1/7/11 Weekend Update

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Summary

• There are no changes to the GGT Top 25 STOCK portfolio.
• There are 2 changes to the GGT Top 25 ETF portfolio:  sell MVV and RFG.
• UFS is a new entry to the GGT, LLC portfolio.  It is an Elder stock.  There are some Connors trades but it is far too late for any form of entry in these if you're even thinking about following me (buy ETF Bandit from Chris White as a solution).
• The LCR System continues to drop, showing that the database is contracting, and that the number of stocks that are above their historical bullish norms is getting smaller and smaller.  This means your skills at picking stocks has to be getting better and better, because the reward/risk ratio is getting poorer.
• The Pricing System is bullish, but very weak.  Indicators show waning momentum.  This is a dangerous time to move long into stocks.
• The Timing System, in terms of the short-term timer, is in CASH, and has been since mid-December except for a brief whipsaw.  It is at least two-trading days away from moving long, and both Monday and Tuesday would have to be up days for this to happen.  The intermediate-termed Elder Timer is long, but it is weak and near cross-over to a sell signal.  We need this to turn up this week to stay long in stocks and ETFs.
• Contra ETFs are early, but are getting more attractive.
  
  
• I'm on-site with my client all week in Spokane, WA, so my intra-day availability will be limited.  Postings may be limited too, so if there is something that you absolutely want followed, subscribe to my Yahoo! group by sending an email to GreekGodTrading-subscribe@yahoogroups.com, and once subscribed, you can send a note directly to GreekGodTrading@yahoogroups.com.  No promises, but it will help me to focus what time I do have available.

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GGT Top 25 ETF Strategy Changes

With the close of markets on Friday, 1/7, GGT is signalling the close of MVV (+11.51%) and RFG (+0.04%).  These will be sold shortly after 9:45 a.m. on Monday.

NOTE:  This portfolio is a TEST portfolio, and we are presently forward-testing.  If you follow any of these trades you do so with no specific obligations that I will provide timely or accurate information.  Your continued following of the Top 25 strategies is subject to acceptance of the Disclaimer that is posted to the left within this blog!

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GGT, LLC Position Changes

I added a new Elder position on Friday -- I wasn't going to, but I couldn't find a compelling reason of why NOT to enter this new stock.  The setup looked solid:

This is the setup from THURSDAY NIGHT, 1/6 (not Friday's close).  Note the following:

• Bull Power is positive
• Bear Power is positive
• Elder 13d Force Index (EMA method) is newly positive
• Elder 13d Force Index (SMA method) is newly positive and confirming EMA method
• Elder 2d Force Index is GREEN, which means it is NEGATIVE (I've inverted the color scheme from the default HGSI visualization because when FI(2) < 0, we are "cocking the hammer" on a possible entry.
• MACD Histogram is newly positive (2 days), which is newly bullish
• The MACD lines are starting their upward movement from the lower half of the window, and combined with the crossing of the MACD and MACD signal line, this too is bullish
• %B is "Yellow", which is neutral, but certainly not bearish in this context.  It indicates "fuel in the tank" for this equity.
• Both slopes (13d, 34d) are positive (bullish), and are pointing upward (bullish because of momentum to the upside).
• The price is trading above all EMAs (bullish)
• All of the relevant EMAs (40 and below) are above the 160d, which means that this is in a long-term uptrend.
• Volume has come back to normal (there's a market for the security)

Everything here meets/exceeds our required entry under Elder's rules.  Taking this one step further, I evaluate effective volume (EV) on these Elder stocks, although there is not a hardfast rule in the GGT Strategy Document that I do so.  Here's the 8d EV chart for UFS, according to my TradeStation plug-in:

As with all my images, right-click on it to open in a new tab or window.

For initial screening purposes, I've modified Pascal Willain's 40 period of EV, simply because I use a small laptop window when I'm traveling and it's easier to look at the numbers on the right hand side of the scale than see the entire EV trend.  If large effective volume (LEV) is seriously negative over the last 8 days, I don't consider the stock, as it is in distribution.

Above, we see that LEV on the 6th was relatively flat, and we had a break away on the 5th due to LEV which caused a good amount of price appreciation.  THIS is the pattern I look for on the 8d EV chart -- positive LEV, LEV diverging positively from SEV, and prices moving up relative to the left side of the graph (top trace).

For those of you curious, LEV << SEV and both are negative on the 40-day chart, so this stock has been in distribution.  Will it break out?  Who knows....?  It may be doing so now.  There was serious buying mid-day on Friday of UFS.

Sooooooooooo, the problem entering Friday morning was simple:  there was nothing blocking me EXCEPT the fact that the price was well outside of the buy zone that Hsin and I have agreed to:  purchase only if the price is less than 40% of the ATR(20) + EMA(8).  Note that with Elder's strategies this presents a bit of a problem:  Elder's methods explicitly state to buy ABOVE THE HIGH OF THE PREVIOUS DAY if the FI(2) is negative.  This would cause us to move further into overbought territory.  What I did was simply place a limit order at EMA(8) + 0.4*ATR(20) and went about my business -- and it filled.  UFS pulled back and then resumed an upward movement, ending the day positive with respect to my entry.  Here's the EV chart and the trade, as of the close of Friday's action:

As you can see, just after 2:30 pm, someone stepped in with a order that was attributed purely to LEV, and from there, LEV kept building.  Note how SEV is clueless and is still trending horizontal.  We'll see....

I would like to say that this was planned, and obviously, since I placed the limit in the first place, I thought there was a chance.  In reality, most of these types of entries NEVER work for me, so I wasn't optimistic.  This is the importance of being mechanical though -- it is important to have a system that you know has worked in the past.  In this case it was more luck than skill, but it worked.  Let's see if UFS can continue upward.

It's also important to understand that UFS, despite all the positive indicators, UFS could fail easily if the market tanks.  This is because in general, we are at market tops, so long purchases right now are more risky than normal.  My stop for UFS is at $75.64, which seems to be a good (visual) support level.

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Long-Cash Ratio (LCR) System Status

Here's the most recent image of the LCR dashboard:

In general, the LCR has not been that healthy.  Since 12/23 the LCR has only risen on 3 of those days, spending most of the days giving up further ground.  Clearly a case of 1 step forward and 2 steps back...

The "health" of the LCR system, which tells us as far as the database is concerned what is the overall trend of the markets, is getting sicker.  Note on the left side of the graph the two "bearish" red blocks -- the 5d EMA is less than the 8d, and both of these are less than the 13d.  This is an inverted situation, and overall, tells us that on the 5d and 8d time frames we are having a greater difficulty picking stocks, because the number of available stocks (e.g., those that are GGT "LONG") is getting smaller and smaller.  If the "red" trend on the left continues (13d < 21d is next) the bears will be grinning ...

The middle of the figure is where I spend most of my observation time.  This is the slope area, e.g., here I measure the "slopes of the EMAs".  This is an incredibly powerful concept and if you've not grasped it then you've not optimized your ability to enter stocks.

As you can see in the figure, all the lines have just turned red/Bearish.  This is bad.  This tells me that the slopes of every EMA, from 5 to 65 days in length, is pointing downward.  This means that on every measurement scale that I think is relevant that the database is contracting, which is bearish.  Choose your stocks carefully, as the tide is flowing out, not in.

The right side of the figure is the "Slope of the Slope".  Here, we too see that every measured time frame, from 5d to 65d, is red/Bearish.  This means that not only are the aforementioned slopes negative, but they are accelerating to the downside faster day-over-day.  Put another way, if today there were 50 more stocks that moved to New Cash than yesterday, then tomorrow there will be MORE New Cash stocks, averaged across these time periods.  Until we get some sustained green, say of 3-4 days continuous, it's not a good time to buy stocks long.

LCR Conclusion:  stocks are dropping in prices relative to their optimized bullish levels, causing the LCR to drop.  Yes, there are still good stocks out there, but the numbers of stocks to chose from (if you limit yourself to the GGT universe) is getting smaller and smaller.  Be careful, and tighten your stops.

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Pricing System Status

The pricing system is overall bullish; here's the chart:

As you can see by the third column from the left, volume has returned, as we're significantly above the 50d MA of volume for the database.  This is good overall -- there are buyers and sellers in the market.

The layout of the pricing system is exactly like the LCR system indicator -- the left is the status of various EMAs, relative to the next longest, and here, the 5d > 8d > 13d > 21d > 34d > 55d.  This is bullish.

The middle of the figure shows the status of the EMA slopes of the pricing EMAs of the database, and since they are all green, the SLOPES are pointing upward across the board.  This is due somewhat to the appreciation that we saw in the low-volume days of late December, as well as the movement of this week.  I do caution you though -- these indicators are binary -- they are either red or green, and they give you NO information concerning how close to converting to red they are.  This next graph helps us there:

What bothers me about this figure is that GGT database prices are trending sideways (blue trace) while the pricing EMAs drift less positive.  At their present rate of change they'll start crossing into the pink zone later this week or early the week of the 17th.  We'll see, as a sharp drop in the markets in any one day will move these lower faster.

Pricing System Conclusion:  Despite the fact we're showing bullish status, the EMAs are losing momentum.  I like to invest when these are gaining momentum, not losing, so caution is advised.

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Timing System 

Here is a snapshot of the GGT Timing Systems that are followed:

As can be seen from the figure, the Short-Term LCR Change Timer has been in CASH since 12/27, having experienced a short whipsaw in the low-volume days of the December drift.  Ditto the same thing for the VTI timer, which is closely related to the LCR Change Timer.  Both of these timers are stating that Monday is not the time to enter positions long.

On the right side of the figure is the Intermediate-Term Elder timer.  Green-green-green-green-green means green, as in bullish.  I note with interest though that the raw value of the Elder FI(13) on the GGT database is very close to signaling negative, which would be a broadcast to sell ALL Elder positions, and possibly enter contra ETF positions.  Nevertheless, the Elder system states that it is okay to enter the waters and swim with the sharks using long positions.  We simply must be very careful overall.

Timer Conclusion:  

The short-term LCR change timer is in cash.  You should be too, in my opinion.  The intermediate-termed Elder timer is long, but Elder's timer does not consider where in the FI(13) wave we are, and the FI(13) wave is dropping in value.  I'm not moving wildly long at this time, but will play Elder candidates if they setup nicely.

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The Contra World

With the normal long-world looking so wishy-washy and top heavy, is this the time to jump into contra positions?  Time for another chart:

This is my standard view in HGSI.  The data was constructed by taking 82 contra ETFs and creating my own index, and voila'!  THIS is the power of HGSI, and is one of the primary methods on how I use the program.

Of particular interest is that:

1. Bull Power just moved positive on Friday.  This means that the high of the bar on Friday was above the 13d by a good amount, and this is considered bullish.
2. Elder's FI(13), EMA method, just turned positive on Friday.  This means that we have an "early thawing of the ice" as far as contras are concerned.  I'll want to see this continue for 3-4 days to ensure that it sticks, and I'd like to see the next line, the FI(13) SMA method, also turn positive.
3. MACD Histogram is newly positive for 2 days.  This is exciting, isn't it?  
4. The MACD and MACD signal lines have a bullish crossing (obviously, since the histogram is positive), and are in the lower half of the window.  This is a great setup if it continues.
5. The slopes, while NEGATIVE (bearish) in their absolute value on a $/day basis, are both pointing upward, and the 13d slope will cross the zero line this week if this continues.  This tells me that we're in a good position for entry if the other indicators start flipping long.
6. Let me say that the price trading above the 8d EMA is exciting, and if we can get an EMA crossing from below (8x13 will be first, obviously), we could be in a great position for an early entry in selected contra ETFs.

Tempering my enthusiasm is the following:

1. BEAR Power is negative, and equal in magnitude to Bull Power.  This means that the low of the bar on Friday was below the 13d EMA by the same amount as the high was above, which basically is neutral. We want BOTH Bull and Bear Power to be POSITIVE for the contra index before we seriously enter long positions.
2. As stated, we don't have confirmation from Elder FI(13) SMA method -- it is still negative.  We want this to be positive (Green) and confirming the EMA method to have confidence to move into these equities.
3. The slopes are negative in absolute value.  This means, with respect to the 13d slope, that we are still losing money on a $/day basis, but because it is pointing upward, we are losing less each day.  

Contras simply are too early.

THIS BEING SAID, let's look at the GGT contras that have already flipped to some form of long status,

Every night my colleague Joe tediously and reliably calculates and posts the ETF files in our GreekGodTrading group at Yahoo!.  If you are not a member, join using the information in the summary at the top.  Contained in that file posting is a HTML file called "ETFs by Industry", and it allows you to see in a moments notice what contra ETFs are long.  Here's the view:

I've shown only those that have a GGT "Long" ranking.  As you can see, we had a number of ETFs move long on Friday, most notably TWM, which is the -2x contra position of the Russell 2000.  Pay attention to this -- it is a whale.

The $-Volume of DGZ, EPV, MZZ, and DPK is too low for me to consider using Pascal's EV methods.  Contrasting, the others are of good size, so let me run down the 8d EV view of these ETFs, in order of $-Vol descending:

TBT:  Clear distribution

TMV:  Neutral, no opinion

TWM: SOLID ACCUMULATION, and clear divergence from SEV (Small Effective Volume)

EUO:  steady, but small accumulation

TBF:  solid DIStribution -- LEV is dropping like a rock and SEV doesn't have a clue ....

RWM:  neutral, no opinion

GLL: neutral, no opinion

PST:  same as TBF -- solid LEV sell-off on Thurs/Friday but SEV doesn't have a clue ...

Based upon this, TWM looks interesting.  VERY interesting.  Let's look at the chart:

• Bull/Bear Power are still straddling the 0-line so this gives me pause.
• Elder's FI(13) is newly POSITIVE for both methods (EMA and SMA).  Since this was confirmed with a GGT New Long, I'm excited and my tail is waggin'.
• MACD looks wonderful on all counts (by now, if you've read this far, you should know what that means).
• %B is improving...  I like the upward trend from light green (which is inverse of the default in HGSI)
• LOOK AT THE SLOPES.  WOW.  Both are in a steady uptrend.  While they are both negative, they will be crossing zero soon.  If all of this continues TWM will be a buy very shortly.

Contra-World Conclusions:  We're early, but through GGT stocks and ETFs, specifically the New Long recommendations, we can get a good view on what looks good, what is setting up, and what we need to watch.  The contras are improving, but we're early.

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Remember, YOU are responsible for your own investment decisions, and I am not.  Please do your diligence, and take ownership for your actions.

Read the full disclaimer located on the left side of this blog.  Continued following of my ramblings indicates your acceptance of the conditions stipulated in that disclaimer.

Regards,

pgd

Positions Disclaimer:  I own or influence positions in EWA, EWL, and UFS.

Top 25 Stock Portfolio Update for 1/7/11

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As of the close last evening (Thursday), three of the 25 selected stocks have moved to New Cash and will be sold after 9:45 a.m. on Friday:

Sell:

WNR (-4.36%)
ROSE (-2.55%)
PAL (-2.45%)

The cash will be held until next Thursday, which is when the list will be updated.

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Remember, you are responsible for your own investment decisions, and I am not.  Please do your diligence and take ownership for your actions.

Regards,

pgd

Top 25 Stock Portfolio Update for 1/6/11

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Finally!  The update completed, and here are the changes.

Much more rotation than in the ETF portfolio ...

Sells:

ALR +6.98%
AMRN +5.69%
ATML +7.05%
DDS +2.73%
DNN - previously sold intraweek
MEE +3.45%
NG - previously sold intraweek
TGA + 5.09%
UEC -6.76%
VSH - previously sold intraweek
VVTV +3.28%

Buys:

ACLS
AH
CVI
EXEL
GTLS
LNG
MWW
NXPI
OCLR
REE
SFI

Holds:

EXK
FCS
FRG
FTK
HL
JAZZ
KOG
LDSH
PAL
ROSE
URZ
WNR
WTI
XOMA

Since inception on 10/28, the portfolio is up 4.9%.  Maximum drawdown levels are presently unattainable because Marketocracy web site is having log in problems.

Here are the rankings, compared to last week.  Order does imply strength, with the strongest at the top:

Color codes are the same as previously listed in the top 25 ETF submission earlier today.  Note the new rotation of stocks in (10 of 25), the drop of existing stocks (11), two remaining in place (YELLOW) and two increasing in strength (GREEN).

The market feels toppy, but with the new rotation, if we continue higher, the portfolio should creep upward slightly.

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Please read the disclaimer listed to the left of this blog.  Continued following of this blog is predicated on your acceptance of the terms specified in the disclaimer.

Please take responsibility for your actions.

Regards,

pgd

Top 25 ETF Changes for Thursday, 1/6/11

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The STOCK updates are running late; I had issues with my updating process and had to restart it when I awoke this morning.

Here are the updates for ETFs:

The following positions have already been sold due to intra-week changes, but for the record, they are no longer being held:

GDXJ
IEZ
OIH
QLD
TBT

The following positions will be bought early this morning:

IEO
IYE
RFG
SMH
XES

The following positions are being held with no change:

AGQ
BGU
DIG
ERX
KOL
MVV
PALL
SIVR
SLV
TMV
TNA
TQQQ
TYH
UPRO
UWM
UYM
VDE
XLE
XME
XOP

Order does NOT imply strength.

The following is a comparison of last week's selections to this week.  Here, order DOES IMPLY STRENGTH, with the strongest performing at the top of the list:

Color coding is as follows: 

• YELLOW = no change in position
• GREEN = moved upward in position relative to last week
• RED = moved down in position relative to last week
• WHITE = new entry; not in top 100 relative to last week

What I find interesting about the above graph is that we have a large number of ETFs that have remained in position (YELLOW) or have moved upward (GREEN), resulting in little rotation.  This is significant, and it is the first time this has occured since I started this method back in late March 2010.

Overall, the Top 25 ETF fund is up 7.95% since inception on 11/26/10.  The maximum drawdown in this period is less than 2%.

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The Top 25 ETF porfolio is being provided for educational purposes, and is not a recommendation to buy securities.  If you choose to purchase the securities listed here, you do so on your own and with the acknowledgement that this information could be in error, resulting in significant loss to your portfolio.

Please read the disclaimer listed on the left of this blog.

Remember, you are responsible for your investment decisions, and I am not.  Please take ownership for your actions.

Regards,

pgd

Wednesday Changes to the Top 25 Portfolios

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As further evidence of market rotation, we have some changes to the portfolios:

Top 25 ETF portfolio:

Sell IEZ (+6.08%), OIH (+2.08%), GDXJ (-0.94%)

Top 25 Stock portfolio:

Sell NG (-1.11%), DNN (-7.83%)

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Disclaimer:  The Top 25 Portfolios are presented for testing and educational purposes only.  These are being forward-tested in real time, so following me on these is at your peril...

Regards,

pgd

A Crack in the Bull Ice? Not yet, but here's how I'm getting ready ...

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Summary

• I'm in cash across the board. 
• The LCR does not support the new highs in the market, so either we must rally strongly here or this is a dangerous, false top
• Contra ETFs, while early, are starting to show some initial signs of life...

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Good morning from Ft. Worth.  Quite a change from Hawai'i ....

Wednesday starts with a few observations:

1. The DOW finished at highs not seen since the summer of 2008 on higher volume.  This is bullish.  Contrasting, the market advance/decline ratio was 1981/4278 according to FinViz (http://www.finviz.com/), so the markets were not firing on all cylinders while the DJ30 was.  Troubling.  It will be absolutely crucial for the broad markets to follow within the next few days.
2. The Long-Cash Ratio, which is a measure of the number of stocks in the GGT universe with a LONG recommendation to those with a CASH recommendation, continues to fall, again in the face of the DJ30 being at a new high.  In fact, out of the last 8 trading days, the LCR has dropped 6 of these periods.  This means that the universe of stocks that we can choose from that have increasing prices is getting smaller and smaller, so our skills must improve in order to pick winners.
3. The Elder 13d Force Index value, which is determined by exponentially averaging Volume * Price Change of the GGT database, gave up 1/2 of it's value on Tuesday.  Yowza!  While still positive (bullish), this this a huge drop in this indicator, and lack of follow through in the markets will continue to erode this indicator.

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Across the board, I'm in cash, and for today, I intend to remain in cash.

Given that the markets are diverging, and given that there have been some signs of life in the Contra ETFs, my attention swings to those opportunities.  Contra ETFs are compelling for a couple of reasons:

• with little exception, the MACD (Moving Average Convergence/Divergence) lines are all in the lower half of the window.  Interpretation:  Contra ETFs have been getting slammed for some time, driving their prices lower and lower.  If the markets reverse to the lower side, these contra ETFs will explode upward, which is where we will make money.
• Contra ETFs are fully "reset" in the context of my slope analysis.  Most of these have slopes that are still negative on the 13d and 34d EMA time-scales, so we are quite early.  The most risky and aggressive amongst you can start to dip your toe in when the slopes of the 13d and 34d start moving upward, even with a negative value of slope.  More on this in a bit.
• We've already seen a couple of Contra ETFs move to the "LONG" side, telling us that from a historical perspective, they are starting to perform.  We MUST keep our eye here...

All of this being said, let's look at a few critical charts.

As with all my graphs, right-click on the image to open in a new window or tab.

From a macro perspective, contra ETFs are an AVOID.  Here's why:

• Bull Power, which is a measure of the distance between the high of the price on a daily basis and the 13d exponential moving average, is NEGATIVE.  This means that the highs are below the 13d EMA, and this is not good for making money.
• Bear Power, which is a measure of the distance between the LOW of the price and the 13d EMA, is negative.  The bears are in control of Contra ETFs.  Period.

If this isn't compelling enough for you, then here are other reasons to sit pat for now:

• The 13d Force Index for this group is RED --> less than 0.  This is a clear avoid for this group.
• The MACD histogram is slightly negative.  This is bearish.
• The "slope of the slopes" of the 13d EMA and 34d EMAs are pointing downward, which means that Monday's action was more powerful than we wanted, driving prices of the contra group solidly lower on these time scales.  Ouch.
• ALL the presented EMAs -- 8d, 13d, 34d, 40d, and 160d are all pointing downward.  The group is losing money across the board.

So, if contras are a solid avoid, then why am I spending time on them?

Because there are signs of life.  From a Relative Strength Index (RSI) perspective, take a look at the following:

This is the HGSI relative ranking tool, and what is interesting to me, when viewed through a 2-week RSI lens, is that we have a number of Conra ETFs that are newly emerging and performing well.  If you recall, short bonds (TMV, TBT, etc.) have been strong for several weeks while the markets rallied (look down at lines 35 and 36).  These are starting to relax in performance, and a new rotation is appearing.  Take a look at the "green" in the 1/5/11 column -- we're seeing relative emergence in contra-oil as well as contra-small caps.  Note that this table can be misleading -- this relative emergence is in context of the universe of contra equities, and as I showed above in the contra-index figure, we are still early.  Nevertheless, it's important to keep an eye on these "leaders" in the contra universe.

From an effective volume (EV) perspective (http://www.effectivevolume.eu/), SCO, the #1 contra ETF on the list, has seen some very mild large EV (LEV) accumulation over the last two days, but over the last 8 days, has been in a slight distribution mode.  You can research the remaining ETFs to determine EV using Pascal's site above or www.monest.net/charts .

Finally, take a look at this table from GGT:

The table above shows all of the contra ETFs tracked by the GGT system, sorted in terms of strength THEN recommendation, from strongest to weakest.  Pay attention to those ETFs at the top of the table ... all they need is volume and they could be the early emergers.

Every evening my colleague JumpinJoe A.  posts this ETF data in the Yahoo! GGT forum -- you can download yourself and track this without my help.  Simply send a request to join to GreekGodTrading-subscribe@yahoogroups.com if you are interested in accessing the Files section (as well as other GGT discussion).

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Remember, you are responsible for your own trading decisions, and I am not.  Please do your diligence and take ownership for your actions.

Regards,

pgd

And Let 2011 Begin ...

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Summary

• The GGT LCR subsystem indicates that we have moved into a period of database consolidation, and continued growth of the number of CASH-rated stocks will likely be the norm.  This means that it will be increasingly difficult to purchase stocks long and make money.
• The GGT Pricing subsystem indicates that we are continued bullish, but have some weakness developing.  This status is at odds with the LCR subsystem and the divergence will clear itself within the week or so -- either the markets will correct, as indicated by the LCR subsystem, or the markets will move strongly to the upside, as indicated by the pricing subsystem.
• The GGT Short-Term LCR Change Timer is in CASH.  It is not prudent to purchase new short-termed positions at this point in the market.  We are at least two-full trading days (close of markets Tuesday) away from seeing this status change.
• The Elder Intermediate-Term Force Index Timer is LONG.  My suggestion is to choose your stocks carefully, as this market has many cross-currents that are not considered by the Elder system.
• The Contra Intermediate-Term Timer is in CASH.  It is not prudent to move into contra positions at this time.  THIS BEING SAID, two contra ETFs are showing New Long status:  PSQ and SQQQ are confirming.

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LCR Subsystem

Let's start with a broad view, using the Long-Cash Ratio (LCR) System:

As with all my images, right-click on the image to open in a new tab or window.

Starting on the left, the LCR value, which is calculated based upon the number of stocks in a LONG status compared to those in a CASH status, continues to drop, ending the year at a less-than-remarkable 1.457.  This is telling us, in snapshot form, that we have 1610 stocks LONG and 1105 stocks in CASH.  Next to that value is an indicator showing the day-to-day change, and you can see that since the 12/22 peak, the LCR has been steadily dropping.  I don't care if it's due to the holidays or not, a dropping LCR isn't bullish.  Period.

Next from the left is an indicator that tells me, again in snapshot form, the present status of the LCR exponential moving averages (EMAs).  As you can see, on 12/31 we had "red" across the board, indicating that we have complete inversion of the database EMAs (5d < 8d < 13d < 21d < 34d < 55d).  This certainly is bearish, and again, is not a good setup for a long-term bull, but is quite the opposite.

The middle section is where I consider the "meat".  This section shows the status of the EMA slopes.  As you can see, all the slopes, from 5d through the 65d (13w or 1 qtr) are "red", which means that they are pointing downward, and have been for the last 4 days.  In fact, the first crack in the ice appeared on 12/15, and aside from some dancing on 12/21 and 12/22, we've been heading steadily downward.

Downward-pointing slopes of the LCR EMAs indicates that the database is contracting on multiple time scales.  Short-termers, e.g., those with a 5d horizon, are picking from a pool of stocks that is growing smaller and smaller, and the long-term pickers, e.g., those with a 65d horizon, are picking from the same, shrinking pool.  This forces us to be surgical in our picks if on the long side, and in the broadest sense, is akin to swimming up stream.

Finally, the right part of the graphic simply indicates the "slope of the slopes" of each of the EMAs.  Notice how these must be "green" for the middle part of the graphic to move "green" -- the slopes of the slopes (SoS) need to be pointing upward in order for the primary LCR slopes to move into positive territory.  We've only had 1 positive day out of the last 6; again, not a bullish case in any view.

This next graphic is a different view of the LEFT pane above -- it shows the status of the EMAs in graphical format, which some people prefer:

Omitted above are the 5d and 8d EMAs.

As you can see, we tend to oscillate between relatively high levels that range ~ >2.5 to levels that drop to ~ 0.5 or so.  By definition, the faster EMAs tend to move the highest / lowest, as we would expect, as they are not being averaged as much as the slower EMAs.  What we see above is that we are entering a period of inversion, and you can visualize for yourself that reversals from this area are few and far between.

This next graph represents the middle portion of the table above, again in graphical format as opposed to tabular, which tends to be easier for some folks:

Shown are only 3 of the 7 LCRs, typically what I consider the "intermediate-term" values, as well as the price index of the GGT database (blue).  Specifically, the traces above show daily changes in the LCR EMAs, also known as the slopes of the EMAs.  When the daily changes are in the white area, the changes are positive, and when they are in the pink area, they are negative.  As you can see, we dipped into the negative area around 12/15, tried to break out on 12/21- 12/22, failed, and now are heading lower.  During this same time the average price of the GGT database has failed to make new highs, which is generally problematic for making money on the long side (as well as short) using stocks.

We are consolidating, and while the futures are pointing to higher opens this morning (first trading day of the year), overall, we are starting from mediocre levels.  This is a less-than-ideal setup.

Bottom line:  from the perspective of the GGT LCR subsystem, the markets are contracting, and presently, they are heading downward.  While they could reverse, history of reversals from this point are virtually non-existent, and committing dollars to the long side, while the database is contracting, is generally dangerous to portfolio health.  From the perspective of the GGT LCR subsystem I see no compelling reason to jump into the markets with this setup.

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GGT Pricing Subsystem

Throwing a bit of a wrench in the bear gears is the status of the pricing subsystem:

I setup the Pricing System more-or-less in the same format as the the LCR Subsystem.  Starting on the left, we have the daily changes in the pricing index, as well as volume change.  As expected, the last couple of weeks have experienced poor volume and decreasing prices overall.

Somewhat of a surprise is the status of the pricing EMAs, which are shown in the left-side of the figure.  Here I'm only showing the 8d - 55d, rather than starting at the 5d.  What we have is the opposite of the LCR situation -- all the pricing EMAs are in "proper" order, with the 8d > 13d > 21d > 34d > 55d.  Here's a graphical view of this:

I've super-imposed the GGT price index over the intermediate-termed EMAs for reference.  As you can see, not only are the EMAs in "proper" order, the GGT price index is still trading above the EMAs, and this is bullish.

Note though that this condition in the Pricing system is a divergence from the LCR system -- the database is contracting, which means the number of stocks with a CASH ranking is growing, and this is true on all measured timescales (5d through 65d).  A CASH ranking occurs only if one situation is true:  prices of stocks with this recommendation are falling below their historical, optimized levels.  Hence, experiencing a contracting LCR, while prices continue to move higher on the database as a whole, simply indicates that fewer stocks are having to move higher than "normal" in order to get the database average to continue higher.  Call this a pricing bubble or not, it is indicative of a situation that must resolve itself:  either the LCR will reverse to support the rising prices (e.g., prices and volume will align with the pricing system), OR, the pricing system will collapse and align with the LCR system.  Continued divergence simply is not sustainable for any significant period of time.

The middle of the Pricing table above shows the status of the slopes of the various EMAs.  Again, ALL of these are positive (green), and with this situation, it is difficult to argue that we have anything bearish occurring.

This being said, here is a graph which shines a different light on the slopes of the pricing EMAs:

Take a close look at this graph.  Here, I'm showing the GGT price index along with three intermediate-termed  EMA slopes.  What we have here is a set of slopes with positive values (all are in the white area, which means that the slopes are still pointing upward), but the "slope of the slope" (SoS) for each of the indicated EMAs is pointing downward.  In fact, if you look closely, you can see that the 13d slope is about to move into negative territory.

Again, futures are strong today, so I expect a reversal of this SoS trend on a 1d or 2d basis.  Nevertheless, we do have weakness appearing in the pricing system, so this does suggest that we could be closer to alignment with the LCR system than what a simple table view presents.  With a positive slope value to the EMAs, it is possible to make money in this market, as we bank increasing prices and nothing else.  With a contracting database, your stock selection must be surgical.  Correspondingly, stick to sectors/industry groups that are seeing price appreciation as well as large effective volume (EV) increases, and shy away from those that do not fit this situation.

Pascal Willain offers some EV suggestions at his paid site http://www.effectivevolume.eu; wander over there if you are so inclined.

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Timer Status

The GGT Short-Term LCR Change Timer is in CASH.   It is not prudent to chase new short-term positions at this time.  The timer reaffirmed this position on Friday, December 31st, and correspondingly, it cannot move to a buy status until the close of markets on Tuesday, January 4th, at the earliest.  We'll need two solid days of pricing AND volume increases within the database to see this revert the present call.

The Elder Force Index Timer is presently LONG.  According to this timer, it is okay for us to purchase stocks on an intermediate-term basis.  Choose your positions carefully, as this timer does not discern momentum changes like the LCR or pricing slope discussion above.  I would limit your candidate pool to those stocks in industry groups with upward-sloping 34d MAs, as well as stocks with upward-sloping 13d and 34d EMAs.  Both the industry groups and stocks MUST have increasing LEV.

The Contra ETF Timer is in CASH.  Here is a view of my Contra Index:

This index is comprised of 88 inverse ETFs, including leveraged securities.  The graph indicates that it simply is too early for contra positions at this time:

• The Elder FI(13) ribbons, both EMA and SMA calculations, are red.  This means that for contras, the FI(13) < 0, which is bearish for contra positions.  Since the EMA reacts faster than SMAs, I expect to see some green on the top ribbon before the SMA turns and confirms.  
• The MACD Histogram is virtually zero with no discernible trend.  Indeed, the MACD and MACD signal lines are interwoven, causing the histogram to appear collapsed.
• The 13d and 34d slope lines on the EMAs are NEGATIVE.  
• The price index of the contra universe is trading well under the EMAs, and until we see some crossing of the EMAs from below, contras are an avoid.
• Note that ALL of the indicated EMAs (8d, 13d, 34d, 40d, 160d) are pointing downward.  This is bearish for contras as a whole.

This being said, there are some contra positions that show early life if the primary markets head south.   PSQ, the ProShares Short of the Q's, just flashed a "New Long" status as of the close on Friday.  As many of you know, it takes both price AND volume to achieve this status, so the fact that this occurred on a shortened trading day is notable.  It is also notable that LEV has been growing in PSQ since 12/28.

SQQQ, which trades about 1/10 the volume of PSQ, is a -2x version of PSQ and also has achieved a "New Long" status as of Friday.  I will avoid SQQQ for now, but simply include it as having the underlying and the leveraged version of the same index show the same new status is notable.

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Remember, you are responsible for your own trading decisions, and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

pgd