Gotta Love (Hate) Whipsaws ...

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The LCR (Fast) Change Timer has moved back to LONG with the close of Thursday's action, signalling that we should be considering only long positions.  If you've been following along this timer went to CASH this past Tuesday, so back and forth we go.  For those of you following my daily trades in the VectorVest blog, this timer is in sync with what I'm seeing in the Contra 13x21 portfolio, so frustrating as it may seem, it's not too far from reality.

The LCR (Slow) Change Timer is still indicating CASH (actually, it is CASH-LONG), so if today is a strong day it will transition to long.

Remember, the fast change timer has a time constant of about 6 hours of trading action, whereas the slow change timer has a time constant of about 4 days.  Only use these timers if you can be nimble in your trading.

GGT price moved up 1.7% on solid volume of 3M shares.  Volume has been quite heavy lately -- significant participants in the market.  If anybody has an explanation I'm listening.  Pricing EMAs have resumed their upward march, and the GGT price is now above all the pricing EMAs, which is bullish.

Elder's Force Index is just barely positive, which is a major warning for stocks.  A significant down day will certainly take this indicator below 0, which will turn us from bullish to bearish.  Be advised.

The Long-Cash Ratio moved upward again, and is now at 1.833, up from 1.700 but down from where we started the week.  1906 stocks are indicated LONG, and 1040 are indicated in CASH.  This is a net change of 51 stocks to the long side and oddly, -51 stocks to the cash side.  Don't read anything into the balance.

The LCR EMAs are still very negative, but are moving upward, e.g., becoming less negative.  This means that the tide has reversed and when this is happening, we can expect prices to move more positive.  Note that they're not moving upward very fast, and since they are still negative, over the long haul we are certainly seeing a decrease in bulls and increase in bears.  Keep this in mind.

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Emotion is telling me to hold onto my contras, but the indicators are telling me to sell them.  As I'm trying to drive emotion out of my trading, I'm placing 1% TSLs on all my contras, and will continue to play the long side as indicated in my VV blog.

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Remember, you are responsible for your trading actions, not me.

Regards,

pgd

Price and Long-Cash Ratio Divergence ==> Dangerous Waters

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The GGT Price Index climbed 0.23% on Wednesday, finishing at $26.30.  Volume was strong at 3M shares.

The GGT Long-Cash Ratio (LCR) fell a large amount Wednesday, from 1.923 to 1.700, picking up 83 more stocks on the cash-recommended side.

These two indicators cannot remain out of sync for very long -- the LCR is a derivative of the price index.

A CASH recommendation is provided any time a stock falls below the historical optimized pricing EMA levels.  There were 108 "New Cash" stocks on Wednesday, meaning that with respect to price, each of these fell below the limbo bar where they were prior above the bar.  Conversely, a LONG recommendation is provided any time a stock excells at BOTH price and volume over some historical optimized level -- and there were 25 of these stocks that were below the limbo bar that made it above the bar.

The GGT Price index is an average of all the stock prices in the database -- when the price index drops, the entire database, on average, has dropped, and when the price moves up -- like yesterday -- the entire database price has moved upward.

The divergence is that while the underlying database is showing price strength (appreciation of the database price index), it is doing so on lower volume (the number of New Longs dropped relative to the number of New Cash).  Correspondingly, the LCR falls while the Price Index climbs.

There are only two ways to resolve this:

1. The LCR will reverse and the bull will continue, with stocks gaining in price AND volume. I favor this occuring simply because we've been in an uptrend, earnings are relatively strong, and market confidence is strong.
2. The price index will reverse, with the markets collapsing.  I do not favor this approach, but nevertheless, it certainly could happen, given our overbought areas.

With the futures up significantly on all three exchanges, I am leaning towards method #1 above, but remember, we cannot predict the market -- only read where it has been.  You sometimes drive off the road when you drive forward while looking in the rear-view mirror ....

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

Regards,

pgd

GGT LCR Fast Timer Confirms Move to CASH

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GGT Price dropped -2.49% to $26.24 on Tuesday on the 2nd highest volume ever recorded since we started in August 2008, 3.4M shares.  Distribution day indeed.

The question is "now what?"

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For the first time since 1/22/10 the GGT Price has penetrated the upper Price 13d EMA.  While it is too early to say we'll continue, futures are a tad lower this morning, so heading for the 21d EMA is not out of the question.  Here's the chart:

A close below $26.06 of the GGT Price will take out the 21d EMA.

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Tuesday was the largest, single day drop for the Elder Force Index since we started keeping track in August 2008.  While we are still above the 0-line, e.g., we're positive in FI(13) value, which is still bullish, but with a modest down day it could move this average negative.  In other words, we're on the cusp, and we could tip either way.  I hate indicision, so perhaps this will clear itsself today or tomorrow.

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The Long-Cash Ratio (LCR) fell to 1.923, indicating that 1938 stocks have some form of long status and 1008 stocks are in some form of cash status.  This is down significantly from Monday's value of 3.307, which is what we expect for a heavy distribution day.  There are a large number of long-recommended stocks available so continuation of this drop is not out of the question.

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The EMAs on the LCR are still aligned in a bullish stance, with the 13d > 21d > 34d > 55d.  A crossing from above of the 13d x the 21d would be another bow shot, and this is the next bogey that I'm watching for out of this indicator.  Failure to achieve this crossing would be a bullish sign and we'd have a buying opportunity on the long side ...

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ALL LCR Rates of Change (ROCs) have moved negative, which is a clear warning shot.  They have done so decisively, which makes me think that they will actually relax, e.g., they could remain negative but less so than the present values, e.g., moderate the decline in LCR.  Here's the chart:

Perhaps my colleague Ray is correct: "... something feels different this time ..."

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I wrote about the emergence of Contra ETFs in my VectorVest blog; if you are inclined to play that side of the market you may want to review.

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As always, do your diligence.  You are responsible for your trades, not me.  Comments and questions are always welcomed.

Regards,

pgd

GGT LCR Fast Change Timer has Transitioned to Long-Cash (0)

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With the close of Monday's markets, the GGT LCR Fast Timer has transitioned to Long-Cash.  If today is a down day with respect to the ADV/DEC ratio (more declines than advances), it is highly likely that this timer will move to a full-cash signal.

Given the strength of the small caps, TWM, the ultra short to the Russell 2000 should do well when the market reverses.  Same with the TZA, which is the TRIPLE short Russell 2000 from Direxion.  You have to be absolutely nimble to play these ETFs.

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The GGT price index fell -0.3% on Monday on volume that was 19% above average.  This is within the daily statistical noise so I wouldn't read too much into this. 

The distribution of stock classifications -- New Long, Aff. Long, Long, Cash, Aff. Cash, and New Cash -- are all within their norms so again, yesterday was a yawner in terms of change in database structure.  Stocks with a Long recommendation (lower volume but prices still higher than historical optimum levels) grew from 1444 to 1564, which is notable -- more stocks are nearing the edge of the "cash" cliff and a down day in the markets will force them to jump to the red side.    We'll see.

The actual Long-Cash Ratio (LCR) fell just ever-so-slightly on Monday, again, within the noise of daily movements.  It is now at 3.307, indicating that 2262 stocks are long and 684 stocks are in cash.  Put another way, ~77% of the database is in some form of long status, and we've been here for some time.

I'm not seeing anything in the pricing or LCR EMAs which suggests that "Tuesday is the reversal day".  Everything is marching upward, and aside from the warning sign of the LCR Fast Change Timer telling us that we could move south, all other indicators are still north of the border.  Don't bet the farm on TWM or other short ETFs just yet.

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

Regards,

pgd

Weekend GGT Summary

I've created a video blog which is far easier for me concerning time than creating a lengthly blog.  This week's video blog can be found here:

ftp://airak.com/ggt

Point your browser there; once the directory tree is displayed, please select the file:

GGT-Weekly-Summary-10APR25.mp4


Either rightmouse-click on the file for options concerning where to open or download, or just click on the file and it will start playing in your browser.  Firefox and IE work best.

Comments and suggestions for improvement are always welcomed.

Regards,

GGT LCR Timer has signaled a move to CASH

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With the close of the markets onTuesday, 4/20, GGT has signaled a move to CASH (-1).  I am traveling and was unable to run data for Monday until yesterday (Tuesday), and the setups for this move occured on Monday, with a confirmation on Tuesday (even though the markets were up). 

We get a move to cash when the underlying database moves downward in recommendations, e.g., when the individual strengths and prices of the underlying database (nearly 3000 stocks) move downward more than the stocks that appreciate.  This is what we are seeing, and it was sparked by Friday's sell-off on the Goldman news.  We are seeing this despite a 1-day bump in the GGT Price, which increased from $26.10 to $26.44.  This suggests that for the stocks that did appreciate significantly on Tuesday, they did so in a big way.

If the trend upward continues the GGT LCR Timer will reverse.  It has happened in the past, and will continue to happen going forward.  This being said, the equity curve from listenting to just the fast timer is up 116% since August 2008 (30 signals) and if we wait for the confirmation timer (slower), we're up 56% in the same time frame (24 signals).

I plan to sell those stocks in my portfolio which are not moving up when the market moves upward.  I'm looking at setting a sell point of 2ATR or the 10-day low, whichever is higher.

I do plan to enter ICOG above $1.37 today as a replacement turtle trade.  PWAV also looks interesting as another 55d turtle trade.

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

All-time LCR Peak on 4/15, All-time Long Peak on 4/15, Volume Peaking

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GGT classifies stocks into 6 categories:

New Long
Affirmed Long
Long
Cash
Affirmed Cash
New Cash

You can only achieve a "New Long" status if you were in one of the three cash status, and conversely, you can only achieve a "New Cash" status if you were in one of the long status.

Affirmed "X" means that the criteria is the same for the respective side of the table -- if you have an Affirmed Long, this is the same criteria for a "New Long", but since you were already long, this simply reaffirms the status.  The converse is true too.

As stocks weaken, they move from New Long/Aff. Long to Long, and as they strengthen, they move from New Cash/Aff. Cash to Cash.

As of 4/15, we have hit an all-time peak with the greatest number of "Long" rated stocks since we started tracking in September of 2008.  Historically, we've seen sideways movement or a decline from this point in the past, so we need to watch.

As of 4/15, we have hit an all-time peak in the Long-Cash Ratio (LCR), which is the ratio of (New Long + Aff. Long + Long) / (Cash + Aff. Cash + New Cash).  This ratio is now 4.219:1, meaning that 2413 stocks have some form of long recommendation, and 572 have some form of cash recommendation.  As new territory, we can't infer past behavior, but suffice to say, we've ALWAYS corrected when these levels have been this lofty.

Finally, we have experienced 2 consecutive days of volume of 36% and 35% above average levels.  GGT Price has moved up only $0.02 with the action on Thursday, so this is a prime example of churning.  Churning is associated with topping formations, or pauses before another move upward.  Given the low number of available cash-recommended stocks, I don't see how we can move upward in a big way, but who knows?

Caution is advised.

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

Regards,

pgd