We Need Significant Volume

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Summary

• The GGT price index rose +0.79% on volume that was -2% below the 50d moving average.  In isolation, unremarkable.
• The slopes of the 5d through the 21d pricing EMAs are negative, which means that day-over-day on time frames less than 21d, you're losing money in your equity account.  The 34d resumed pointing up yesterday.  This is a step in the right direction.
• The reward/risk tool is pegged at +14, telling us that entry to long positions today is risky.  Conversely, given the down-mood that we've been in over the last week or two, entry to contra ETF positions is ideal.
• Database strength *barely* edged up yesterday.  This is a tepid response to a +1.4% increase in the major indices, and shows lack of broad support.
• The Elder intermediate-length Force Index timer is still in CASH.
• The GGT Long-Cash Ratio (LCR), which tells us the number of stocks that are performing well compared to those that are not, FELL yesterday.  This means that more stocks slipped over the edge of the cliff than climbed back up the price and volume mountain, and shows underlying weakness.
• The slopes of the LCR EMAs are all negative, although yesterday's action did cause them to point upward from negative territory.  This means that the database is stabilizing, which is necessary for a bull leg to resume.

All things being equal, we're either taking a breather before heading down, or we're getting our feet under us.  Volume participation was lackluster, causing the LCR to drop.  This being said, a +14 reading on the reward/risk tool says that today probably isn't a great day to enter long positions (quadruple witching, Friday, Libya, Japanese nuclear reactors), so adding positions to contras may be a safe(r) play.

For me to have confidence to move back long I'd like to see 

1. all of the pricing slopes in positive territory
2. the Elder Force Index timer showing a LONG status
3. the LCR slopes moving into positive territory day over day (first the 5d, then the 8d, then the 13d, etc.)
4. I'd like to see the VIX close below the lowest level of the ribbon, as shown below, with the 14-day volatility average decreasing:

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GGT + Effective Volume Stocks

Since I didn't post stocks yesterday, allow me to update the list.  Note that I'm not at all advocating entering these stocks, as you're swimming upstream against the current.  It is good to keep your lists active though so that you're ready to enter when the time comes.

1. CLH is a new addition to the 3/18 list and has good 40d Large Effective Volume (LEV) and newly emerging 8d LEV.  I'd like to see price close above $95.47 in order to move in on this.
2. CMG went against the trend yesterday and lost a good amount of price value, as well as seeing a Total Effective Volume (TEV) wipeout.  What I like about this is the 40d LEV pattern is solid, the price held the 17d MA, and it's in a Keltner/Bollinger squeeze.
3. THS is newly emergent in the 8d LEV pattern while the Small Effective Volume (SmEV) sold off during the day, which I generally like.  Price drifted down throughout the day while LEV moved upward, showing support.  I'd like to see it close above $52.49 to enter.
4. YUM was new to my list yesterday and saw notable LEV accumulation late in the day.  It is holding it's 17d well and the close proximity of the 50d provides a good stop loss level.
5. DLTR has mixed signals.  The 50d is in a downtrend, but the 17d and 200d are in up trends.  Volume has been increasing steadily since mid February.  40d LEV is solid, and 8d LEV is holding steady although prices have been under pressure.  I'd like to see this close above $53.42, which is the low of the gap down on 1/4/11, before entry, but I may be dreaming here....
6. GWW is rangebound in a box defined by $129-$138, and it saw a breakdown in LEV support yesterday.  Despite this, the 200d is pointing upward, and the 50d and 17d are intersecting, with the price action open/closing above this intersection, which is bullish for the stock.  Keep it on your list and wait for it to move upward beyond $138.
7. MDR is another rangebound stock but is finding support on good 8d/40d LEV patterns.
8. MPEL appears to be losing a good chunk of value but LEV is holding well.  Unfortunately, it's trading below it's 17d AND 50d, which is challenging for me.
9. PCP is another rangebound stock that is following it's downtrending 17d in terms of price.  LEV, on the other hand, is steady.  I'm watching support at $136 and would like to see it break out of $146.68.
10. SUN continues it's rangebounding behavior between $40.84 and $44.  I'd like to see it move above $44 to enter.  LEV has been wonderful on the 8d and 40d time scales, and it bounced well off it's 50d.
11. *TEX is one that I may enter today.  It closed above a resistance threshold yesterday and 8d/40d LEV look great.
12. WAT is bouncing between an upper resistance level and a lower support.  LEV has been growing, but its price is under its 17d (but above the 50d) and performance yesterday was less than spectacular.  What makes this worth watching is that LEV held up well as the price dropped this past Tue/Wed, which shows good support.
13. *WFMI has cleared resistance of $59.57 so I'm looking to get into this one.  A good stop loss will be just below the resistance level.
14. HK just cleared resistance yesterday of $22.07, and 40d LEV has been steady.  Note that the ATR(20) on this one is 7%, which is very high.  This means that you can see some wide swings with this one, so ensure you set your stop loss wider or simply do not move into a stock with this volatility.
15. *CNX just cleared a resistance level which corresponds with a 52w high, and EV has been steadily increasing.
16. *CSU just cleared a resistance level which corresponds to a 52w high, and volume has been very steady.
17. DTG keeps breaking it's 52w high, almost on a daily basis, and LEV has been steadily increasing.  It's a bit overpriced here, but it has obeyed the 17d very well, so keep an eye on it.
18. GLNG ships natural gas, and given the infrastructure issues in Japan, this company stands to benefit.  Note though that it has several long-term contracts in place which prevent it from directly benefiting from an immediate increase in NatGas, so think of this as a derivative play.  I'd wait for a pullback to enter.
19. *JVA just cleared a 52w high and LEV has been moving up aggressively.
20. *PANL continues to march upward, having cleared resistance and now setting a new 52w high.  LEV is very supportive.
21. TESO is getting ready to clear resistance which corresponds to it's 52w high.  LEV has been decreasing slightly, but if this closes above, I'd look for this one to move higher.
22. TRC has been on my list for a week or so, and has bucked all downward trends.  Note that it has made 3 consecutive 52w highs in the past 3 days, and LEV  has been steadily increasing.
23. UAM just cleared resistance and has positive-trending TEV.
24. ADES is traded at a thinner level than I like ($-vol = 486Ksh), but LEV has been steadily increasing.  Note that it dropped yesterday, which is bucking the upward trend, so make sure it holds above $16.
25. APL continues to impress me, with it now clearing resistance for 2 days and LEV moving upward at a steady clip.
26. *MMSI just cleared a 52w high on improving volume.  The 50d is crossing the 200d from below.  LEV has been steadily increasing.

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Trading Plan for Friday

• I may enter selected stocks as listed with trial positions if they continue to move upward, but the reward/risk levels are poor.  
• Today, at the end of day, could be a good day for Contra positions, if the market continues moving upward.

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

Regards,

pgd

Position disclaimer:  as of this writing, I own positions in the following equities:  BIDU, EWH, SJM, SWI.

Surgical Strikes using Connors' TPS Strategy, Cash is King

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Summary

• Since the market peak on 2/18, the GGT price index has fallen -6.5%.  In comparison, the dip after the 11/8/10 peak was -10.4%, but the 1/18/11 peak to subsequent drop was only -3.90%.
• Wednesday's action saw the GGT price index fall -1.33% on volume that was 33% above average.  This was a significant day down, and it caused many stocks to move into a CASH recommendation.
• The 34d pricing slope has now turned downward.  This is the first time that this has occurred since 11/16 & 11/17, and during that period, it only lasted 2 days.  If we are to recover, I would expect that this will move back to the upside very quickly.  If it does not turn up, then I will maintain my bearish outlook.
• My pricing change tool that I use to determine reward/risk levels is pegged against the bottom rail at -14, indicating a great reward/risk on the long side and that I should move into stocks aggressively on the long side.  This is a day-over-day tool, so in no way is this telling me to open new positions for any duration of time.  My overall outlook on the intermediate term is bearish.
• The Long-Cash Ratio (LCR) Change Timer, which is a short-term timer, is solidly in cash.
• The Elder Force Index timer, which is an intermediate-termed timer, is solidly in cash.
• GGT database strength has just notched it's 6th contiguous day of dropping, the first time it has done this since August 2009 (yes, 2009), and is well overdue for a bounce to the upside.
• The LCR has dropped to 0.305, the lowest level it has been at since 8/26/10, when it dropped to 0.300. This is an incredibly low level.
• The slopes of all the LCR EMAs are pointing downward, and the day-over-day change of these slopes has been negative for three consecutive days.  Three consecutive day-over-day changes to the downside means we're running really fast into oversold territory, and a 4th day of this pattern is rare (11/9 - 11/12 inclusive, 10/14 - 10/19, 6/21 - 6/24, 9/21/09 - 9/24/09 ...).  I would expect a bounce upward either today or tomorrow, which is quadruple witching day.  Until some of these slopes start appearing to move to the upside I will maintain my bearish outlook on the market, and will keep a high degree of cash.

Overall, we are due for a bounce upward.  This doesn't mean that it will be sustained, so nimble is the key.

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Market Internals

The broad market started strong yesterday, with the underlying sectors outperforming the S&P500 most of the day, both on the upside as well as the downside.  Sentiment changed about 11 a.m. EDT, when a recycled rumor caused most everybody to panic, and this was enough for Contra ETFs to establish a foothold on the day and dominate.

I discussed this chart yesterday in my blog so refer to that entry for details.

The greenness in the middle trace tells us that while the S&P500 was falling, the other sectors in the market were falling LESS than the S&P, on a relative level. This means that they were holding up and I generally like to see this as a precursor to any move upward.  I especially do not like divergences when the S&P500 moves up and this group of 9 ETFs moves down, the latter showing a lack of support.  This wasn't the case yesterday, so I was overtly bullish to the health of the market.

The bottom trace is the 2x Contra ETFs, and we can see that they underperformed the broader market until about 11 a.m. EDT, then there was no looking back after 11.  The fact that they increased their bearishness stance into the final hour of trading, while the +2x ETFs held steady (relative to the S&P500), simply tells me that people were in a sell-sell-sell mode, which caused me to buy-buy-buy in terms of Connors' TPS ETFs.  And that is exactly what I did in the final 10 minutes of the day, simply because the candidate ETFs were being driven fast and far away from the RSI(2) reading of 70.

Futures are up as I write this, and given the performance yesterday of the +2x ETFs, I would say that we'll have healthy participation across the board on the long side.  We'll see.

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Trading Plan for Thursday

I'm short on time today so I'll not post my watchlist.  It's risky to enter stocks for the longer haul, so nothing lost.

Almost all of my Connors TPS trades are above their average P/L levels, which are my inside targets.  I've got meetings starting at 10 a.m. and will not be able to watch the markets, so I'll place stop loss orders at these profit points just prior to 10:00 and lock in those gains.  This is a deviation from the Connors rules but the next couple of days are going to be challenging for me in terms of watching the market so until the Japanese issues are under control, cash is the best place to be, oversold or not.

I may enter additional Connors TPS trades IF the market is significantly lower just prior to the close.

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

Regards,

pgd

Position Disclaimer:  as of this writing I own positions in the following equities:  BIDU, EFA, EWH, EWT, IWM, QQQQ, SJM, SWI, TBL, XLF, XLV.

Caution is Advised, but Stock Candidates are Growing

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Summary

• Since the 2/18 high, the GGT price index has fallen -4.6%.  In the big (intermediate-termed) picture, this is a minor pullback.
• The GGT price index fell -0.92% on volume that was 22% higher than normal.  1 standard deviation is 24%, so this is notable and certainly can be called a distribution day.  This being said, we've only had three of these days that pushed 1 standard deviation since our peak on 2/18, so as far as I'm concerned, the sky isn't falling on the intermediate trend.  Under pressure, yes, collapse, no.
• Price slopes continue to erode (see yesterday's blog), and we now have all EMA slopes less than 22 days in length under water and falling.  This is moving my sentiment towards an intermediate-termed bear but I'll need to see the 34d and 65d slopes underwater before I'm there.
• Database strength is indicating that we are very oversold, and I expect a bounce here any day.
• All short-term timers are in CASH, and if you have a time frame of a couple of days, you should be too.
• The Elder intermediate-termed Force Index timer, which operates on 13d and 34d intervals, is clearly in CASH using two different calculation methods.  Historically, when this timer has moved to CASH you should not have intermediate-termed stocks on the long side within the market.
• LCR slopes (again, see yesterday's blog) continue to erode and are completely bearish.  The relative change in these slopes is negative, so more stocks are moving to cash on a day-over-day basis than the opposite.  This means that the pool of stocks that you can choose from is getting thinner, with obvious implications.
• You would have thought that the price change indicator that I use to determine short-term (couple of days only) reward/risk levels would have slammed against the negative rail yesterday, indicating that the reward/risk level was good for entry into stocks on a short-termed basis.  Not so.  The value moved from netural (0) to just under neutral (-4), giving a slight edge to the bullish side, but not by much.  I wouldn't get trigger happy on either side (bullish or bearish) at this point -- the upside on either longs or shorts is more-or-less balanced.  Given the oversold nature of the database strength, I'd err on closing shorts / contra ETF positions and securing those gains, and wait for a rally to re-enter shorts/contras.

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Intraday Performance of 2x ETFs

While we saw a steady recovery of the S&P500 yesterday from the initial sell-off at the open, the broader market did NOT participate.  This is worrisome for me, as I would have liked to see the trend spread across all sectors.  Here's the chart:

I explained this figure yesterday, but for a quick recap, the top trace is the SSO, which is a levered 2x ETF on the S&P500, the middle trace is an average of 9, 2x ETFs, subtracted from the performace of the SSO (e.g., we'd see green if the 9, 2x ETFs were outperforming the SSO), and the bottom trace is an average of 10, -2x contra ETFs, the latter average subtracting the performance of the SSO (e.g., we'd see green if the 2x contra ETFs outperform the SSO, which obviously, it did).

Here's how I interpret the figure, which gives me a view into market internals.

• The middle graph started out bearish, with the broad (long) market significantly underperforming the SSO, which was also deep underwater.  You can see this as red in the middle graph.  We also see that the broad contra market (think of this as shorts on the normal market) were outperforming the SSO, and this can be seen by the huge green levels on the lower graph.
• As the morning progressed, buyers stepped in or shorts covered, causing the broad market to move towards parity with respect to the SSO.  By noon EDT the broad markets were even with the SSO, which is when a few bars of "green" started appearing on the middle graph.  Hence, while the SSO was down on the day, all the markets were performing equally.
• The gradual decline in the strength of the contra ETFs, shown in the lower graph, shows that the markets were becoming more rational, and simply that the SSO was clawing back, slowing gaining on the day.  The fact that we still had a significantly green level at noon EDT simply shows that on the day, we were net negative for long positions and net positive for contra ETF positions.
• Where things started to diverge is after 1:30 EDT or so.  We see that the SSO, and the broader markets in general, more-or-less held their range until this time.  We see the flatness of this reflected in the SSO, the 2x ETFs, and the -2x ETFs.  After about 1:30 EDT the SSO started to march upward again, while the long ETFs lagged, this latter observation coming from the middle graph as it actually decreases in value while the SSO continues to increase.  This is a divergence that shows that the broad market was not participating at the rate that the SSO was moving upward, and it shows that not everybody is on board.  This is a warning shot.
• After about 2:30 the SSO continued it's upward march, and the broad markets started to improve until about 3:45 EDT.  After about 3:45 the longs started selling, and contra positions started buying, so the mood at the market close was clearly one of bearishness, not hopefulness.

The "so what" in all of this is that we're not out of the woods.  Committing to either side at this point in time is not prudent, and with the uncertainty in the nuclear situation overseas, any bad news could send the markets heading south.

I personally will use any form of rally to move back towards contra positions.

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GGT - Effective Volume Stock Watch List

The following stocks are GGT long-rated stocks with favorable EV setups.

1. PCP fell a significant amount yesterday but EV has held steadily on long and short time frames.  It seems to have a resistance line at the 50d, but if it closes above the 50d, this could be a good candidate.
2. APKT saw a significant amount of buying with the overreaction of price downward at yesterday's open, and LEV held up nicely all day.  I see resistance at the 17d MA, but the 50d is strong and price is well above the 50d.
3. CHKP is newly emerging on the longer time frame as far as accumulation is concerned, so this is early. This being said, it is respecting it's 50d very well, and within the last few days accumulation has increased.
4. WAT has been under steady accumulation which accelerated yesterday.  On the down side, this one violdated its 17d, which is well above the 50d, so while it could drop a significant amount, risk/reward seems to be quantifiable.
5. SUN continues to show steady accumulation on short and long-term time frames.  It's now well above the 17d, so I'd wait for a pullback to the 50.
6. MDR didn't budge a bit to the downside in terms of LEV yesterday, while prices obviously sold off.
7. NYX is seeing significant buying on the LEV side and distribution on the SmEV side.  This is relatively new, and stems from the hostile takeover rumors that are circulating.  Nevertheless, folks are moving into this stock aggressively, and it obeyed it's 50d well.
8. FFIV continues to see accumulation on long and short time frames, and has tested the 200d twice and held.
9. TEX is obeying it's 50d, more or less, and is seeing newly-emerging accumulation while the longer-termed accumulation is solid.
10. GWW is at a confluence of the 17d and 50d, and yesterday's action caused it some problems, although it closed above this area.  Accumulation has been steady.
11. Surprisingly to me, M has been under longer-termed accumulation and short-term is starting to take off.  I see though that the 50d downtrend mimics the price behavior, and now with the 17d and 50d converging, we need a close above the convergence point.  Watch this, as it's very liquid, but a wedge is forming.
12. DLTR is holding up well and although it is well above the 17d, it seems well behaved despite recent downdrafts.
13. WFMI is holding up relatively well and is well above the 50d.  Accumulation is relatively solid, although there was a bit of selling at the close yesterday.
14. CAB has been on the list for days and I like it.  It is respecting the 50d, and LEV has been solid despite the recent selloff.
15. I know semis are in trouble, but LSI has been doing well and needs to be on your list.
16. MPEL is compelling, although it broke it's 50d yesterday.
17. DUK has sold off, partly because it's got a number of permits pending, but overall, this is a good company. Disclaimer -- I work in this industry and know this company well.  It violated its 50d yesterday, and is a volatile stock, but LEV is solid on multiple time frames.

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Elder Market Cap Favoritism Candidates w/ Favorable Effective Volume

The following stocks meet Elder entry criteria that fits the rules within GGT, LLC and have favorable EV on short and long-term time frames:

1. BIDU
2. CHSI
3. FDO
4. CRDN, but this is a newly emergent breakout in terms of LEV
5. TBL
6. SJM
7. SKS
8. PCLN
9. SWI

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Trading Plan for Wednesday

• I'm biased to the down side for swing trading.
• I'll consider entering Elder candidates if they show strength while the market falls, and they meet entry criteria, while the market appears to stabilize.
• I'll consider entering GGT+EV stocks at 25% positions with well-defined stop losses, if they continue to show LEV stability while prices drop.
• If the markets rally, I'll most likely enter contra ETF positions.

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

Regards,

pgd

Position disclaimer:  as of this writing I am long in EFA and IWM, which are Connor's TPS trades.

Approaching Oversold Areas & Expecting a Long Bounce

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Summary

• The GGT price index fell -0.49% on average volume that was -2% below the 50d moving average.  This is normal market noise, when taken in isolation.
• Internally, the number of stocks with "stabilizing" price action is increasing.  This indicates (today's futures action not withstanding) that these stocks are finding a floor of support.
• Database strength, which is a measure of overbought or oversold conditions, has just completed four consecutive days of dropping, and a 5th day is rare.  Again, given external events and the futures, it looks as though we will experience a 5th day of dropping in this indicator, which will place us deeply into oversold territory and set us up for a bounce upward on the long side.
• There was short-term strength developing within the different market segments after 1 pm on Monday, and despite the futures this morning, we need to watch for this strength to develop (figure included below).
• The Long-Cash Ratio (LCR) continues to drop, and is now in the same territory as it was back in August 2010.  While the absolute level is not as important as the direction, it is noteworthy because we have essentially moved back to the same conditions that we experienced in the mid-summer 2010 time frame.
• My risk/reward indicator has moved back to neutral ground, indicating that risk/reward, on a short-term basis, is balanced.  This being stated, given oversold levels, I would not move into new contra ETF positions today, rather, protect any gains and get ready to play the long bounce.
• In the big picture and with respect to the GGT index, we have only fallen -3.3% from the high established on 2/18.  World events aside, this is a minor pullback.  Note that since Tuesday of last week we have fallen -2.5%, so this is a rapid decline in a short period.  I have every expectation of a long bounce within the next day or two.  While the short-term trend is down, the intermediate trend is still intact and pointing upwards, and we must keep this in perspective.

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GGT Long-Cash Ratio 

In my discussions last night with Bob Wilson, who has taken over from Joe the task of updating the ETF pages to give Joe a much needed break, Bob poked me to update the GGT dashboards.  I obviously review these daily, but due to overall time constraints and a desire to streamline content, I hadn't posted the views for some time.  

The most important tables that I watch are the slope tables.  Here, I construct exponential moving averages of between 5d and 65d in length, then I calculate the slopes of these different EMAs.  If they are pointing up, this is generally good, and if they are pointing down, then this is generally bad.

As with all my images, right-click on the picture to view in another window or tab.

This first image for today is the dashboard for the pricing slopes.  As you can see by the red areas that are evident in the figure that we have a number of slopes that are pointing downward, and more importantly, we have just experienced 3 consecutive days of this behavior.  Looking back in the table this 3-day green/3-day red play has typically characterized a choppy market, and as I indicated in my summary above, we've only dropped less than 4% in total since our peak on 2/18.  The greenness of the figure shows where we have been -- bullish -- and the lack of total red across the bottom of the figure indicates that on the longer time frames, we still are in a bullish uptrend.

This next figure gives us a view of the database in terms of the number of stocks with a long recommendation, compared to those with a cash recommendation.  To recall, in order to have a long recommendation, price and volume must be above historical optimized levels where the stock has performed well, and to have a cash recommendation, all that is required is for price (not volume) to be below this historical optimized level.

The LCR view above is more sensitive than the price view simply because we're looking at more than one variable -- price -- so as price and volume expand and contract, we get a greater amplification of market sentiment and direction.  I place more emphasis on the LCR slope table above, for obvious reasons, but in the end, we put PRICE action in our bank accounts, not the LCR behavior.

In reviewing the figure above, the market turned decisively bearish on 2/22, and with the exception of a brief bounce that started around 3/3, really hasn't looked back.  I view the rightmost columns -- the 55d and 65d slope lines -- as the primary indicators of the health of the intermediate trend, and for now, the health of these longer trend lines is in trouble.  As you saw in the previous figure, the pricing table showed that the 65d pricing EMA was pointing upward, but with the LCR 65d line pointing downward, we have fewer stocks that are supporting the pricing action.  

In the end, the two must align in direction.  It is impossible to sustain a growing pricing action for these lengths in time while the number of stocks moving up is declining.  This is exactly the situation that we have now.

In summary, I think that while we are due for a bounce here due to our oversold conditions, I do not see anything that will spark us upward and sustain a new expansion.  Caution is advised.

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GGT Stocks for Further Review

A number of stocks are on my watch list and are worthy of consideration if they hold support from here:

1. CAB fell significantly yesterday but 8d and 40d LEV support is evident.  The low touched the 50d MA yesterday but it closed above the 50, and the highs appear to be bounded by the 17d.
2. CMG is starting a new short-term accumulation pattern in the presence of an established longer-term pattern.
3. EIX held EV levels well yesterday despite a major selloff in price.  There may be resistance at the 17d, so watch this one.
4. FE is in the same boat as EIX, and they are from the same industry.
5. GWR has a convergence of the 50d and 17d, and the EV patterns has been relatively good.  It appears to be holding well at the 17d/50d convergence level.
6. GWW is nearly the same as GWR.
7. MPEL is behaving very nicely on the 50d, but the 17d is below the 50d, which I take as a warning.  This being said, the LEV patterns are compelling.
8. PCP saw price pressure yesterday but LEV held nicely throughout the day.  It also experienced a bullish engulfing pattern with a close above the 50d.
9. SUN continues to perform well in terms of EV and 50d support.  It's well above the 17d, which is above the 50d, so I intend to wait for a pullback
10. AAPL bounced nicely off the 50d twice, and is now just above the 17d.  EV is solid.
11. LULU has behaved nicely at the 50d for many consecutive days, and although it finished above the 17d, the longer-term LEV pattern is holding.  I do not see any short-term 8d LEV accumulation, but I don't see any short-term selling either.
12. CEG is another utility that has a confluence of the 50d/200d MAs converging, and it experienced a bullish engulfing candle over the last two days, closing above the convergence.  Further, LEV looks wonderful on short and long time scales.
13. PNC, which is a bank, is at a confluence of the 17d and 50d, and it is respecting this convergence nicely.  LEV is good on short/long time scales.
14. HDY is a riskier play, but the 17d/50d lines are interwoven and the price is more-or-less behaving.  Premarket today shows it down at $5.32, but I'd place a low at $5.18, so it still is worth considering.  The appeal here is that LEV has been supportive and that buying stepped in yesterday.
15. HTZ is respecting the 50d well and the long-term LEV looks good.  I do not see any significant buying on the 8d LEV pattern though, so beware.
16. ESV is a more volatile play but is respecting the 50d within the past few weeks.  Longer-term LEV is solid; 8d LEV is weaker.
17. HK saw a considerable amount of buying yesterday near the close, driving price upward.
18. TEX is respecting the 50d but appears to have resistance at the 17d.  LEV looks solid.
19. NYX is continuing their hostile bids and this is reflected in LEV, so give it a look.

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Internal Strength Indicator

I've modified an indicator that Hsin provided to me to reflect the behavior of the 2x ETF markets, specifically those ETFs that have less than a 1:1 correlation.  Here's the chart:

The top trace is a 5-minute bar on the SSO; the middle histogram is a composite index comprised of the average movement of 9 +2x ETFs, and the bottom trace is comprised of the average movement of 10 -2x Contra ETFs.  The middle trace value reflects the 2xAggregate subtracted from the SSO, the 2x of the S&P500, and the bottom trace reflects the performance of the -2xContraAggregate minus the performance of the SSO.  Consequently, if we see green in the middle graph, we know that the underlying +2x market is outperforming the 2x S&P500, which I show as a good indicator for the longs, and if we see green on the bottom graph, we know that the -2x Contra ETFs are outperforming the 2x S&P500.

Yesterday was an interesting day in terms of this graph.  We see that the -2x contras started off with a small gain, but it grew throughout the day until 1 pm or so.  During this time the +2x ETFs held relative steadiness while the SSO dropped.  Once the SSO stabilized, we see that the -2x contras stabilized too.  Interestingly though, the +2x ETF started to grow in relative strength, showing that the market internals were stabilizing.   Furthermore, after 1 pm, we started to see the SSO begin to recover, market internals began to improve by the amplitude of the middle graph growing (the +2x ETFs were relatively stronger than the SSO), and at the same time, we saw a general degrading of the amplitude of the -2x Contras.  

Hence, while the -2x Contras finished in the green, we saw significant strength internally in the market in the face of really bad news from Japan.  Today will be telling.

Note that you cannot infer anything across the day-boundaries; the data is not valid in the first 5 minutes of trading, as the 1st bar is set to 0.

The way I use this indicator is to watch the relative trends of the 2x and -2x ETFs.  If I'm long, I don't want to move into the market while the -2x ETF lines are growing in relative strength.  Conversely, if I'm in contra positions, I don't want to enter additional contras if I see the +2x ETF lines growing.  You get the idea.  Basically, it's riding the short-term wave to better time entries.

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Trading Plan for Tuesday

I'm net short on most of my positions, both personal and with GGT, LLC, so I'll close these if they start to appear weak.  There are a number of good stocks above -- if they show strength today in terms of LEV I'll enter as the setups allow.

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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

Position Disclaimer:  as of this writing, I own or influence positions in the following equities:  BOM, BZQ, DRV, EFU, QID, REW, SMB, SOXS, SSG, TYP.

Avoiding Intermediate-Term Long Positions; Contras Should be Considered

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A pause here to think about the folks in Japan.  My brother-in-law, Paul Hurley, has a daughter Nicole who is an English teacher in Sendai.  After several days of living on pins and needles they finally heard from her and her husband Bob, and Nicole/Bob are amongst the people who are safe.  They have electricity, food, and bottled water, so are better off than many.  It's amazing just how close some of this can touch your family, extended, distant, or not, and it puts everything in perspective....

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Summary

• Overall, the majority of my indicators point us towards a defensive position on the market.  Buying stocks aggressively to the long side right now is simply swimming up stream.  Don't do it unless you are an excellent swimmer.
• The GGT price index rose +1.26% on Friday on volume that was 6% lower than the 50d moving average.  This is a weak showing by the bulls and should tell you that the markets are dangerous on the long side.  The FinViz dashboard of stocks (www.finviz.com) shows that the markets moved up but on much lower than average relative volume, confirming GGT's measurement.
• The price change accumulator tool that I use to tell me if stocks are short-term overbought or oversold moved to +14 on Friday, in line with the markets moving up, causing the reward/risk ratio of entering new positions on the long side to be extremely poor.  Because I am positioned defensively, entering contra ETF positions early on Monday could be a good selection, provided that good contras exist.
• For the record, the GGT Short-Term LCR Change Timer is in CASH, as well as is the VTI timer, which is tightly correlated with the LCR Change Timer.  These two timers indicate that purchasing stocks and ETFs on the long side with a short time frame have poor reward/risk characteristics.
• Also for the record, the Intermediate-Term Elder 13d Force Index timer, when applied to the GGT database, is also in CASH.  This is telling us not to purchase stocks on the long side.
• The contraction of the Long-Cash Ratio (LCR) is slowing, possibly showing that we may get a bounce here in the next few days.  I will avoid the temptation to enter stocks on the long side, but rather, will use the opportunity to enter selected contra ETFs.

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Contra ETFs

My posture is defensive right now, so Contra ETFs have my full attention.  This being stated, I let the HGSI dashboard view that I have created to tell me how they are performing.  

I like to use the Direxion -3x Bears as a source to create an index on contra positions overall.  I do this simply because the levered ETFs are more sensitive than their -1x counterparts, and as a result, we see trends easier with the -3x leveraged ETFs than we do with the -1x underlying ETFs.  As with all my images, right-click on the picture to open in a new window or browser tab:

A quick glance at this index view shows that we are still early, but we are getting closer to an "all-in" signal.  Here's my interpretation of the chart:

1. Starting with the top two lines, we have Bull and Bear Power.  These are Elder creations, and Bull Power is simply the distance that the high of the bar is above the 13d moving average, and the Bear Power is the distance that the low of the bar is above the 13d MA.  I like to see both of these as a positive number at least once and early in a new bull cycle (for contra positions), and right now, the Bull Power is +0.844 and the Bear Power is -0.4782.  We did see Bear Power pull within -0.0403 of going positive this past Thursday, so we are close as far as this set of indicators is concerned.  Thursday's price doji doesn't instill a tremendous amount of confidence at this point though.
2. Below Bull and Bear Power are three more Elder creations, the Force Index.  I plot two different methods of calculation of the Force Index in the top two lines, one using an exponential (faster) moving average, and one using a (slower) moving average.  Both are green, which means both are positive, and this is bullish for contra ETFs in general.  I note that the lower ribbon here is red, which is the 2d Force Index, and this means that it is blocking us from entry into contra ETFs at this time.  Ideally, we want this to move green (negative), THEN enter on strength of the positions, in which case it would move red with the close of markets that day.  This is subjective though, and a frequent and valid complaint is that if you wait for the FI(2) to move green-red then you miss the initial strength of the move.  Whatever your method, Elder's FI methods are bullish on contra positions.
3. Next is the MACD histogram, and we see that the histogram bar is positive, which indicates that the MACD line is above the MACD-signal line, which is bullish for contra positions.  
4. Bollinger's %B is yellow, and this is simply telling us that we're middle ground in terms of price volatility and actual index price.  Risk/reward is neutral at this point.
5. Below this is my favorite 13d/34d EMA slope plot.  First, the 13d slope is above 0, which is bullish on this time frame.  Contra ETF prices are heading upwards, and the daily change of prices is accelerating to the upside on this time frame.  We also see that the 34d is about to cross the zero line, and it too is pointing upward, again confirming on a much longer intermediate time frame that contra ETF prices are moving upward, and more importantly, are accelerating to the upward side.   We're almost there -- not quite, but when the 13 and 34d are BOTH above the zero line, and they are pointing upward, we have confirmation to enter contra ETFs.
6. The pricing graph below the slope window shows that we are early.  First, we still do not have a crossing of the 8d EMA above the 13d EMA from below, although if Monday is a down day it looks like this will occur.  THIS WILL BE A SIGNAL TO ENTER a 25% CONTRA position in my portfolio.  Further closures of price above the ribbon of EMAs will continue to pull the EMAs upward, further showing that we need to be entering on this side of the market.
7. Finally, look at the slope of the 50d MA of VOLUME in the lowest window.  The slope is moving upward on the average line, indicating that contra positions are increasing in demand.  This is bullish for these contra positions.

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Trading Plan for Monday

I intend to enter Contra positions early if I can identify any that have good reward/risk characteristics.  

1. SMB is a contra on the short municipal market that seems to be attracting money.  
2. BOM is a double short (-2x) contra on base metals that is also attracting money.  
3. EFU is a thinly-traded ultra short (-2x) on the EAFE (European Asian Far-East) markets that is also attracting money.  
4. SQQQ is a -3x on the NASDAQ that also is attractive to me.  
5. DOG is the -1x on the DJ30 that rocketed in terms of Effective Volume on Friday at the close, so pay attention to it too.

In the Direxion index that I created and displayed above, TYP, SOXS, DPK, MWN, and LHB are all risky but good candidates for further review.  Watch correlations though, and if you're not familiar with how to use Excel's PEARSON() function to determine correlations, you need to do some work.  Pick ETFs that are loosely correlated, and ensure that you're using good money management.  Note that leverage in early signals can backfire, so only consider the Direxion ETFs if you are aggressive in nature.

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

Regards,

pgd

Position Disclaimer:  As of this writing, I own positions in the following equities:  BOM, REW, SMB, SOXS, SSG, TYP.

Top 25 ETF Portfolio Master Signal Change

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Reminder:  There will be no entry on Friday and the weekend entry with the file updates will be late Sunday/early Monday, as I am traveling with my family Thursday - Sunday in upstate New York (Troy). I will attempt to update the files via remote login, but no guarantees.

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Summary

• The Top 25 ETF portfolio has signalled a reversal change, meaning all positions should be sold and contra ETF positions should be entered.  We normally would sell positions on Thursday morning, so we are lock-step with our normal calendar.
• Overall, we are still early for mass movement into Contra positions, but selected contras do look appealing.  Money management, and risk management are key.

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Top 25 ETF Portfolio

The Top 25 ETF portfolio has signaled a portfolio-wide change in sentiment.  This does not occur often, and I have only 4 signals generated since testing began a year ago this month.  There is no ambiguity in the signal -- I simply create an index of all the ETFs that are recommended since the previous evaluation period (last week Wednesday night close) and watch this basket index on a daily basis.  When the Elder FI(13) is below 0 on the basket index for three consecutive days or more, it's a problem.  Wednesday's action comprised the 3rd consecutive day.

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

In the figure above, I draw your attention to the upper right corner, specifically the Elder Force Index lines.  Note that both EMA and SMA methods are negative in value, and correspondingly, given the 3-day run, this change in sentiment means that the basket should be closed.

This is where the strategy bifurcates. 

Option 1:  Generate a new basket based on the same methodology.  The advantage of this method is that it will pick the strongest ETFs that have a GGT ranking of long.  The disadvantage of this method is that it heavily weighs momentum (continued moving in the same direction based upon where it has been) and does not take into consideration acceleration (newly emergent equities have acceleration but little momentum).

Option 2:  Generate a new basket based upon acceleration, which reflects changing sentiment.  The advantage of this method is that it has a greater chance of capturing the mood of the last week, and does not pay attention to momentum.  The disadvange of this method is that it is riskier of sentiment continues to change faster than 1 week in time frame, potentially causing a complete change in the basket NEXT WEEK.  This is significant turnover and there are transaction costs associated with this.

Backtesting of this strategy used Option 1.  Drawdown levels approached -13%.  Portfolio turnover with option 1 increased dramatically as equities rolled off the GGT LONG list and into CASH, causing rotation on a week-over-week basis (hence, little advantage over Option 2 in this regard).  Backtesting shows that Option 1 had you in the most powerful equities when the next turn in sentiment (e.g. bullish) occurred, but the issue obviously is the drawdown.  This is a large drawdown due to the leverage possible in this portfolio.  Again, this option has you long at the bottom, fully capturing the move upward when the market does eventually reverse to the upside.

There has been no comprehensive backtesting of Option 2, as my HGSI software cannot provide backtesting data.  I've done some manual spot checking at obvious turning points over the past year and if we are nimble, we can take advantage of this on the Contra ETF side and participate in the downside move of the market.  It will mean that we will miss the bottom, but it means we'll be in tune with market sentiment at the present moment, which I think is the way to go.

The next question is what equities to choose at this time.

To answer this question, I look at the weekly time frame, and I use a list of contra ETFs that have the greatest performance in terms of relative strength (compared to the Russell 2000) and that have increasing Large Effective Volume, the latter measured over the last 40 days.  Here's the list:

• REW
• TYP
• SSG
• BOM
• SOXS

Only 5 ETFs are listed -- on a weekly time frame, these are the only ETFs that have accelerating relative strength and that are attracting big money.

The next question is one of position size.  While this is the Top 25 ETF portfolio, I've heard loud and clear from you that managing 25 positions is very difficult.  Correspondingly, I'm reducing the number of positions that should be considered using statistics and volatility measurements from each of the equities being considered.

I'm using the site RiskGrades as a guide for historical risk measurement of various equities.

Targeting a 2x return on risk no greater than 2x the S&P 500, we desire a target risk grade of 2x (SPY) = 2 * 62 = 124.  Using the basket above, 9 positions achieves the desired goal (projected risk grade with 4 positions in CASH and the 5 positions above yields a targe 115 Risk Grade).  Hence, each of our positions should be 11% in size.

Given the extraordinary selloff of equities today, entering contra positions at such a high value is not in our best interest.  I intend to wait for the inevitable bounce or recovery, either later today or tomorrow.

I'm content to let the portfolio remain in cash today.

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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

At a possible inflection point per the NASDAQ; some stocks look good

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There will be no entry on Friday and the weekend entry with the file updates will be late Sunday/early Monday, as I am traveling with my family Thursday - Sunday in upstate New York (Troy).  I will attempt to update the files via remote login, but no guarantees.

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Summary

• My risk/reward measurement tool is mid-scale -- buying stocks today has an equivalent risk/reward profile, e.g., 1:1.  If you purchase stocks today ensure that they are moving upward aggressively.
• The GGT price index rose 0.88% on volume that was 6% higher than average -- unremarkable.
• The NASDAQ bounced off it's 50d MA for the 6th time yesterday, which typically is bullish overall.  The test of the 50d MA was in rapid succession, which according to some only counts as 1 test, not six, so interpret how you may.  Here's a link to the chart.  The important thing here is that the slope of the 65d moving average (MA) is positive but pointing down -- the positive means that there is still fuel in the tank BUT on the present course, we're going to break the 50d MA soon.  I need to see this slope line turn upward or at least horizontal for me to have a bullish view on the markets.
• The strongest GGT industry group is a defensive group:  Health-Hospitals/Nursing.  There are 22 stocks in this group that I track, and only 1 of them is rated "cash".  The majority of them have a positive 13d Force Index as well as a positive 2d Force Index, making entry today problematic in terms of risk/reward.  You should scan the group nevertheless.

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GGT Stocks with Favorable Effective Volume

Here are the stocks that I'm reviewing today:

As with all my figures, right-click on the image to open in a new browser window or tab.  If a stock is listed above but not discussed below it does not meet my review criteria.

1. TXT continues on the list with favorable 40d Large Effective Volume (LEV) and slight accumulation on an 8d scale.  Volume was 22% above average yesterday.
2. *SYT saw an increase in LEV yesterday while the price dropped.  The 8d LEV is diverging nicely from the Small Effective Volume (SmEV), which I like to see.
3. CE continues to show LEV support on the 40d scale as well as the 8d scale.  Note that there was some LEV selling that occurred around 2:30, but overall, the change was within the norm for the stock.
4. LFT has a favorable 40d as well as 8d LEV, but note that there was some selling that occurred on the LEV near the end of day that was hidden nicely from price.  This could be a crack in the ice for LFT, but overall, it's been accumulating nicely.
5. MAS saw significant LEV buying at the end of the day while the price remained more-or-less steady.  
6. BLT is a rather new breakout (GGT New Long) and the LEV pattern reflects this, with very little 40d support but solid 8d support.  If you like new candidates, pay attention to all GGT New Long entries with good EV support.
7. *NBL saw continued accumulation on falling prices.
8. WMB saw continued accumulation yesterday while prices peaked then fell.  There was a bit of LEV distribution at the end of the day, but overall, this looks interesting.
9. *SUN saw huge accumulation all day while prices fell at the open and never really recovered.  Did I say I like this pattern?
10. *GENZ is a bit more risky but has been experiencing an amazing accumulation pattern of lower-left to upper right on both the 40d and 8d scales, with barely any pullback since 3/1.  Someone picked up a 375K share big block yesterday, spending nearly $28M in 1 minute.  Give it a look.
11. CVH continues to hold LEV levels while price falls, which is good for the stock.  SmEV is dropping, showing the retail guys moving through the exit door.
12. *AEO continued to hold LEV steady on Tuesday while prices eroded all day.  Overall, the 8d and 40d LEV patterns are very strong.

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Trading Plan for Wednesday

• TPLM is my worse holding, but LEV is remaining rock steady since my purchase of a trial position of 200 shares.  While price has dropped 8%, the fact that LEV is so strong will keep me hanging in there.  Note that I do have a trailing 2*ATR20 stop on the stock.
• DIS will be sold in the EMCF portfolio for about a +5% gain.  The stock is rapidly losing LEV support and the price is not moving anywhere.  Without institutional support under it, I don't want to see the gains erode.  Further, the Elder FI(13) test using both EMA and SMA methods has failed 2 days in a row, showing that the stock is net down in volume overall.
• I'll purchase trial positions (25%, adjusted for ATR) in the stocks above if they look strong in the markets, as measured by price and/or LEV.   I do note though that the GGT risk/reward tool is mid-scale, showing a mediocre (at best) risk/reward ratio.

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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

Position Disclaimer:  I own or influence positions the following equities:  DBA, DBC, DIG, DIS, DWSN, ERX, EXPE, FXF, GG, IGE, IGN, IXC, RJI, SCSS, TIP, TPLM, VDE, XLE, XOP.