Short Term Market Conditions Improving, Long Term ...?

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An interesting, but subtle view of market behavior is an indicator developed by Pascal Willain and which is available at www.effectivevolume.com.   The indicator is the 20d Money Flow, which is a rolling indicator that reviews the past 20 days of large money flow across different sectors (industry groups, actually), operating under the premise that large funds spread risk across multiple stocks and ETFs that are focused on the same sector.

Timeframe and context are important in any trading system, and the 20d MF indicator is no exception.  This is a short-term indicator, e.g., it fires quickly at oversold and overbought points, and it can easily reverse in a short-term.  It tracks the choppiness of the markets, so it stands to reason that it is faster than my GGT or other moving-average based systems.

Pascal has combined the signals of the 20d MF signal with an overbought/oversold indicator, and when these two fire in close proximity, I typically make an effort to review the status of these two on a daily basis.

These two systems have fired a long signal within the last week:

Right-click on the image to open in a new tab or window.

The OBOS indicator has been rocketing upward the past few days, and crossed over Pascal's empirical level of -70 from below with the close of markets on 11/19 or the open on 11/20.  Had you checked the site last weekend you would have read that we had the model transition LONG with the close of markets on 11/16 -- last Friday -- because the OBOS indicator moved upward 3% in 1 trading day.

Either way you look at this, specifically whether the signal occurred last Friday 11/16, Monday 11/19, or the open 11/20, from a money flow perspective the markets were heavily oversold and money moved in enough to cause us to wake up.  Here's the view looking back in my rear-view mirror over the last 5 trading days, from 9:54 a.m. on Friday.  It is clear that we have quickly resolved the oversold conditions that existed just one week ago.

IBD -- that newsrag followed by thousands and also anticipated by many more, called Friday 11/23 a follow-through day which triggers a number actions for folks who follow Bill O'Neil.  The market has been in a confirmed correction for several days, with the issue printed Wednesday night (Friday's dated edition since Thursday was a holiday) indicating that the markets were in correction but leaders were crafting bases.  Here's the latest from the close of markets Friday:

I'll leave it as an exercise for the reader on why DVA, RGR, and TSM are poor candidates for entry at this time, but BAX and CRM probably require some additional review.  Post a note below if you think you know why DVA, RGR and TSM are dangerous or why BAX and CRM could be attractive at this point in time.

So with EV showing that we're on a buy signal, and with IBD now showing that the market is in a confirmed up trend, what's an investor to do?

I look at my GGT dashboard, of course.

Again, right click on the image to open in a new tab or window.

I've drawn a line to highlight the GGT model response on the 16th onward.  Prices have been up day over day since 11/16 without exception.  Volume has dropped day-over-day since the 16th without exception, which was anticipated due to Thanksgiving but is hardly a resounding call to throw everything you own in the market.

If you look closely, GGT's Database Strength indicator bottomed on 11/15 and has not looked back since.  History is repleat with whipsaws on this indicator, as it is simply a day-over-day view, so by itself it isn't a signal.  Nevertheless, it's moved to middle territory now with a database sitting at mid-scale -- 0.518 -- and this means that there's fuel to go higher but also free space to drop.  It's hard to state anything more here except that the market is in true equilibrium.

The price slopes of my model started turning positive on 11/16, and even with Friday's shortened action moved all positive.  On the right side of the table you see a sea of green.  This data represents the day-over-day acceleration of prices -- this section always leads the left side of the table (why?).  We have a considerable amount of green on the right, and this portends well for the short-term trend.  If we start seeing red and negative numbers creep back in on the right side we know that prices will be under pressure, and that this signal could be short-lived.

Based on price behavior alone I would say that a toe in the water is warranted, but not so fast Kimosabe...

I place a considerable amount of value on my Long-Cash Ratio Slope Model  (LCRSM), which considers price, volume, and price rate of change of over 3000 stocks.  Prices can be moved around with algos, but it is more difficult to do this in combination of price/volume/ROC.

Here's the slope model dashboard:

Again, right click on the image to open in a new tab or window.

By my rules the close of markets Wednesday night triggered a "buy" signal.  A "Buy" is signaled any time the model has:

1. the 2d and 3d slopes of the LCR are positive or
2. the 2d and 3d slopes of the LCR are simultaneously moving positive with
3. the 5d slope of the LCR moves positive.

Hence, bullets 1 or 2, in conjunction with bullet 3, give an initial short-term buy signal.  We're there as of the weekend of November 25th.

I note a couple of observations:

• Despite the market PRICE moves of Friday, 11/23, the database as a whole did not participate in volume and/or price rate of change.  Most likely volume due to the shortened day, but at this level of observation there is no real way to know.
• These are "huge" jumps in LCR values, all things considered.  I would conclude that prices are being driven up faster than the market can bear, and I would expect a consolidation to occur in the following week so that the gains can be digested.

Last year's behavior, just as another datapoint, was far more optimistic than this year.  Thanksgiving Friday was 11/25/11, and the markets fell (per GGT) -0.54% on volume that was -65% lower than the 50d MA of volume at that time.  Leading up to this period was bearish, with the markets quite oversold.  In fact, the GGT database strength indicator was 0.112, compared to the value of 0.518 that we have now, so we were at a very different set of conditions last year relative to this year.

I think it's important to review last year's behavior, although I freely acknowledge that last year has no real bearing on this year:

Thanksgiving Friday, 11/25/11, is the top line in the LCRSM table above.  Monday, 11/28/11, is where the markets went PRICE bullish, with a GGT price gain of 3.56% (not shown) and a "ho-hum" LCR change of +36%.  Note that the 2d LCR slope moved positive, but all the others were negative.  Note more importantly that the right side acceleration values were already positive (green), which was good.

On Wednesday, 11/30/11, the markets jumped ANOTHER +4.61% (not shown), as measured by GGT,  and the LCR registered the all-time high daily change of 202%.  THIS was a significant event, and this was a buy signal if there ever was one.  Note the sea of green on the right side of the table, but also note a bit of dark clouds on the far right.

On the far right of the LCR table is a summation sign and a change in summation sign.  This is a daily indicator that tells me just how powerful the daily move is -- think of it as an average of an average.  The time lengths vary of the averages, and consequently, when the results are summed, we get a value that can range between +14 -- very strong, bullish move -- to -14 -- a very strong bearish move.

Note that the summation values all stayed around 0 -- the markets were moving on incredibly strong prices, but in context of previous moves, the strength wasn't there.

Indeed, on 12/8 we had a shot across the bow.  The markets fell -2.48% as measured by GGT (not shown), and we registered the 64th strongest down day since September 2008.  Weakness in the LCR had been creeping in -- look at the red developing on the right side of the table as early as 12/1 as profits were taken off the 11/28 and 11/30 moves.

The buy signal was completely negated shortly after 12/8 -- the LCR model turned completely bearish with the close of markets on 12/13, and volatility was moving upward.  Despite this, a general thawing started occuring on 12/15/11 and 12/16, and on 12/20 slopes started moving green again.  On 12/21/11 we received a new buy signal, and as most recall, we were off to the races.

If you look closely at the far right of the 2011 LCR table you'll also see that the summation values were very strong starting on 12/20/11 -- 14-12-6-10-8 -- and this was telling us to have a bit more confidence in the markets.

So, back to now.  Here's the 2012 LCR table from above:

We have a buy signal with the close of markets on 11/21/12.  We have a sea of green on the right, with just a tad bit of weakness on the 2d slope-of-slopes.  We have strong summation values from the 16th:  8-10-4-6-8.  I would have liked to have seen some +14's in there, but overall, this is a valid buy signal.

This isn't to say that the next week will not be down.  It could be.  I don't try to predict the future, I only try to establish what the current trend is.

I'm looking carefully at stocks to take a position within; my short list for review is the following:


AFCE
CPA
CTB
CVI
DDS
DK
DORM
DSW
FLS
GA
HFC
ICUI
IHG
LOPE
MA
MAIN
MAT
MYGN
NDSN
PII
PIR
SYNT
TCAP
USNA
WGO

I already have positions in DK.

Many of these stocks have held up quite well in the recent downturn, so already have some form of "Long" status.  The stocks that are rated as "Cash" are the ones I'm watching like a hawk, as these could signal a "New Long" and I'd want to move on them (especially if they have favorable EV).

Overall, I think it important to state that we are very early in this signal, so it is prone to failure.  My intermediate timer is in MIXED state off of being in CASH, indicating that the markets WERE in cash and are now transitioning in a bullish fashion, and my long-term timer is in CASH, indicating that the long-term trend is still DOWN.  I wouldn't bet the farm right now, although 50% may be a good starting point if the right opportunities present themselves.

As always, do your diligence, and take ownership for your actions.  Let the trend be your friend.

Regards,

pgd

November 16 Weekend Update

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I'm decisively bearish in my stance in the markets at the present time.  I'm holding the following assets in multiple accounts:

Right-click on the image to open in a new tab or window.

Overall, I'm up 3.4% in one account and 13.4% in another for this latest transition to a short-term bearish market.  The 10% difference is that I use the former account for other signals too and they are all in cash, so I have less available to invest in GGT ETF signals.

I have a 1% trailing stop loss (TSL), good til canceled (GTC) on DGL, which fired to move to cash with the market close on Thursday night, November 15th.  Everything else is still indicated long, despite the apparently strong day within the markets this past Friday (more on that below).

The best performer is QID, the -2x inverse NASDAQ-100 (when the NAS falls -1% the QID goes up +2%), and it is up +9% since entry.  Note that over the past year that GGT's timing of QID has provided a 103.7% advantage over buy and hold and perfect execution and fills of prices over the past year has resulted in 32.4% gain.  I've not achieved this because I've not followed every signal but I'm participating in at least 9% of that 32% gain at the present time.

TMF, which is a +3x 30-year bond fund, is up next at +7% since my entry.  GGT's advantage over the past year is 29.4% with a total 1-year gain of 41.4%, again with perfect execution.

SKF, which is the -2x on the financial XLF spyder, has a GGT advantage of 128.1% and a 17.4% over the past year.  I'm participating in 6% of that gain right now.

SOXS, which is the -3x on the semiconductor ETF SMH, is a relatively new entry and I'm up +4%.  GGT isn't as "in tune" with this one, with only a 13.3% gain over the past year (database average for all ETFs is 17.5%, for all CONTRA/SHORT ETFs is 23.2%), but I took the signal and I have a break-even stop loss set so I'm not going to lose any money here.

UNG, which is the +1 ETF on natural gas, is up +3% since my buy Friday morning.  It has a GGT system advantage of 29.4% and a performance over the last year of 41.4%, so I'm optimistic of this one.  If it closes below the 20d MA I'll sell, for reasons you can see in the figure below.

Click on the image to open in a new tab or window.

Effective volume (EV), which you can learn more about at http://www.effectivevolume.com, is holding steady for UNG, which is why I feel somewhat optimistic about it.  Despite the major selling spike on 11/15 large players have slowly been moving back in, and correspondingly, there has been little change from an institutional point of view compared to 11/13.  Longer-term EV, which is on the lower part of the graph, shows that over the past 40 trading days that UNG has been net-accumulated, but the upper graph on UNG shows that over the past 8 days the large players have been selling more than buying.  This is the only fly in the ointment, and hence, why I have an end-of-day stop loss order at the 20d MA (if time is > 3:59 pm EDT and price is below real-time 20d MA then close position).

All my other positions are at or less than 1% in gain since entry, despite the past behavior / performance of GGT.  Not all signals will be home runs with respect to GGT, not all signals will surpass past performance, but on average, I think I'm doing okay with this system.

My plan is to continue to watch the daily signals, exit as necessary, and if I see any sustained bull trend developing in the broader markets (I don't except that we're oversold at the present time), I'll start picking up the GGT ETFs that move long on the bullish side in concert with macro signals turning positive.  I don't expect this during the next week (short due to Thanksgiving), but "black Friday" has been a trigger in the past and it may be again -- we'll simply see.

None of the ETFs above should be chased.  Remember, you are responsible for your own investment decisions, I am not, and you must do your own diligence in the markets.

Regards,

pgd

Signal Change as of Close of Markets on October 16th

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With the close of markets on 10/16 the GGT indicators have moved long on all measured time scales. While this is somewhat suspect during OpEx week, I'm compelled to move long as my timers are better at performance than is my discretionary trading.

The short term timer has moved long due to the slope reversal in the Long-Cash Ratio on the 2d, 3d, and 5d moving averages:

The transition of these 3 time frames from a negative slope to a positive slope has historically signaled a good entry (today), and consequently, with the Elder Intermediate timer already long (see yesterday's post) as well as the already-long longer-term 13/65 timer, we have three confirming signals.

Suspect is OpEx week, longer timers already long (in the tooth) compared to the short-term timer, and a rocky election pending in 21 days. Nevertheless, I'm moving long in AAPL, IWM, QQQ, SPY, and VXF in various accounts, and will look closely at different stocks from the DIVA list  (those that are showing accumulation in the face of falling prices).

Regards,

pgd

Models are in Cash: 10/10/12

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Although there was buying in the last minute of the day on 10/10 (Wednesday), it was not enough to keep my models on the LONG side.  Correspondingly, I'm exiting all positions in my personal accounts and although IWM is still holding on by a thread, we've given up almost all the gains in this position and I'm not overly optimistic that it will end positive.

Overall, my timers look like the following:

The short-term timer continues in a CASH mode and is the result of a contracting Long-Cash Ratio.  You'll see that below.  The Elder Intermediate timer has signaled two consecutive days of CASH, and when this occurs, this is a clear sign to move to the sidelines.  The long term timer is still showing LONG status, as the 13d is well above the 65d, so on a long-term perspective, we are still in an up trend, although the slopes of the 13d and 65d are trending downward and are converging (meaning that this signal is in danger if the markets to not change).

The LCR slope mechanics show me that we are in a period of database contraction (N = 3131 stocks) and that more stocks in the database are in some form of CASH status than are LONG (LCR = 0.896).  As you can see below, we've been in this area of contraction on all time scales since 9/26, so aside from the minor issue that I was out of the country from 9/19 through 10/4 and nobody was watching this table, there has been ample indication of a slowing market.

(Right-click on the image to open in a new tab or window).

In the end, I am not a buyer of stocks today.  I am specifically waiting for the intermediate-termed timer to transition to a LONG state from either CASH or MIXED mode, and it will take a significant market event for that to occur today.

As always, do your own diligence.  You are responsible for your own decisions, and I am not.

Regards,

pgd

Update for Friday, September 14 - Method of Stock Selection and Entry

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For those of you with Dropbox access, you will note that in the stock file has 166 New Longs and the ETF file has 26 New Longs. 

I've not listed the number of Affirmed Longs but they are even greater in numbers.

With so many equities firing long or reaffirming their long status, how to evaluate which ones should be in consideration?

The Dashboard tab of the stock file can provide some guidance. 

The stocks on this tab are selected based upon what I would consider "quality" data:

1. The stock must be well above the 200d, 150d, and 50d MAs of price
2. The stock must have each of these MAs in an up trend (slope is positive)
3. Year over Year revenues must be > 2% and must be accelerating over a minimum of 2 quarters
4. Year over Year earnings must be > 2% and must be accelerating over a minimum of 2 quarters

Provided the above is true, I then integrate the list with Pascal's repository file which contains EV data for each. I then sort based on the EV Rating, which combines numerous EV values into a single indicator that ranges from 0 to 100.

Many of the stocks at the top of this list are already extended well above their 10d EMA, which means they have been running faster than the day-over-day gains of the last 10 days. It is noteworthy to add these to a short-term watchlist, and review these for possible pull back and entry on the pull-back.

I'm a big fan of Dr. Elder's Force Index, not necessarily because it makes sense to multiply volume with change in price, but because averages and change in averages of these values can give us some confidence with what is going on in general.

Key criteria that I look for on entering a stock is to determine the status of various Dr. Elder parameters. On the day of entry I specifically want:

1. The slope of the 13d MA of the equity to be positive
2. The slope of the 34d MA of the equity to be positive
3. The 13d Force Index of the equity to be positive
4. The 2d Force Index of the equity to be negative

The first three in this list ensure that the stock is on a sustained up trend path and the last criteria means that it has pulled back in a local consolidation.

The trigger entry for me depends upon whether I'm aggressive or conservative:

• Aggressive: the real-time stock price has taken out the previous day's close (price > close)
• Conservative: the real-time stock price has taken out the previous day's high (price > high)

Looking down the EV list on the Dashboard page, if I select only those stocks with a Rating > 50, and apply the Elder criteria going into the open today (Friday, 9/14), I get the following list:

EW
FISV
VSI

Everything else is over-extended.

Whether you like these stocks or not is subjective; they are on my radar list for possible entry today if they move above my trigger points.

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

Make it a good Friday, and enjoy the weekend!

pgd

Update for Wednesday, September 5th -- GGT Combo Timer Issues Long Signal

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With the close of markets on Tuesday, Sept 4th, the GGT combo timer has issued a long call (right click on the image to open in a new tab or window):

Positive attributes are that we are

1) above the GGT 200d simple moving average (long-term up trend)
2) positive slope on the 65d SMA (not shown, but also a long-term up trend).
3) volume was the strongest in some time, appearing at -4% below the 50d MA of volume (folks are returning back from vacation, e.g., there are buyers and sellers)

Statistically, the signal has a positive expectation:

These stats are calculated using the GGT index, which looks very much like the ETFs VTI or IWM, depending upon market conditions. Right now the IWM most closely resembles the GGT index on a 34d, 65d, and 100d look back review, so I will consider moving into IWM based on these stats.

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The GGT Price Slope Model is fully bullish, with two major price accelerations over the past two days (right click on the image to open in a new tab or window):

Note that the database strength index, which is a composite value made up of price, volume, and price rate of change, has moved up quickly from 0.46 to 0.64, and while it may pull back a bit, has considerable room to move upward. The fact that the 65d slope on price is positive and the latest round of negative slopes on shorter time frames did not extend to the longer time frames tells me that the trend is intact.

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The GGT LCR Slope Model has a wrinkle in it, but only slightly at the 13d level (right click on the image to open in a new tab or window):

Again, the 2-day acceleration in LCR gives me some confidence, and the fact that all slopes except the 13d are positive also gives me confidence at the longer-termed trend.

I note that the 4% and 10% gains of the LCR over the past two days are not "knock the skin off the ball" gains (I would have rather seen some massive volume and movement in the entire database), so we certainly can test the trend. I intend to buy small positions on pullbacks and reversals upward.

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With respect to entering a core IWM position, the money management looks like this:

There was some accumulation in IWM during the afternoon trading session yesterday, so some big boys have left footprints (right click on the image to open in a new tab or window):

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Make it a great day! I am traveling tonight and tomorrow and will post as time allows. With respect to signals, obviously, you are responsible for your own trades and are obligated to do your own diligence. Please take ownership for your actions.

Regards,

pgd

Update for Friday, August 10th -- Combo Timer Signals LONG

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I'm always conflicted when a timer fires long at the top of a local peak. We have this situation as of the close of markets on Thursday, August 9th -- the GGT Combo Timer, which is comprised of an intermediate-termed timer and a long-term timer, has signaled that we should be long in the market on longer time scales.

A couple of items are notable:

1) we are above the 200d MA. It will be critical to stay above this level if we are to see the long-term trend remain intact.
2) we whipsawed this signal in November 2011. That situation was a bit different, as the 200d was resistance, not support, and we never cleared the 200d in the time leading up to the signal.

Overall, this timer combo is my best performing signal over the long haul. Here are the stats:

Just because it's the best performing does not mean it cannot fail. 6 out of the 20 total transitions have failed, so keep that in mind. Had you invested in the GGT index, your worse trade would be -2.41% and your best trade would have been 19.6%, so keep that in mind too.

20 trades is a weaker number than I like -- but it runs back from 9/2008 and when this timer does go long, it typically keeps you long for a period of time, contrasted with shorter-termed timers (e.g. Pascal's MF, etc.)

In terms of all the timers I track, the performance since 9/08 is solid:

Of course, you need to do your own diligence and make your own decisions on what you want to do as next steps.

For me, I'll most likely open a 0.5% position in the major index ETFs and add to them on a pull-back, for a maximum of 2% exposure in each. I expect that the markets will pull back here in the next few days, giving my Elder-entry methods a chance to work.

As far as stocks -- and this is what bothers me -- although we have some solid leaders, they have been leading for some time, we appear to be hitting some resistance overall, and I expect that we'll have a pullback. Additionally, I've been traveling, so I've been watching ETFs more than stocks and need to take some time this weekend to start an in-depth review. 

It is highly unlikely that I will move into stocks today, intending only to review the broader ETFs at this time.

Regards,

pgd