...

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I had a nice dinner and conversation last evening with Bob Wilson here in Ft. Worth.  One of the topics was how to monitor/manage holdings.  I've no clue on whether this is the "right" approach, but it's what I do on (almost) a daily basis.

Many of you know that I moved my wife's Thrift Savings Plan (TSP) funds to cash last week.  This is a restricted account, meaning that I can only invest in what amounts to 3 funds that are closely matched in price by the following ETFs:  EFA, SPY, and VXF.

HGSI makes it relatively easy to make a snapshot of equal-weighting a portfolio of these equities.  Right now, if we review this TSP "Index", we have:

While we can debate whether I pulled the trigger too soon I moved to cash on 10/20, based on the signals seen in this composite view on 10/19 it looks like a good decision.  Specifically, the Elder 13d Force Index -- FI(13) -- moved negative, as did the MACD histogram.  Furthermore, even though the 13d and 34d slopes of these EMAs were positive in absolute value, they had a downward slope themselves (loss of momentum -- "the car is driving forward but slowing down"), and the index closure below the 8d EMA of price told me to throw in the towell.

Hence, given a fixed basket of equities, it is possible to create a fixed basket of equal-weighted items that can give you a good view of the "health" of the selections.  As you can see from the above presentation, the FI(13) flashed another down day on Wednesday, and the FI(13) using the SMA method moved to cash on Wednesday and has remained there.   Bottom line:  time to remain on the sidelines in the TSP funds.

==========

The next thing that I do is create a list in HGSI that contains all of my holdings across all accounts.  This is another equal-weighted basket of equities, and gives me a state of the overall health of my selections.  Here is a graph of my present holdings:

Here's how I evaluate my portfolio, and the process is the same for the constiuent stocks:

• Bull Power:  Positive, which is bullish
• FI(13) - EMA method:  green, which means it's positive, which is bullish
• FI(13) - SMA method:  green, which is bullish
• MACD Histogram: positive and growing, which is bullish
• slope of 13d and 34d price EMAs:  positive, which means we are in an uptrend in the portfolio
• "slope of the slope" of each 13d and 34d price EMAs:  pointing upward, so we are accelerating upward (car is moving forward and is accelerating)
• Price series trading above the 8d EMA (green line):  bullish
• Volume increasing over the last couple of weeks (blue line):  bullish

You may be surprised to learn that here are my holdings:

SKS, +3.03%
VVC, +1.03%
TMV, +1.25%
TBT, +0.94%
SKS, +0.31%
WEC, +0.25%
VXX, -1.85%
GLL, -2.43%
ZSL, -3.61%

The point here is that I can scan through these holdings on a daily basis, and can prune whichever one that I desire that isn't passing muster.

As I indicated yesterday, I dumped FXI and my 1% TSL triggered at the open.  Here's the chart as of last evening:

The process for individual evaluation is the same as the composite.  Here's my read of FXI:

• Bull power moved negative which is bearish
• FI(13) EMA method is red which means it's negative and this is bearish
• MACD histogram is negative and growing more negative, which is bearish
• The slope of the 13d EMA is below the slope of the 34d EMA, which is bearish
• Both slope lines are pointing downward, so this is a loss of momentum.
• The slope of the 13d EMA is almost crossing the zero line, so on this time scale, we are close to starting to lose significant money on a day-over-day basis.
• The price series closed below both the 8d and 13d EMA lines

Hence, I think my exit of FXI yesterday morning was done at the appropriate time.

I suggest that each of you folks who are using HGSI evaluate your portfolio the same way, and for those of you who do not HGSI, you consider getting a 60-day trial.  It's a powerful charting program.

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The dashboard:

The GGT price index dropped slightly yesterday on normal volume, so more of the same.  We're in a holding pattern until mid-terms and the FOMC meetings are concluded.

The LCR continues to drop, indicating that we have further weakness in the database.  The value of 1.419 indicates that we have 1656 stocks with some form of LONG status and 1167 stocks with some form of CASH status.  I note with interest that we have not been this low in LCR since 9/10, and we were in an up-trend at that time.  The ability to pick stocks in an uptrend is definitely more difficult now, so caution is advised while the LCR is trending downward.  Note that the LCR has fallen 10 of the last 11 trading days.

GGT strength fell again, and is now against the artificial supprt line that I discussed yesterday.  If today is weak we will penetrate this support line, which I will consider another bearish nail in the bull coffin.

Overall, caution is advised.

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Short-Term LCR Change Timer

The LCR fell, hence this timer is solidly in CASH.  We are at least two days from a long call so there is no need to do anything here.

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Intermediate-Term Elder Force Index Timer

The bottom line is that Elder is still indicating that this is a good time to buy stocks.  The FI(13) is positive, the 13 and 34d EMAs are trending upward, so this works well for the present moment.

What you don't see but I can see because I calculate the real numbers is that we are within a day or two of the FI(13) moving negative.  If today bleeds any significant amount, either in price or volume, we could see a signal to move out of long positions in general.  Stay tuned.

Given that Elder is still indicating long, here are some candidates to watch:

SPN
CAR
FPO
FCZ
WB
CVC
STT
SF
AYR
PST
NLS

Obviously, a short list.  Take this as a warning shot.

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Today is a travel day, so I'm content to do nothing.

Make it a great weekend.  Please remember that you are responsible for your own investment decisions, and that I am NOT.  Take responsibility for your actions.

Regards,

pgd

Sideways Markets, Some Ideas to Watch, Elder still Long

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I note with interest that China is getting hammered right now.  As I indicated yesterday, I unloaded my position in FXI with a 1% TSL, and good or bad, it fired as soon as the market opened, resulting in a 4.5% gain in about 20 trading days. I should have sold back on October 19th when the price closed below the 8d EMA, but c'est la vie.

The contra position to FXI is FXP, and there are a number of indicators which say we need to look closely at this equity:

On the bullish side of the arguement:

• Of note is that Bull Power has moved positive.  Bull Power is the 13d EMA of price subtracted from the high price, and we want this positive.
• Elder's Force Index using a 13d EMA -- FI(13) -- has just moved positive. 
• The MACD Histogram is now positive for the third consecutive day, and it is growing in magnitude.
• The slope of the slope of the 13d and 34d EMAs is pointing upward.  This takes some time to think about -- because the slopes of the 13d and 34d EMAs are NEGATIVE, but they are pointing upward, we are slowing in price depreciation day-over-day.  This is a necessary requirement for price appreciation.
• Price gapped up yesterday above the 13d EMA, and it closed above the 13d EMA.

On the bearish side of the argument:

• The FI(13), as calculated using a simple moving average (SMA), is still negative.  We like to see both the EMA and SMA methods move positive on the same day for a solid signal -- this one is wishy-washy.
• The absolute value of the slopes of the 13d and 34d EMAs on price are negative, so on these time frames, we are losing in price appreciation.  Note though that because these are pointing upward, we are losing less slow (the car is driving backwards but is slowing down).
• Volume has been decreasing for some time, so demand is not as high as I'd like to see.

While not shown, FXI still has a GGT LONG recommendation and FXP flashed a Affirmed Cash recommendation, so any entry right now would be quite risky.

Despite GGT, I will continue to watch the FXI/FXP pair, as I think there is some merrit to placing a partial position order in the event any positive action occurs.

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Brazil is another country that is experiencing some difficulties right now.   Here is what GGT has to say about Brazil's ETFs:

EWZ, the largest ETF by volume, signaled a move to cash on October 19th.  Additionally, the two other holdouts (BRF, BZF) finally moved to cash with yesterday's market, hence we're at a crossroads.  BZQ, which is the leveraged contra ETF for Brazil has not yet signaled new long because of the lack of volume.  Despite this, we may want to look at what is going on here

First, here is EWZ, the "normal" Brazillian ETF:

I've placed the cursor on 10/19, as this is when GGT indicated a move to cash.

As you can see above, GGT and Elder are in good agreement that October 19th was the signal date.  This was also the first date the MACD Histogram moved negative, which told us that this run was in trouble.  Bull Power was barely positive on this date, but Bear Power (the low of the day is subtracted from the 13d EMA) was very negative, showing us that the bears were in control.  2 days later the slope of the 13d EMA moved negative, confirming that we should not be in this equity any longer.

BZQ is the leveraged inverse of EWZ.  Here's the chart:

Here, BZQ is showing some preliminary strength.  Here's the bull case:

• Bear Power is positive, and has been since 10/19
• Both FI(13) methods were positive as of 10/21, allowing us to enter this ETF
• MACD Histogram is positive since 10/19
• The slope of the 13d EMA is positive in absolute value

Here's the bear case for BZQ:

• The slope of the 34d EMA on price is still negative
• The momentum indicator -- the "slope of the slope" of the EMAs, is downward for both the 13d and 34d slopes.  We're losing some steam right now in this ETF
• The 13d EMA is still below the 34d EMA -- we are not in a confirmed uptrend on this ETF.
• The range of BZQ is bumping against the 8d EMA, and sometimes opening/closing below this level, which is not necessarily a raging bull.  We need to see further opens/closures above the 8d EMA to get a positive buy signal

Like FXP, I think BZQ warrants further watching. 

I think that there is a strong argument that the floor is in on the dollar trade, as measured by the UUP/UDN pair.  Here's UUP's chart:

Yesterday's action was solidly bullish, and had I been watching two days ago, we would have had a good entry point.  Now we need to wait for a FI(2) pullback, which may actually be occuring today (Thursday).  Here's the bullish arguement for UUP:

• Bull Power is positive (as is Bear Power).
• The MACD Histogram is positive and growing in magnitude since the negative-positive transition day
• The slope of the 13d EMA has just closed in positive territory.  This means that on a 13d basis we are appreciating in price at the rate of $0.0025/day (not much, but it's a start)
• The acceleration of the equity is positive, as measured by the "slope of the slopes". 
• We have traded 2 days now above the 8d EMA
• Volume has been increasing since mid-October

The bearish arguement for UUP is weakening but still exists:

• The slope of the 34d EMA of price is negative.  This means that we are losing value on this time scale at a rate of -$0.0197/day.  Ideally, we want this to be a positive value.
• The 13d EMA is still below the 34d EMA of price.  We are not yet any where near confirming that this equity is in an uptrend, hence it is risky.

Keep watching, and enter a limited position (I will chose 20%) if the Elder FI(2) moves negative then transitions positive.  Right now it is positive, so purchasing is extended on a short-term basis. 

Patience.

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Here's the dashboard:

Our price index fell yesterday by -0.34% on volume that was 8% above the 50d MA, so this was a normal, ho-hum day.

The LCR fell -14%, landing the day at 1.614.  It has now fallen 8 of the 9 past trading days and indicates that a number of stocks have fallen in value.  As a point of reference, out of these 9 trading days the GGT index has only netted +0.3%, so we are going nowhere at the present moment.

Database strength continues to weaken, and is now at 0.594, indicating that we're in no-man's land in terms of whether we'll go up or down from here.  We are nearing an artificial support line so if we penetrate this, I think we'll move down further from that penetration level of the price index.  Here's the chart I'm referring to:

The next few days should be interesting.

There is no change with respect to the LCR EMA slopes -- they are all pointing downward, which is decisively bearish.  Here's the chart since I did not post it yesterday:

As you can see, the 5d EMA is below the 8d EMA, and the 8d EMA is below the 13d EMA with respect to the LCR.  On these time frames we are losing stocks rapidly to the CASH side of the recommendation list. 

Further, as you can see from the right-hand side of the figure, all of the LCR EMA slopes are pointing downward.  This suggests that on all time frames (5d to 65d) that you had better be pretty darned good at picking winning stocks, because the database is shrinking rapidly on all time scales in terms of available candidates.

Dangerous waters indeed.

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Short-Term LCR Change Timer

The LCR fell on Wednesday, resulting in this timer moving solidly back to CASH.  We are at least 2 days from a long signal, and obviously, both of those days have to be up days with respect to the broad market.  We'll see.

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Intermediate-Term Elder Force Index Timer

The FI(13) is still positive, as indicated by column 12 of the primary GGT dashboard.  This is telling us that we can purchase stocks on the long side.

The slope of the FI(13) is downward, but only for 1 day, so we are not in any trouble here.

The pricing 13 and 34d EMAs of the database price are pointing upward, so we are in a definite uptrend.

Based on all of these conditions, this timer says that it is okay to purchase stocks long and that this is an ideal pull-back situation.  Correspondingly, here is the list of candidates:

URG
GAME
MITI
DECK
GSIC
FBCM
SCHS
AMMD
CLS
MFC
ISLE
C
SHLM
AFFX
ENH
DHF
MYI
ADLR
TROW
CACI
QGEN
RA
KRG
VLNC
GIM
FCJ
STRI
PPDI
PM
EWT
FDO
ONXX
PETM
HRS
IGT
PWRD
LO
CDNS
AVAV
XTXI
TSLA

Ensure that you are moving on these only if they have the prorated volume (discussed in other blogs on this site) and if they are higher than yesterday's high by at least a few pennies.

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Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your actions.

Regards,

pgd

Elder still long, LCR continues to fall, so caution is advised

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A number of my holdings are rolling over, and because of this, I've been slowly moving what positions remained into cash. 

I sold EWO yesterday, having bought it back at the end of September.  Here's the chart:

Althought the FI(13) is still positive for EWO, you can see that the MACD histogram is negative, and has been for several days.  I didn't see any reversal occurring in the short-term future so this was the most convincing indicator for me.  Further, you can see that the slopes of the 13d EMA and 34d EMA on price are both trending down, with the 13d slope < 34d slope.  Although both are positive, there isn't any real movement upward, hence this confirmed that it was time to sell.

Overall gain was about 9%; Hsin is tracking in real time and he can weigh in as to what the actual gain was.

I purchased SNDA a few days ago but it has gone nowhere.  Further, my position is down -2.06% and the Elder FI(13) just moved negative, hence I'll put a 1% TSL on the position and cast it to fate.

FXI is another position that I'm cutting lose today.  I purchased back in September and have a gain of 7.6%, but the MACD Histogram just moved negative with yesterday's action and with the interest rate increase in China last week, I don't see this one continuing upward from here.  We also have dropping slopes on the 13d and 34d EMAs, which is not good and indicates a complete loss of momentum.

My have 11 open positions at the present time.  Due to a order-entry error on my part, I have two positions in SKS in two different accounts.  SKS is doing the best, up +5.73%, and VXX is doing the worse, down -4.15%.    Here's the scorecard:

SKS, +5.73%
FXI, +7.60%
SKS, +2.95%
VVC, +0.86%
TBT, +0.72%
TMV, +0.97%
PLXS, +0.4%
WEC, +0.09%
SNDA, -2.06%
AGCO, -3.32%
VXX, -4.15%

VXX has been my hedge and I anticipate that it will move northward as the market consolidates.  I've only a small position in it and will add another 20% position on strength today.

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Here's the dashboard:




Our price index dropped from $26.38 to $26.35, so it is barely worth noting.  Volume was constant relative to Monday as well as the 50d MA, so once again, we could state that we're churning.  Either this is a new base or it is going to drop from here.

Voltatility continues to drop, and I generally like to see this occuring when prices are actively moving higher.  I would not be surprised of a retest of support levels from here if volatility continues to drop, as more people will begin to acquire protection in the form of options since the prices will be so low.  We'll see.

The Long-Cash Ratio (LCR) dropped a slight amount on Tuesday, and our strength index dropped also.  Hence, we have a slight weakening across the board on normal volume, so we are seeing a bit of consolidation occuring in general.

I've been presenting the "slope of the LCR EMAs" over the past few days; no changes there.  We are continuing to see negative slopes in the LCR EMAs, and this means that we are decreasing the size of the pool of stocks to choose from that are moving up.  Your stock picking skills must improve when this occurs, so venture forth as your risk profile dictates.  I'm watching the contra ETF world carefully.

Early candidates that are showing price and volume accumulation in the leveraged contra world are:

DTO
DZZ
GLL
BZQ
DUG
ZSL

Disclaimer:  I purchased 20% positions in ZSL and GLL in premarket trading.

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Short-Term LCR Change Timer

Because the LCR did not advance higher, we are sitting at CASH-LONG (0).  If the LCR drops today (watch http://www.finviz.com/, the ADV/DEC ratio) then this will reset to CASH (-1).  If the LCR moves upward today then this will transition to LONG (+1).

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Elder Force Index Intermediate Timer

Elder continues to indicate that we can purchase stocks long, the continued weakening in the LCR notwithstanding.  Here's my list:

APKT
AIXG
AWF
LNT
ALY
ARBA
AWI
APL
FRA
BKT
CSL
CI
CLWR
RNP
DIOD
ENS
ERES
ERIC
EXPE
HITT
MU
NSM
POWI
SANM
SWI
STM
SNCR
SVR
TRGT
TITN
UTEK
V
XRX

Ensure that you have volume and price entry above yesterday's high before moving on anything in this list.

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

Regards,

pgd

Elder FI(13) Long + LCR EMAs Pointing Down = Mixed Signals

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Good morning from Dallas-Ft. Worth.  Let's get a view of the GGT universe:

The price index moved upward +0.57% on Monday on normal volume that was +4% above the 50d MA.  As far as the close was concerned it was a ho-hum day, but if you look at the intraday, you see that we gave up much of the gains of the morning.  An up day is an up day, so we should have seen our portfolio rise.  My personal portfolio rose +0.17%, the lower amount than the GGT price index simply because I'm mostly in cash.

The Long-Cash Ratio rose yesterday, moving upward +12%.  The LCR is at 1.889 and indicates that more stocks in the database are LONG than with a CASH recommendation.  This rise in the LCR broke a 7-day streak of falling, so we'll see today if the trend continues.  Here is a detailed snapshot of the LCR status:

The left area shows us that the 8d EMA of the LCR is below the 13d EMA of the LCR, which is bearish.  The remainder of the EMAs are aligned properly (13d  > 21d > 34d > 55d) which is bullish.

The right area above shows us that across the board, from the 5d to the 65d EMA, that the slopes of these EMAs are all pointing downward.  This is very bearish for stocks in general and until we see this reverse, I'm remaining mostly in cash.  We need a significant up day to reverse the right side of this graph, and with futures down mildly as I write this, I don't think it will happen today.

Back to the primary dashboard.  The 6th column is the strength index, and like price and the LCR, it moved upward from 0.641 to 0.759.  This is bullish for the day and shows why we moved up overall in the price index.

Hence, overall, we are experiencing mixed signals.  We have a solid increase in the price index, the LCR, and the strength index.  This occured on normal volume, so we can lable the day as bullish.  We have a head-wind though, and with the slopes of the LCR EMAs all falling, we're definately in trouble in terms of bleeding within the database.  With history on my side I am choosing to remain mostly in cash until we get these LCR slopes turning green.

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Short-Term LCR Change Timer

The timer has transitioned from CASH (-1) to CASH-LONG (0), so if today is an up day, as measured by the ADV/DEC line at http://www.finviz.com/ at 3:30-3:45-ish, moving into short-term holdings could be a good move.  I note that the VTI has been in cash since September 23rd, and on this date the price of the VTI was $57.60.  Yesterday's closing price was $60.77, or an increase of 5.5%.  Aside from the waffling within the normal LCR Change Timer, the internals simply have not been in sync with the VTI, preventing us from entering.  Frustrating, but I intend to stay with my timer.

If today is up significantly, at least in a ratio of 14/10 as measured by the ADV/DEC value at http://www.finviz.com/ then I will most likely take a position in VTI, QLD, and/or UWM.

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Intermediate-Term Elder Force Index

Columns 12 -16 of the dashboard address the Elder 13d Force Index.  It presently is positive, which is the primary gate for entry into stocks from the long side.  The slope of the FI(13) is positive (column 13), which shows strength in general within the database.  The slopes of the 13d EMA and 34d EMA on price are both pointing upward, which also is showing strength in the database.  When we wrap all this together we have green flags waving to move into the market from the long side.

Of course, Elder makes no use of the slopes of the LCR, so these two signals are beating against each other.  This should cause you to pause at jumping in with both feet.  This being said, here's my list for intermediate-term entry:

AEL
KELYA
MNTA
VVTV
EGP
LMT
EXP
NCV
PNC
FCT
COL
S
MKC
DHR
SO
MRVL
IDG
AGCO
COT

If you look at this list, ensure that you have volume AND price appreciation before entry.

===================

Remember, you are responsible for your decisions, not me.  Please take ownership for your actions.

Regards,

pgd

Short Term Bounce Likely, but it is Raining in LCR-land...

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Greetings from Blacksburg, Virginia, where VT put a hurting on Duke Saturday, 44-7.  It was a great day for football, and any day I can watch my Hokies with my family is a special day. 

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Overall, we have to be careful in the markets.  It's hard to make this arguement convincing to you when the futures are pointing upward, but remember, my time frame is much longer than a day. 

Let's start with the dashboard:

Our price index moved up a large amount on Friday, +1.16%, on volume that was significantly lower by -16% than what we've been experiencing.  Although this volume is still within a standard deviation of normal volume, it does give me a great deal of pause to see such a surge in prices on what I consider really poor volume.  If you doubt this, wouldn't you rather see the gain in prices on volume that was knock-the-ball-out-of-the-park?  Thus my point.

Consider this cautionary signal #1 from Friday.

The Long-Cash Ratio continues to fall, which is bearish.  A question came up between Hsin and myself on Friday about what the LCR really is telling us.  Let's look at how the LCR is constructed so that everybody has the same reference point:

Every stock in the database has one of 6 classifications, and 3 of these classifications fall onto the LONG half of the court, and the other 3 fall onto the CASH half.  If a stock has LONG classification (New Long, Affirmed Long, Long) then it is trading above an optimized threshold that was determined by looking at price and volume over some time frame in the past.  Conversely, when a stock has a CASH classification (New Cash, Affirmed Cash, Cash) then it is trading BELOW an optimized threshold that was determined by LOOKING AT PRICE ONLY.   Hence, we have a gate-process:  we need to have large price+volume to move into a LONG position, but we only need a breakdown in price to move to CASH.  This ensures that we have demand for a stock when we see price move upward.

When the LCR continues to fall, the database stocks are losing in price value, triggering a move from LONG to CASH.  This means that your ability to pick winning stocks MUST IMPROVE, because the numbers are against you.  We have had 7 consecutive days of falling LCR -- how many of your stocks that you have purchased in this time frame have gained in value?  How many have moved sideways?  How many have lost ground?

So enter the present status of the LCR.  Refer to the figure below:

I've posted the figure above a couple of times this past week.  The left columns show whether a specific EMA of the LCR is above the next longer EMA.  Shown is the fact that since 10/20/10 the 8d EMA has been below the 13d EMA, which is bearish, but the remainder of the long EMAs are above their next adjacent EMAs, which is bullish.

Creating more of a problem is the slope of the EMAs, which is shown in the 6 rightmost columns.  These start with the 5d and include the 65d, so I'm covering many different time frames.  As you can see, all of these have been pointing downward since 10/19/10, and the 5d actually started back on the 15th.

What is significant about this is that if I use just the 65d EMA slope signal and the daily change of the GGT as an index, here is what I get

• 9/1/10 - 10/18/10:  Bullish Period,  Gain = +12.834%
• 8/11/10 - 8/31/10:  Bearish Period, Gain = -9.509%
• 7/8/10 - 8/10/10:  Bullish Period, Gain = +11.76%
• 6/29/10 - 7/7/10: Bearish Period, Gain = -4.214%
• 6/15/10 - 6/28/10: Bullish Period, Gain = -1.762%
• 4/27/10 - 6/14/10: Bearish Period, Gain = -9.327%

You get the idea.  This trend holds quite well and can be improved with some tweaking, but the raw results are shown above. I conclude that fighting the markets with attempts to go long during bearish periods would have been extremely dangerous to your portfolio value.

Now look at the figure again.  We've been bearish across the board with declining slopes since 10/19/10.  Do you think you should be long right now?

The concept of time frames is very important when we look at the market.  I've established above that the LCR is falling across the board, measured from a 5d EMA to a 65d EMA.  How do we determine a local bounce?  Take a look at the next graph:

The figure above shows us that on the three time frames indicated that we are losing ground in terms of the slopes of the LCR EMAs -- they are all in the pink zone, so the slopes are down, e.g., more stocks are moving to cash.

Note though that on a shorter time frame that we have a recovery upward from the huge drop in LCR values that occurred last week -- we are moving upward on the 13d time scale -- the slope of the slope is positive.  So while the LCR is dropping (pink zone), it is doing less rapidly day-over-day, which points us towards a local bounce.  On a short-term basis we are bouncing upward in terms of the rate that stocks are bleeding from LONG to CASH -- fewer are moving to CASH day-over-day than did after the spike down last Tuesday.  This is short-term bullish but note:  WE ARE STILL LOSING GROUND IN THE NUMBER OF STOCKS TO CHOOSE FROM.

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Back to the dashboard.  The GGT strength index, which is made up of a number of items related to price, volume, and rate of change, appears to have found a local bottom at 0.641.  This is an oscillator that moves between 0 (extremely oversold) and 1 (extremely overbought).  The present value is telling us that we have considerable upside room available, but it also indicates that we have a large amount of downside room that could appear.  This has been rising for the last 3 days and is a bit of a divergence from the LCR, so again, we must take heed and try to understand what is occuring.

I note with interest that although the strength index has been rising for the past three days, the GGT Price Index has gone nowhere -- it is only up +0.15%.  Again, because the LCR has been dropping, it's more difficult to find stocks that are moving upward. 

Here's a plot of the Strength Oscillator with the GGT Price Index:

As you can see above, we've certainly had an upward-trend in the strength index as measured by the lows when we have reversed.  Because this is an oscillator and we are bound by a value of "1" on the top we have an upward sloping wedge, so penetration of this wedge from above could only be considered bearish.  We'll have to wait and see but certainly the graph supports that we could have a local run-up from here.

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Short-Term LCR Change Timer

Because the LCR fell on Friday the LCR Change Timer has remained in CASH.  Hence, on a short-term basis, I too will remain in cash.

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Intermediate-Term Elder Force Index Timer

Columns 12-16 of the dashboard focus on the Elder system.  Right now, the Elder Force Index (13 EMA) is positive, indicating that we can go long in stocks.  The slope is downward, but only for the past day, so this could be a good buying opportunity across the board.  Both the 13d and 34d EMAs on prices have slopes that are pointing upward, so we have a bullish indicator there too.  This timer is telling us that across the board, and falling LCR not withstanding, that we can move long into stocks.

Here's my list of Elder candidates for today:

AYR
AEP
AMMD
NLY
LFC
DCT
TMV
FGP
FIS
GVA
JEF
LPX
MAC
MFC
MCY
MET
NABI
NUVA
TBT
QGEN
RBC
SNDA
TIN
VVR

Note that these all have upward-trending 34d EMA slope lines, and they all are in some form of LONG status as far as GGT is concerned.

Note that FGP and SNDA are both "Affirmed Longs" so these are signaling strong performance as of Friday's action.

My holdings have been getting thinner and thinner over the past few days.  As I indicated last week, I moved my wife's TSP account completely into cash.  Here's the scorecard:

EWO +8.66%
FXI +6.43%
VVC +0.08%
SKS +0.04%
WEC -0.09%
AGCO -0.48%
PLXS -1.24%
TBT -1.55%
SKS -2.59% (2nd position in this stock)
TMV -2.62%
VXX -4.81%

For the week my invested portfolio fell -1.26%, which is disappointing.  In the big picture, I lost less than 0.05% in total net worth, so hardly worth worrying about.  I simply hate taking losses though.

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Trading Plan for Monday

Today is a travel day to the Dallas/Ft. Worth area, where I will be the rest of the week.  I'll attempt to review the stocks above, and with futures up strongly as I write this, many should launch out of the starting blocks with strength.  The falling LCR has me worried though that this is a short-term sucker's rally, so I will pick my entries carefully.

I'll most likely sell my positions above on strength, or at least place a 1% TSL on those positions after they rise today (e.g., place the TSLs on the gainers tonight).  As far as the losers, especially the VXX position which is my hedge, I may try to add another 5-10% position in VXX at the end of the day if we are showing strength throughout the day.

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

Regards,

pgd

LCR Falling, Elder still LONG, Contra ETFs Stirring

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The GGT price index fell -0.12% on volume that was 13% above the 50d MA.  The level of the fall in price is within the normal market noise, so I don't think we can read too much into it.  Further, it wasn't at the bottom nor the top of the range, so neither the bulls nor bears were winning at the end of the day.

More of the same ...

The Long-Cash Ratio continued to drop, landing at 1.719 and indicating that we have 1846 stocks on the LONG side and 1074 stocks on the CASH side.  The trend for the LCR is downward, and has been for the last 5 trading days.

I draw your eye to the following chart:

Note that ALL of the primary EMAs on the LCR are pointing downward.  Independent of Elder or other intermediate timers, investing long right now for an intermediate-term investment is risky.  This is a dangerous trading environment, and you are clearly swimming upstream if you think you can hold positions for any duration of more than a few days against the current of the database losing intrinsic value.

I moved a substantial amount of my wife's funds to cash two days ago and this appears to have been a good call given the chart above.

Can we bounce from here?  Sure.  We are already starting, according to this next chart:

This chart is determined by looking at the daily difference of various EMAs on the LCR.  This is my favorite "slope of the EMAs" chart, and when the points are in the pink area, we're losing ground.

The chart above indicates, because all the points are in the pink area, that on a day-over-day basis, stocks are bleeding in terms of having a LONG call prior and now having a CASH recommendation.  The RATE of BLEEDING is slowing and reversing, which is a necessary condition for another up leg.  Hence, if you are short term AND you have a few-day horizon, this could be a good entry environment.  This being said, we could play in this area for a really long time -- simply look at the points in the May 2010 area to understand what I'm saying.  "Venture ye at your own peril ..."

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Short-Term LCR Change Timer

The LCR fell on Thursday, resulting in the timer remaining in CASH.  Hence, I'm in cash and will remain here with my short-term holdings.

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Intermediate-Term Elder Force Index Timer

A picture is worth a 1000 words ...

On the bullish side:

1. Bear Power is strongly positive
2. The Elder FI(13), both EMA and SMA methods, is positive
3. The Elder FI(2) is indicating a good entry point for stocks
4. The slopes of the 13d and 34d EMAs are positive, so on these time scales, we are in an up trend
5. Prices are above the 13d EMA
6. Volume is above the 50d SMA of Volume

On the bearish side:

1. The MACD Histogram is 2days now with a negative value.  We are losing momentum across the board
2. The slope of the 13d EMA is below the slope of the 34d EMA.  Both are pointing downward.  We are accelerating DOWN, not up, across the entire database.  Yuck.
3. We have several down days on higher volume.

The indicators say that we can buy Elder stocks long, so here's the list of the most strong:

MBLX
TWER
URZ
KSU
CFFN
DB
BMO
CYOU
NTLS
BF
OPTR
OFC
DPZ
CLMT
DCT
CL
NNN
LNT
XLU
WTR
FIS
AMRN
WOR
CRIS
IGI
ASTM

Note that I think entering these with no consideration of the falling LCR EMAs is a very risky proposition, but your crystal ball is as good as mine.

[Side note:  In watching pre-market action this morning, one of my holdings, FXI, the Xinhua 25 ETF, has seen a large transaction -- 1.5M shares in a quick series of trades:

That is an amazing volume for pre-market.  FYI only. ]

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Contra ETF Watch

It's hard to ignore the contras right now.  Although they are struggling to move upward, they are getting closer and closer to signaling entry across the board.  In support of this statement I provide the following:

The figure above shows what GGT has to say about various contras in the database.  As you can see, many of these are good on volume and have been signalling strength (look at the Affirmed Longs -- I hold TBT).

Here's what the index is doing in general:

We're very early on Contra ETFs, but I believe we need to watch this group like a hawk.  Here's why:

1. Bull power is -0.04 and is within reach of moving positive.  This is a requirement for any major long positions in contra ETFs.
2. The MACD Histogram is positive now, for the past 3 days.  THIS is really important, as it shows that the group is picking up momentum.
3. The slopes of the 13d EMA and 34d EMAs have crossed from below, and this means that we have upward momentum as a group.  DESPITE this, the values of these slopes are negative, so overall, we are losing money on these time frames, but are now doing it with less bleeding day-over-day.  THis is bullish.

We are early in Contra ETFs, and here is the case why we're early:

1. Both FI(13) calculations (EMA and SMA) are negative.  We want these positive.
2. The value of the slopes of the 13d EMA and 34d EMA are negative, as stated above.  We are losing real dollars in this index at the rate of -$0.09/day for the 13d EMA and -$0.20/day for the 34d EMA.
3. Price of the group is trading below the 13d EMA, which is below the 34d EMA.

All this being said, watch the following contras:

SKF
EUO
EDZ

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Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your actions.

Regards,

pgd