A New Divergence: Price & LCR Lower, Strength Higher

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Let's start with our summary dashboard:

GGT Price fell to the lowest level since February 2010, and is now at $22.79.  It did it on surprisingly higher volume of 3.2M shares, where 2.8M is the 50d MA.  Lower prices on higher volume is another distribution day, and we've had two this week.  Certainly the bears are in control, and if you are buying long positions, you're swimming upstream.

The Long-Cash Ratio (LCR), which is exactly what the name says it is, continues to drop and is now at 0.177, indicating that 425 stocks in the database have some form of long status (New Long, Affirmed Long, or Long) and that 2404 stocks in the database have some form of cash status (New Cash, Affirmed Cash, or Cash).  A mere 15% of the stocks are long, which means that 85% of the stocks are below their optimized pricing and volume levels.  Buyer beware.

Of interest is that the database strength, which is a value between 0 and 1 and is one that indicates how "strong" a stock is relative to it's optimized past, is now moving UP, e.g., gaining strength.  The new value is 0.197, up from Wednesday's close of 0.113.  This is a divergence and indicates that we may be bouncing upward from here -- we'll see.  I want to see the LCR and price action of the database fall in line with this today to see some steam behind a relief rally.  Strength cannot continue to increase while the LCR and price action fall, either strength must drop as LCR and prices fall, or they all will rise together.  This is because they are inter-related in terms of volume and price action.

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LCR Change Timer

Our LCR Change Timer, which is a very short-term timer, continues to indicate that we should be in cash (if you are conservative) or in Contra ETFs (if you are more aggressive).  I, unfortunately, sold all my contras except TWM last Friday, so I've missed out on this big drop.  Nevertheless, my limited position in TWM is up 13.49%, which is wonderful.  The cash signal occurred with the close on 6/22; if you would have shorted a theoretical position in the VTI @ $55.87 (Vanguard Total Index, closely resembles the GGT price index), with the close yesterday of the VTI at $52.33, you would be up 6.3%.  If you think that this is unrealistic then you can use the following ETF chart as a guide for your favorite ETFs and invest on the Contra side to whatever your tolerance:

As with all my charts, right-click on the image to open in a new tab or window.  I suggest you print the figure and place it on the wall close to your PC.

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Elder Timer

Elder continues to look ugly.  As a whole, the 13d Force Index is below 0, indicating we should not be considering long positions.  This is the prudent approach and unless your time frame is very short, I would stay away from intermediate-to-long-term buys on long positions UNLESS your trading plan averages downward in positions (see my TSP trading blog) as the markets fall.

For the record, here is what HSGI has to say about the database, from the perspective of my Elder screen:

As I said, ugliness.

• Bull Power is negative and Bear Power is growing more negative, so there should be no question as to your alignment.  
• The 13d Force Index is pink, indicating that it is below 0.  This negates the 2d FI indicator, which is showing green (I reverse the 2d from what you default in HGSI because you want to consider entering on strength off of PULLBACKS, not when the 2d FI is making new positive highs)
• Most telling is that the slope of the 13d and 34d EMAs are
  
  1) below 0 -- prices are falling
  2) are pointing downward -- prices are falling faster
  
  Until I see some bottoming in these slope values and they start pointing upward long positions are at risk, if they are correlated with the broad markets.

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Back to the GGT status graphic:  Pricing and LCR EMAs are all looking bearish.  Again, avoid long positions unless they are counter-trending by nature (e.g., gold, long bond, etc.)

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Trading Plan for Friday

Simple:  I'm expecting poor volume, so I'm content to sit on the sidelines.  The GGT LCR Change Timer will NOT give a confirmed long call today, so no action is required at 3:30 - 4:00 pm.  Conversely, there is nothing telling me to close my TWM positions, so I'll let it ride across the 3-day holiday.

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

Make it a great holiday weekend!

Regards,

pgd

A Sea of Red, Sitting Pat, Happy to Wait and See ...

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As always, let's start with our normal view of the GGT dashboard (right-click on any image to load in a separate window):

We lost -0.87% on price yesterday, ending at $22.90.  As a reference, our recent low was $22.83 on 6/7, so unlike the SP500, we're not yet closing in new-low territory (yet).  Volume was down -10% from the 50d MA, but this is the "new normal" and is within the expected deviations, so nothing remarkable here. 

The LCR continues to fall as the database of stocks consolidates, ending at 0.222.  This means that 510 stocks have some form of long status and 2321 stocks have some form of cash status. 

The LCR Change Timer is still indicating CASH (-1), and has now been in this state for the last 7 trading days.  If you are conservative but like to move in-and-out rapidly, you've been in cash and have been protected.  If you are aggressive and like to move in-and-out rapidly, you've been rewarded handsomely, as the GGT Price has fallen almost 6% in 7 days (you could play this with Contra ETFs).  My lone-surviving contra position, TWM, is up +11.75% in the past 7 days, as a reference point.  Yes, I wish I had not sold all my contras last Friday, but my crystal ball is as good as yours and I didn't want to hold across the weekend.

Elder continues to warn us away on intermediate-term long positions, as the 13d Force Index is negative.  Despite this, I asked for input for stocks bucking the trend, and Hank answered the call with 4 countertrend entries, NRGY, SBS, IDT, and ATHN.  Let's take a quick look at them, but note, THESE ARE NOT RECOMMENDATIONS -- do your own homework:

NRGY is clearly making money the last few days -- volume is increasing on increasing prices.  The Elder 13d FI is clearly green, yet the Elder 2d FI is RED, indicating that the 2d FI is POSITIVE.  This blocks me from entry.  I like that the slopes of the 13d and 34d are above 0 (the car is driving forward) and that the 13d is gaining faster than the 34d (the car is accelerating).  I intend to wait for a pullback before considering this further.

The graph above is of SBS.  Again, this looks very strong, with price action clearly above the 13d MA and both the 13d and 34d slope lines above 0 (car is moving forward).  We see a bit of peaking in the slopes, with them presently downtrending (car is slowing a bit), so we may be presented a good entry opportunity.

Note that the Elder 13d FI is green, meaning that it is positive, and that the 2d FI is green, meaning that it is negative.  This establishes the conditions for entry, so we would want to see price action clear $42.40 before committing our hard-earned dollars.

The graph above is of IDT.  This is a very hot equity, as evidenced by last three days.  A couple of good points, and a couple of cautionary points:

1. The Elder 13d FI is positive.  This is good
2. The Elder 2d FI is positive.  We need to wait for a pullback to enter
3. Both the slopes on the 13d and the 34d EMA of price are positive (the car is moving foward), and they are pointed upward (the car is accelerating).  These are both bullish indicators
4. The industry group is shown in the gray dotted line.  Historically, until recently, IDT has been underperforming, and appears now to be in catch-up mode.  We need to poke around a bit more to explain why lagging.

The final graph above is of ATHN.  This is a new emergent, as is evidenced by the recent 13d Force Index moving positive.  Note that the 2d FI is RED, indicating that it too is positive, blocking entry.

The slopes of the 13d and 34d are both just moving into positive territory.  The car has just recently started moving forward.  Both are pointing upward, so the car is accelerating.  These are bullish indicators.

Note that the 13d EMA is below the 34d EMA on the pricing graph.  We may be a bit too early on this one, especially if you are conservative.

Note too that the industry group has been outperforming this stock for some time (dotted grey line on the pricing graph).  We need to understand why this is so.

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Trading Plan for Thursday

Boring.  I intend to sit on my pile of cash and wait.  I'm waiting for the 1040 level of the SP500 to show us that it is either resistance or yesterday was a fluke.  I'm waiting for a sustained bounce and the LCR Change Timer to move LONG (we are at least two trading days away from that signal, if it happens).  As indicated in the previous few days blogs, I do not typically enter a signal mid-stream, so I'll let my TWM position continue and will let my core AAPL position wither away, possibly adding some more AAPL as it gets cheaper AND as it shows some indications of strength.

Patience is the name of MY game.

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

Regards,

pgd

Deciding to sit pat even though it appears we will close below 1040 on the SP500... I'm not excited about bid/ask on SDD, and think we need to see whether 1040 becomes resistance....

Anemic volume in the contras....

LCR Change Timer is Bearish, Elder is Bearish, All EMAs are Bearish

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Let's start with our usual GGT Status ...

As most of you are aware, prices fell yesterday on the global sell off.  This is reflected in a -3.6% drop in GGT prices, finally ending us at $23.10.  This is a huge drop from our local high on 6/15 of $25.00, -7.6% to be exact.  As with all major drops in prices, the next day is often a "dead cat bounce", and if that is the case today (Wednesday), it could be time to add some Contra ETF positions.

Volume was up 12% over the 50d MA, indicating that the big boys were playing in the sell off.  I like to see their participation, but not on the downside.  Negative prices on higher volume is not a great situation for the bulls and is known as a "distribution day", which is as ominous as it sounds.

The Long-Cash Ratio (LCR) is back down at 0.282, indicating that 622 stocks have some form of long status and that 2209 stocks have some form of cash status.  Put another way, only 22% of the database is long right now -- a very bearish tone.  Guess I didn't kneed to tell you that though ....

The GGT Strength Index, which bounces between 0 and 1 like an oscillator, has dropped to 0.200, which is my less-than-scientific level for indicating oversold.  With an anticipated dead-cat bounce today, we'll see if it's the popular stocks that bounce, or the entire database.   I'm not bullish, so I expect this value to remain in this area +/- 0.05 with today's action.

LCR Change Timer

Of immediate importance is that the LCR Change Timer is sitting back at -1, which is CASH.  If you are aggressive you may want to consider contra ETFs.  My favorite with this timer are the standard index -2x contras:  TWM, SDD, QID, DXD, SDS, and MZZ.  YES, I should have held onto these positions rather than selling last Friday, but I was content to lock in my 4% gains over 3 days.  Of course, I would have been more content to lock in the gains from yesterday, but I had only a small position in TWM in play ....

So here's how I will probably play today.  With the LCR Change Time at -1, I'll most likely wait until after 3:30 or so before entering a position.  I want to ensure that the ADV/DEC line is bearish, e.g., more DEC than ADV.  I use http://www.finviz.com/ to determine this (see my blog a few days ago).  If we are more DEC today than ADV, I will look at the TWM, SDD ... list from the previous paragraph and look for those that have a bid/ask spread of $0.01 and are trading on higher volume than normal.  If we are bearish, and if these ETFs are participating, I'll enter my normal positions.

Contrasting, if the ADV/DEC line is up, with more ADV than DEC, then the signal is in trouble.  With this situation, the LCR Change Timer will transition back to CASH-LONG (0), and if tomorrow is up, would signal a move LONG.  Hence, today's action across the board is really important.  Note my caution from yesterday -- jumping into a trade mid-signal is NOT recommended, but I've not quantified it as it's hard to backtest.

I simply like the zones when we move from long to cash and visa versa.  These are more likely to work because market sentiment is changing and it takes a few days for everybody to catch up.

Elder

Here's HGSI's view of Elder:

As with all my images, right-mouse click on it to open in another window.

Elder's 13d Force Index has moved back below 0, as indicated by the pink background in the ribbon bar.  IGNORE THE 2d FORCE INDEX BEING GREEN -- it is negated by the 13d FI being negative.

The slopes of the 13d and 34d EMAs on GGT price are now negative and are pointing downward:  "the car is going backwards and is accelerating backwards".  This is bearish.  Period.  End of Analysis.

"Danger Will Robinson"  (arms flailing, as spoken by Robot in Lost in Space)

For intermediate-term trades, when you look at the Contra ETF list above with the Elder screen above, you'll see that most of the Contra ETFs are positive in the 13d Force Index (bullish), but the 2d Force Index is positive (which is blocking entry).   Hence, we need the 2d FI to move negative so we can enter the trend at a more favorable position. 

Wait for it ... wait for it...

Here's what HGSI has to say for ETFs that have 50d MA Volume > 50K shares, are above $1, and have a 2d FI that is negative but a 13d FI that is positive:

DGL looks compelling, less on on SHM, and SHV is impossible to make any money over the Elder time frames....

Look at the list using Velocity and Acceleration, as you can see emerging ETFs that meet the 2d / 13d FI criteria.  I'll leave that as an exercise for the reader .... :o)

Not a recommendation, just an example of how to use HGSI to find stocks/ETFs meeting a certain criteria.

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Trading Plan for Wednesday

As indicated above, I'll jump on a few contra ETFs tied to my short-term timer if the markets are tanking in the last 30 minutes of trading today.  I don't really care about the rest of the intra-day. 

DGL looks good for a longer-term holding, according to Elder's 13d FI/2d FI criteria.  It would have to rise above $44.37 to meet entry criteria.  Looking at the chart pattern, I'm not going to retire on it's performance alone...

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

Regards,

pgd

Volume vaporizes, most indicators are red.

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Here's the dashboard:

As with all my images, right-mouse click on them to open in another tab for easier viewing.

Monday's action saw GGT price fall -0.37% on volume that was -27% lower than the 50d MA of volume.  Yuck.  Unlike Friday, where we saw some big-boy participation, Monday's action was quite poor across the board.

The Long-Cash Ratio fell -7%, so as a whole, the database is sliding more bearish.  This is also evidenced by the Strength Index, which fell from 0.57 to 0.369, indicating fragile strength overall.

The LCR Change Timer remains at CASH-LONG (0), simply because it was in CASH on Thursday, saw an appreciation on Friday (moving it to CASH-LONG), and then a reversal downward on Monday (maintaining CASH-LONG). This is shown in yellow on the graph above.  If Tuesday is a down day ( use the ADV/DEC info at http://www.finviz.com ), expect that this will revert back to CASH (-1).  I typically do NOT re-enter when this oscillates at 0 then moves one direction or another, as I've not tested how viable that strategy is, but if you are aggressive, there probably is an opportunity to make a few % gains by looking at Contra ETFs if we have a solid down day by 3:30-ish.

Elder's 13d Force Index continues to indicate Long/Green, which is bullish.  Powered in part by the huge volume increase upward on Friday, by itself you would think it's okay to look at long positions.  We're too early:

1. The slope of the 13d FI is downward.  This is bearish.
2. The slope of the 13d EMA on price is downward.  This is bearish.
3. The slope of the 34d EMA on price is downward.  This is bearish.
4. The 13d and 34d EMAs are weaving about each other in a horizontal pattern, which is dangerous.

Here's HGSI's view of Elder:

I simply can't advocate moving long with the slopes of the 13d / 34d EMAs being negative as well as virtually no winner in the Bull/Bear power graph.

Back to the GGT Status Graph:

The Pricing EMAs are all inverted, with the 8d < 13d < 21d < 34d.  This is upside-down for a bull leg and tells us that we'd be crazy to be in long positions right now.

The LCR EMAs are all inverted, nailing the coffin shut on longs.  The DATABASE EMAs are inverted, so we are clearly in a downtrend in the macro sense.  Perhaps not on a day-for-day evaluation (more horizontal than down), but over several days to weeks, gravity is working it's magic and is pulling everything down.

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Trading Plan for Tuesday

I'm happy to sit pat today.  I'm holding a small position in TWM and everything else is in cash.  I'm waiting for some form of over-sold indicator and move higher on Elder's signals, which I doubt will occur today.

Futures are down as I write this, so I expect a less-than-stellar performance day.  Case-Shiller 20-city index comes out at 9 a.m., and it is expected that we'll have better numbers there (expected is 3.4%).  If we miss, fuel to the downward fire.  If we hit/beat, then we'll probably continue to churn.  Consumer Confidence comes out at 10 a.m., and expectations are for a slight drop from 63.3 to 62.  Again, if it's worse than 62, look for a downward move.

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

Regards,

pgd

June 25th Weekend Update

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Let's start with our standard GGT Status Dashboard -- right-click on the image to open it in another tab.  We will be referring to it later:

The GGT Price index moved up on Friday, June 25th, +0.88%, ending at $24.06.  Last Friday's value was  $24.91, and the two-week-ago value was $24.35, so we're below both of these levels and the tone over the last week has been bearish.

Adding to our uncertainty, we are presently between two Fibonacci levels, so it is only a guess at where prices may go.  Here is a graph that shows you where we have been:





Of particular interest in the figure above is that the 38.2% retracement seems to be a good support for the GGT stocks (> $1, 50d MA Volume > 100K, traded on three primary exchanges).  We'll see if this holds going forward.

What the above graph does not give us is any indicator of market psychology -- the GGT pricing level has upside as well as downside room to move.

Note that GGT Volume jumped HUGELY on Friday, up +45% over the 50d MA.  This is quite bullish, if nothing else, simply because it shows broad participation by the active institutions.  This jump in volume is quite apparent on the next graphic:

You can also see the 38.2% Fib line acting as a support.  I find this interesting, as it does give us some form of idea about downside risk.

Of course, I must often remind myself that the market has no knowledge of GGT, the filters of GGT stocks, nor is the set of people watching GGT greater than about 300 of my closest friends and acquaintances.  This means that GGT fits to these indicators are SECONDARY indicators, unlike "penetration of the 50d MA of price" (just an example), which everybody watches.

Here's a view of Elder, which you may want to create using the %b Shift 5d filter in HGSI.  THIS IS A VERY POWERFUL GRAPH, and one that really shows an advantage to HGSI:

This is my own modification -- you will need to create this yourself.

• I've put an Elder 13d FI Ribbon in the 2/13 day window, 
• I've added an Elder 2d FI Ribbon that IS GREEN WHEN the 2d is NEGATIVE (this is reverse of how you normally look at it)
• I've added slopes of the 13 and 34d EMAs, smoothed with 4d EMAs, and 
• I've changed the 22d EMA and 50d MAs lines to my 13/34 EMAs.

Here's how I interpret the graphs:

• The decrease in Bull Power over the past week but lack of matching increase in Bear Power should give you pause.  The markets are fighting a "balanced" battle.
• The Elder 13d Force Index ribbon clearly shows that we are GREEN, which means that the FI(13) is positive.  This is a bullish indicator.  You can see from this graphic, as well as the my status graphic at the top of this blog that we have been "positive" for the last three days.
• The Elder 2d Force Index is RED.  This means that it is POSITIVE, and is blocking us from entry.
• Curbing our enthusiasm is that just below this window is a window containing the slopes of the 13d EMA and the 34d EMA, both smoothed with a 4d EMA.  The red line corresponds to the slope of the 13d EMA on price, and the yellow line corresponds to the slope of the 34d EMA on price.  What you should get from this is that
  
  1) the slopes are headed downward off a BIG positive value.  This is BEARISH.
  2) the slopes are both below 0.  This is BEARISH.

So, even if you were inclined to move into the market because of Elder's 13d signal being positive, there are many warning signs that should shut down that line of thought.

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If you want to see what a good set of patterns looks like, in context of what I've presented above, here's the same view, but for the last several months:

I've placed the cursor at the crossing of the 13/34d EMA slopes.  YES, THIS IS EARLY (2/11/10).  Point here is that this crossing would have been an early indicator to wake up, that something positive was happening.

Note too on the graph above that there were several entries to the last bull leg that would have done you well.  So, even if you missed the first primary entry, there are numerous areas where the 2d Elder was negative but the 13d Elder and 13/34d slopes were positive, allowing you to enter on continued strength.

Patience.  Now is not the time to have a mass entry into long positions except for surgical strikes (e.g., according to the LCR Change Timer, which is a very short-term timer).

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Refer back to the GGT Status Dashboard, which is the first image in this blog entry.

The LCR jumped Friday, moving from 0.434 to 0.533, and is indicating that 986 stocks have some form of GGT "Long" status and 1850 have some form of "Cash" status.  I also note that this caused the GGT LCR Change Timer to move from CASH (-1) to CASH-LONG (0), simply because of the significant advance in stocks on Friday.

While not a perfect proxy, you can easily see what is going on intra-day  (if so inclined) by using a free service called FinViz, which you can view at http://www.finviz.com.  Once there, the upper right corner of the home page will tell you a great deal in a very short period of time.  Note that I have the paid subscription, hence the "Elite" showing up in the title:



What I find important about this is that:

1. Intra-day relative volume is shown in blue.  We can see that for the DOW, volume in those stocks was up nearly 1.5x
2. With respect to ADV/DEC and predicting what the GGT LCR Change Timer will do, we can watch the 4523 Advancing/1696 Declining bar to see what is going on at any point in the day.  I find this bar indicator very important between 3 pm and 4 pm, as it helps me to decide final trades or to get the jump on the LCR Change Timer.
3. IMPORTANT ===>  Note that we had 144 New Highs on Friday, but 154 New Lows.  So while we  had far more advancing issues than declining, we had more stocks hitting bottom that closing at new highs.  If this isn't a warning shot ...

I use FinViz as an intra-day view and am experimenting with their stock screener.

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My Decision to Liquidate My Contra Shares Early

I liquidated my Contra ETFs mid-day on Friday to lock in their gains, especially going into an uncertain weekend.  For those of you who asked why I did this, in absence of a timer signal, take a look at the following chart:

You may want to print this and put it by your PC.  Alternatively, you can send me a note via the Yahoo! GGT web site and I'll post the Excel datasheet in the file section for you to download.

This chart shows the annualized gain of a position, given the number of days you've held the position as well as the actual gain within the position.  As an example on how to read this chart, if you hold an investment 10 trading days (go down to 10 in the left column), and the gain is 1% at the end of the 10 days (go over to where 1% is indicated then drop down to where it meets the 10 in the left column), you'll see that on an annualized basis, your annualized gain is 44%.  

Does this mean you pocket 44%?  Of course not -- you pocket 1%. What it means is that for trades that are held on short time frames, and done consistently, you can see how your gains rack up.  This is the premise behind the GGT LCR Change Timer when coupled with Money Management 101.

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Monday's Trading Plan

I'm holding a small position in TWM, a portion that did not execute due to my limit order.  If the markets look strong in pre-market trading I will most likely sell this in the pre-market, as it has fallen to a profit of only +0.60%.  Conversely, if markets look week in pre-market, I will most likely hold.

I intend to sit pat until later in the day.  If I see strength in the markets in the last 15-30 minutes of trading, according to the FinViz site I wrote about above, we can expect the LCR Change Timer to transition to a LONG (+1) call.  I would want to see the ADV > DEC on this site.  According to our rules for the LCR Change Timer, positions would be opened on UWM, SAA, QLD, DDM, SSO, and MVV, but only if they were above the previous day's high by at least a few pennies.

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

Regards,

pgd