Possible Timer State Change

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GGT employs two timers based on the Long-Cash Ratio.  They behave the same but have different time constants.  The shorter timer constant, e.g., the one that responds faster, has signaled a transition from CASH (-1) to CASH-LONG (0).  The other timer, which is slower and typically confirms the faster one after a few days of sustained trend change, is still in CASH.

Here at 6:20 a.m. on Wednesday morning futures are slightly down.  The way to play this timer is relatively simple -- watch the home page here and if you see ADV/DEC up significantly then you know we're headed to the upside.  If it's flat then you know we're going to continue to drift.  You get the idea.  If you see a move to the upside that is relatively strong then it's ok to look at the long side. 

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I'm traveling the next two days and will have limited internet access.  My next post will be on Friday. 

Keep an eye on the above but I'm still keeping much of my powder dry.

Regards,

pgd

3/26 Weekend Summary - A Mixed Bag of Readings, but LCR Does Not Lie.

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Summary

GGT Price Index:  rangebound over the past week; Friday/Friday change is +0.97% with a daily variance of 0.7% --> barely above the noise floor of the markets.  We are either topping or resting for the next leg upward.

GGT Volume Index:  solid, @ average volume all week (1 wk average 2.23M).  No warning signs here.

GGT Price EMAs:  Still upward and parallel, which is bullish.

GGT Price Rates of Change:  Well-defined downslope since early March, but positive (so GGT Price is still trending upward). These two things balance and make this indicator cautionary.

Relative Recommendation Ratios:  We are coming off a 3/15 peak where we have had a huge number of stocks rated LONG.  When this has occured in the past we have always corrected within 30 trading days and at least -4% drop to the downside. 

GGT Long-Cash Ratio:  The LCR continues to drop, which is bearish.  Stocks prices in the database cannot remain horiztonal or slightly upward-trending in direction if the number of CASH recommended stocks continues to increase.  Either the LCR must reverse and sync with the drift upward of prices or prices overall must drop to sync with the dropping LCR.

GGT LCR EMAs:  3 of the 4 (13d, 21d, 34d) are moving south off of recent peaks.  Only the 55d is trending upward, and it is doing so at a very slow rate.  Falling EMAs is a confirmation of the weakening database and is bearish.

GGT LCR Rates of Change:  The LCR ROCs have all moved into negative readings, indicating that on a sustained basis the database is growing in numbers of CASH-recommended stocks on a day-over-day basis.  This is clearly bearish.

LCR Change Timers:  Both are recommending CASH, which means to protect long profits and to get your contra ETF shopping list ready.

GGT Strength:  bullish divergence between price-only model and price+volume model.  The price-only model has strength improving, but the price+volume model has strength down significantly.  Favoring a bearish stance here because of the 0.527 strength reading (been trending downward since early March).

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GGT Price

The GGT Price sequence, including Friday 3/19 as well as this past Friday, is as follows:

$24.66 -0.964%

$24.87 0.852%
$25.09 0.885%
$24.89 -0.797%
$24.75 -0.562%
$24.99 0.970%

If you started with $1 on the morning of 3/19 and multipled the daily changes, you ended the day on 3/26 @ $1.0097.  Put another way, if you started with $10,000 on the morning of 3/19, you ended $97 to the upside this past Friday, not including commissions.  Daily variance is 0.70%, or $70 on $10K, so we are just barely above the noise floor of the broad markets. 

Sometimes it pays to sit on the sidelines, and I've been talking about being cautious for over a week.  There is nothing in the price action to suggest otherwise.  I'm not seeing anything in the pricing that tells us we are headed south, nor am I seeing anything that could propel us upward from here.  I reiterate:  caution is advised.

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GGT Volume

GGT Volume is solid, with 2.2M shares indicated on Friday with 50d MA volume of 2.09M shares.  When prices do not move on constant volume we typically see "churning".  The ever-so-slight upward drift of prices on solid volume still qualifies as cautionary.  I typically like to see in groups of stocks:

1. slightly falling prices on lower volume (bullish),
2. rising prices on solid volume (bullish), or
3. rising prices on higher volume (bullish). 

If we are not in these three categories I typically wave my yellow flag, and will do so here too.  Despite this, by itsself, volume is solid.

Here's the combined GGT Price and Average Volume chart; as with all my charts, right-mouse click on the chart for options to open it in a different window so you can see a larger view:

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GGT Price LCRs

The following graph is interesting to me:

The graph above tells me that we're still very early in any potential downtrend.  Certainly, the past week has been challenging, but if you look back at the data since 5/27/09, "corrections" always were indicated with the GGT Price Index dropping below the EMAs, if not the EMAs crossing each other from above.  It's clear that this has not yet occurred, so jumping either long OR short is very early.  For now, the graph above tells me that we've been bullish, and up to this past Friday, we should remain bullish.  If there is *any* cautionary view above, it's that the GGT Price Index is hitting some form of "resistance" (although resistance does not exist for the GGT Price Index because fewer than 300 people know about it).

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GGT Pricing Rates of Change

Take a close look at the following graph:

Here, I plot the GGT Price Index against EMAs of the changes in GGT Price.  This is known as Rates of Change, or ROCs, and basically tells us how fast we are moving upward or downward in price.  I smooth these ROCs with different EMAs.

What the graph above tells me is that:

1. the EMAs of the ROCs are all still greater than $0.00.  This means that GGT Price still has an upward trajectory, e.g. average stock prices in the data base are moving upwards (we're making money if we're long).
2. the EMAs of the ROCs has been falling steadily since the beginning of March.  This means that although the GGT Price Index has been moving up, it has been doing so at a slower rate as this bull leg gets tired.  THIS IS CAUTIONARY.
3. if the slowing in ROCs continues, we will most likely cross below $0.00 prior to April 12th (see the red arrow pointing downward and connecting the ROC values.

Because of #1 balancing #2, I'm coloring this as cautionary.
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Relative GGT Ratios

Many of you have responded favorably to the next graph so here is the update:

Note that in the above graphic I've enlarged the ovals (not circles) to show the "zones" that the number of LONG recommended stocks (bright yellow) has played within.

A few observations on the chart above:

1. We're coming off the top of LONG recommended stocks (not New Long or Affirmed Long, just LONG), which peaked at 61.9% on 3/15. 
2. The all-time LONG high was 64.5% on 9/21/09.   On this date the Price Index was at $19.12.  The next low after this high was 10/2 when the Price Index was $18.39.  We achieved a lower peak on 10/16 then started a significant drop until 10/30/09, where we hit the price index of $18.09, a reduction of -5.4% from the overall 9/21 peak.  I would not be at all surprised to see equivalent behavior going forward.
3. Friday's value was 54.5% and declining, in case you're interested.

This graph is simply telling us that the underlying database is weakening.  The decrease in LONGs ususally proceeds a drop in the Price Index, so this is cautionary.  I would not be surprised to drop a couple of % from here, recover to a lower high, then drop more.  Another view of this data above that might be a bit easier to interpret is as follows:

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Long Cash Ratio

The GGT Long Cash Ratio continues to fall and closed Friday 3/26 at 1.942, indicating that 2033 stocks in the database have some form of long status and 1047 have some form of cash status.  This continued decline in underlying database price strength (the only thing that can cause the number of cash-status stocks to grow) does not portend well for an up leg at this point in time.  Here's the LCR/Price Chart:

What should be evident in this graphic is that we're 50% of the way down in a "reset" of the LCR before an upleg has resumed.  Aside from the extreme left-side of the graphic, we've not typically reversed from these levels, hence I think we have a bit more dropping of the LCR to experience. 

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GGT Long-Cash Ratio EMAs

The following graph is telling:

The graphic above shows the raw LCR value smoothed with 4 EMAs.  What we see here is that the 13d, 22d, and 34d have all started to fall over and move more negative than their recent peaks.  While the past is no predictor of the future, I think that the graph gives us some insight into the behavior of the markets and when bull-legs get tired, LCR tends to drop, pulling the respective EMAs down after some period of time.  I think that this chart gives us insight about what is happening, so I am coloring it red.

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GGT LCR Rates of Change

The graphic above is clear:  All ROCs of the LCR are now negative, which means that the LCR and its EMAs are all in agreement and the LCR is losing ground fairly rapidly.  Until we get a reversal in these ROCs we have a bearish condition.

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GGT LCR Change Timers

Friday morning 3/19 the GGT LCR Change Timer (slow) confirmed a move to cash; I notified you about this here.  I sold all my longs, except for my Contra ETFs, and in hindsight while I could have kept them with minimal impact, the reward/risk ratio grew with no apparent upside to the markets.  Interesting to note that my contras haven't done anything, so movement to contras still has been a bit early.

The LCR Change Timer (fast) is presently in cash. 

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GGT Strength

I have the ability to track the strength of each individual stock in the GGT database.  When I do this and normalize all the strengths between a value of 0 and 1, I can track the strength of the database.  Furthermore, I have the ability to separate the strength of the database based purely upon price, as well as price & volume.  The latter capability is important, because volume offers a way to confirm price action.

With Friday's close we have a bearish divergence.  The non-volume portion of the tool has indicated that the strength of the database has improved, e.g., when volume is removed from the equation, 2%  more stocks appreciated on Friday in price than fell.  Indeed, http://www.finviz.com/ shows that 48.1% of the stocks on the exchanges did in fact advance, and 44.0% of the stocks declined.  The percentage difference between http://www.finviz.com/ and GGT is simply that the universes are different, as is the methodology.

What is more striking is that when volume is inserted into the tool we have a significant drop in strength, e.g., of the stocks that fell in price, more did it on higher volume.

Typically, these two indicators travel with each other -- when one goes up, the other does too.  Here, the divergence indicates that there is a lack of broad participation in stock price appreciation, e.g., the big boys did not play on Friday on the upside, but for those that did, the volume of the declining issues outpaced those of the gaining issues.  This is a bearish divergence.

For the record, the price & volume strength of the database is at mid-scale levels of 0.527.  A reset below 0.4 before starting the next up leg would be welcomed, but I'm not sure we'll see it.

Two things are going to happen here:  a reversal upward (strength can improve dramatically from 0.527, powering the stocks upward), or we're going to have prices get in line with the LCR.  Given that this is the last week of the month I would not be surprised at a short rally here, then continued dropping of the market.

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As always, you are responsible for your own trading decisions, not me.  Please do your homework.

Regards,

pgd

Bullish Divergence in GGT Price+Volume Strength

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GGT Price fell another -0.5% on Thursday, giving us 2 consecutive down days in price on above average volume of 2.5M shares (2.083M shares is the 50d MA Volume).  This is a 23% difference above average and is significant -- down prices on above average volume means larger selling, which is bearish. 

GGT Bull/Bear Strength continues to fall, indicating that the bears are gaining foothold.  There are more bears than bulls over the last two trading days and this could be pre-evidence of a sea change.  Correspondingly, I am very cautious at this time.

The GGT Long-Cash Ratio has fallen two consecutive days and now indicates that 67.9% of the database is LONG, e.g., 2162 stocks have a long recommendation and 1022 have a CASH recommendation.  The slope of the 65d EMA on the LCR has fallen now the last 6 consecutive days and shows that the database is not appreciating in price as fast as previous.  This latter point is cautionary -- we want consecutive up days, not down days of this indicator, so continued caution is advised.

The GGT LCR Change Timer (slow) continues to indicate CASH (-1).  On the day of the original down signal the historical return using this timer was 89.4%; 7 trading days later we are still at 89.9%, so we have not see a huge move either way.  A few of you have sent me a note asking "what's up?" -- all I can say is that with the underlying numbers of stocks in the database increasing in the number of CASH recommendations and contributing to a falling LCR, it is prudent to protect profits.  You should be watching contra ETFs for an early breakout, or watching long stocks for continued consolidation/sideways movement then a breakout to the upside.  We have neither right now.

[ Please note and remember that you're in this for the long haul.  Not all signals will exactly time the top, and not all will exactly time the bottom.  This has been a very good system over the long haul. If you have a better system I'm willing to listen...  :o) ]

GGT database (Price + Volume) strength INCREASED on Thursday, which is a BULLISH divergence.  What this means is that the strength of stocks falling in price was X, but the strength of stocks rising in price + volume was Y, where Y > X.  This means that for the stocks that did rise, they did so on higher volume, which points to institutionals playing with the bigger names.  We need to keep an eye on this situation for a potential new bull leg.

The DJ30 increased it's strength on Thursday over Wednesday's value, but is still considered overbought by my standards.  While there is upside available in the DJ30, I think that there is a greater likelihood of a downdraft.

The NASDAQ 100 fell in strength on Thursday, and is now at it's lowest level (58.5%) since 2/23.  When we get to this level we could go either direction.  I would prefer to see a reset below 40%, but it may not happen.  Remember, the 40% indicator is not an exact science.

Brazil continues to get the heck beat out of it.  It has fallen to it's lowest level since 2/24 (25.3%), so looking at EWZ or other long positions in Brazil may be warranted.

Russia gained on Thursday and has now just crossed the 40% threashold from below, a bullish sign.  Watch the RSX or the individual Russian stocks for continued strength if the markets move higher.

India followed Russia and is now at 49%.  Watch India for continued strength.

China continues to weaken and has been floating around 43% all week. There is very little direction here, so caution is advised.

The SP400 MidCaps fell another 11% and are now at 60.9% strength.  THIS IS THE LOWEST LEVEL SINCE 2/11. 

The SP500 strength fell to 64%, now the lowest level since 2/26.  Certainly, reversal is possible from here, but with GGT LCR falling, I think we'll continue to see a drift down while LCR drifts downward.

The SP600 has fallen to 48.8%, and is now at the lowest level since 2/10.  These are the small caps, and as I indicated at last weeks meeting, we've seen a gradual rotation from small caps to large caps.  This is further evidence of that rotation.  A reset below 40% would certainly put us in place for upside movement.

Finally, the Russell 2000 Small Cap index has fallen to 53% strength, which is just above the 2/10 level.  Same comment as above for the SP600.

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We've had 7 days of boucing back and forth, not really gaining overall.  The LCR has been drifting downward.  Small caps have been drifting downward in strength to their 2/10 and 2/26 levels.  We have a divergence in Price+Volume strength, hence I think it's very plausible that we could go either way.  The indicators are telling us to be biased to the bearish side, and until the LCR Change Timer moves long, I will continue my "where are the contras" mantra.  Note though that I am still selectivly purchasing long stocks from my VectorVest Gorilla Trades strategy, as well as some of the Larry Conners ETF strategies, so we'll see how things progress.

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Remember, you are responsible for your own trading decisions.  Please do your homework.

Regards,

pgd

Another Indicator Pointing Us To Contra ETFs

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I ran the GGT ETFs tonight (Thursday, 3/25), and selected all the Contra ETFs that have some form of long status (New Long, Affirmed Long, or Long).  When I import this into HGSI, we get the following graph, which I've modified from the standard default graph:

Note the following:

1. 3rd ribbon from the top is Accumulation.  Over the past week we have seen it move from bright red --> light red --> yellow, indicating solid accumulation of the ETFs used in this chart.  This is bullish.
2. 4th and 5th ribbons from the top are the Elder Force Index, 13d and 2d respectively.  They both transitioned to GREEN on 3/24, which is bullish.
3. Bollinger Band and %B transitioned from a "green" background color to "bright red" in one day (3/24), indicating that we have had a significant price explosion of these stocks.  This goes to reason ... they are all relatively new to the GGT Long category.
4. The 65d slope EMA window has 4 EMAs plotted.  These are EMAs on the slope of the 65d EMA.  ALL are turning upward, another bullish sign.  The last time these turned upward was 1/19 and 1/20, and we all know what happened between then and 2/9.
5. In the Price window, this index has closed above the 50d EMA.  While this is an artifical index that has been built from the equity upward, anytime the price closes above the 50d for the first time I pay attention.
6. The 50d EMA has just turned to a positive slope within the last few days.

For the record, here are the ETFs that have some form of GGT LONG status, as of the close tonight:

Note:  I'm NOT recommending any of these specifically, but be aware, the basket shown above is telling us to pay attention.

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

Regards,

pgd

The Euro Opportunity ...

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I've been watching FXE sink over the last month, only to watch it reverse over the past couple of weeks and attempt a breakout relative to the recent past.  Well, it's resumed the downward slide, and with sinking EMAs, I think we should look at the contra ETF EUO.

EUO has been showing strength all week and it is very close at clearing $21.00 again, which it touched on 2/25.  Important here is that when we look at the slope of the 65d EMA, and we smooth that value with an 8d, 13d, and 21d EMA, the 8d has just crossed the 13d from below, a bullish sign.  Furthermore, the 2d EMA of the slope of the 65d EMA has closed above those EMAs, effectively "pulling them up".  This too is considered bullish.  Finally, with today's action, the 8d will cross the 21d from below on Thursday if the EUO continues upward.

I'm looking to enter a 50% position on Thursday if EUO continues upward on strength, the 50% being comprised of 25% from the first 8x13 from below, and another 25% as the 8x21 from below.  The final 50% will be when the 13dx21 from below.

Thoughts are appreciated.

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

Regards,

pgd

And the beat goes on ...

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I learned a long time ago not to fight the tape, which is why even though I'm waving yellow caution flags, I'm still moving into long positions, albeit timidly.

I entered KMB yesterday and am above water, but just barely.  A check of the charts this morning shows that it's a good, intermediate-term stock, provided it keeps the momentum.  I also entered AMGN on Monday and I think it will do fine over the next several weeks, a correction not withstanding.  As I indicated this past weekend at our meeting I am mostly in cash, as GGT confirmed a move to cash last week.  While some of you may be second guessing my decision, the important thing is to:

1. believe your indicators
2. believe your indicators
3. believe your indicators

The GGT LCR Change Timer has never been wrong in 18 months of published signals, e.g., the market went up dramatically even though the timer indicated CASH.  It's certainly been early, which tests your meddle, but I'm in this for the long haul so I don't care if I'm early.  I think the risk is simply too high to be 100% committed at the present time.  Tip your toe in, certainly, but keep your bathing suit dry for now.

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The GGT Price index closed at an 18-month high of $25.09, up 0.885% from Monday's close of $24.87.  Volume was normal at 2.068M shares, with 50d MA volume at 2.053M shares.  Again, all within statistical averages, so up prices on steady volume is bullish.

GGT Bull Strength, which is the ratio of (New Longs + Affirmed Longs) / (New Cash + Affirmed Cash), jumped dramatically on Tuesday, showing that underlying changes in the database were strong.  We need BOTH volume AND price to get New Longs/Affirmed Longs to signal, and a major jump in this indicator shows that we experienced just that.  Continued Bull Strength is very bullish, so although we've watched this indicator drop several consecutive days, continued dancing up here at these levels is bullish.  Here's the chart (click on the image to see a larger view):

Note that I've circled when the Bull Strength indicator was very weak ... when it has been in the low areas this typically has signalled a significant and sustained moved to the upside.  We're at the opposite end right now, so I'm not sure where the fuel for a sustained run will come from without a reset.  Food for thought.

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The GGT Long-Cash Ratio moved UP on Tuesday, reversing a 3-day drop.  It is now at 2.777, and indicates that 73% of the database is LONG (2341 stocks), while 843 stocks are in CASH.  Of greater importance is that the 13d EMA of the LCR Rate of Change has reversed for two consecutive days, and although it is still negative, it is becoming less so each day.  This is bullish, especially if it crosses back into positive territory.  Here's the chart:

I was expecting a bigger "reset" with this indicator, so we'll have to watch it in the following days.

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The fast LCR Change Timer has moved from CASH (-1) to a CASH-LONG (0) status.  This is normal when the LCR reverses and is an early indicator of a bullish change.  The slow LCR Change Timer is indicating CASH (-1).  If we have another up day the fast LCR Change Timer will move to a LONG status.  We are at least 2 days away from confirming this change with the slow timer (Wed and Thurs action).    Watch the ADV/DEC line on stocks throughout the day ... if we have more ADV than DEC there is a good possibility of the fast LCR Change Timer moving to LONG status.

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The DJ30 strength indicator is at 0.96.  All the index strength indicators are above 0.65, and moved upward yesterday.  There is still room for these other indexes to move upward, e.g., this tired bull isn't done yet if it doesn't want to be....

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Remember, you are responsible for your own trading decisions, not me.  Do your homework.

Regards,

pgd

What say GGT for Tuesday, March 23rd?

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The GGT Price index rose to $24.87, up from Friday's value of $24.66.  Volume was slightly below average, with 2.041M shares indicated on an average of 2.047M shares.  All within statistical norms so don't read anything into this.  Higher prices on steady volume is bullish.

Monday was not particularly strong in pushing stocks from CASH to NEW LONG, or from LONG to AFFIRMED LONG.  We are on the lower fringes of average here, which indicates a tired bull.  In fact, our Bull-Strength indicator, which is the ratio of (New Longs + Affirmed Longs) / (New Cash + Affirmed Cash) has fallen to the lowest level (0.79) since 2/26.  This is borderline bearish.

There are presently 2312 stocks in some form of a LONG status, and 872 stocks in some form of a CASH status.  This provides a Long-Cash Ratio (LCR) value of 2.651, which is down from Friday's value of 2.735.  This is bearish.

The LCR Change Timer is indicating we should be in CASH.  The fast portion of this timer flipped to cash on 3/15 and the confirmation portion of this timer confirmed this move this past Friday.  You are playing with fire if you enter large long positions at this time.

Prices moved higher on Monday with below-average volume.  This is called a sucker's rally, and is not good.  I determined this by an increase in the non-volume price strength indicator, but a decrease in the price-volume strength indicator.  Again, extreme caution on the long-side is advised.

All the major indexes fell in raw GGT strength (I calculate the strength of the stocks in the index, then average each with equal weighting) even though they were up in value.  This is a bearish divergence.

As I've indicated in the past, we can remain here for some time.  Here's a now-familiar graph; read this entry if you want details on what the colors mean:

What's important to realize about this chart is that compared to past periods, we may already be starting the downward slide.  Certainly, other indicators are showing that this bull is tired.  In the graph above, pay particular attention to the oval'd area in March-June 2009 and compare to now (right side of graph) ... there is NOTHING suggesting that we couldn't remain here, bouncing around.

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We are still in overbought territory, so caution is advised.

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

Regards,

pgd