Signal Change for Monday, Frebruary 1st

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For those of you who follow GGT, you know that I periodically update the "optimum EMAs" for the database, and what this means is that a change in coefficients could cause the signal to change abruptly.  This is the situation that we are faced with right now.

I updated the optimum EMAs for our ETFs, specifically AGG, EFA, SPY and VXF.  Prior to Friday's close, we were showing all of these EMAs, and subsequently their corresponding ETFs, all sitting in CASH.

After running the updates, we have a signal change on AGG and VXF.  AGG represents the F-Fund, and with the new numbers, signaled a change to LONG the evening of January 25th, which is where we still are sitting.  The close on 1/25 was $104.45, and the close as of Friday 1/29 was $104.65, a change of less than 0.2%.  As a bond fund, we've averaged only 0.5% gain over the last year every time this signal has moved long so we're not going to retire using just the AGG.  Nevertheless, the trend is upward for bonds, so this could be a good play, missing the 0.2% move notwithstanding.  Allocation levels are listed below.

VXF is throwing us an unrealistic curve, and with the new update in EMAs, is indicating that we should have been long in VXF since 3/26/09.  For those of you who have been following this signal you know that this is not the case, simply because all the "bad" data of last year is scrolling off the optimizer "window", leaving on the performance over the last year.  Hence the LONG signal.

So what to do now with VXF?  It's been long FOREVER....

We can use HGSI to get some insight into VXF from here (click on the image for a larger view):

 

The top two "ribbons" across the top indicate weekly and daily "Bongo" readings, which use three sequences in the Wilder RSI to give us a view on whether we should be in a particular equity.  When these both are "red" we need extreme caution -- and they are both red.

The next ribbon is accumulation / distribution, and it's been falling.  Falling accumulation will continue to result in lower equity prices, so we need to watch this.

The next ribbons deal with the 2-day and 13d Elder Force Index, and both are red.  Entering when the 13-day is red is risky, but as many of you know, entering when the 2d FI is negative can get us some good entries.  In this particular case the "red" 13d Elder signal gives me tremendous pause.

%b and the Bollinger are resetting to attracive levels.  Enough said .....

The 65d EMA graph is the one that makee me pause.  All of these signals are pointing down so we need to be extra careful here, at least until the curves move horizontal.  These effectively stop my entry, but we need to be vigilatn.

Finally, a support line drawn at the lows of 7/13, 11/2, and 11/27 gives us a problem with history over the next few weeks.  We've been below this imaginary support line over the past week, which means we need to move back upwards to be above this line to feel comfortable.

Since we have a number of parameters indicating that we are long in the tooth on VXF, we need to see how things will move with all of these parameters.  I intend to stay in cash in VXF unless I see something compelling.

Summary:  You can change your allocations to include VXF / S-Fund, but I strongly urge caution.  I intend to only play the AGG signal, and will NOT play the VXF signal.

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Allocations

Here are the 1-month performances of the aforementioned ETFs:

• AGG: +1.54%
• EFA: -6.12%
• SPY: -4.59%
• VXF: -4.58%

If you are playing the 3-ETF/equity portfolio (higher gain, lower Calmar Ratio, does not invest in AGG / F-Fund), then your allocations for the funds are:

• EFA / I-Fund: 16% (presently in cash --> G-Fund)
• SPY / C-Fund: 42% (presently in cash --> G-Fund)
• VXF / S-Fund: 42%

If you are playing the 4-ETF/equity portfolio (lower gain than 3-ETF/equity portfolio, higher Calmar Ratio), then your allocations for the funds are:

• AGG / G-Fund: 59%
• EFA / I-Fund: 7% (presently in cash --> G-Fund)
• SPY / C-Fund: 17% (presently in cash --> G-Fund)
• VXF / S-Fund: 17%

Again, remember that CASH *is* a position, and it's a good one when we're getting hit this hard.  AGG is moving up, which means we should give it some of our attention.  EFA / I-Fund and SPY / C-Fund are both in cash, so stay in cash until they signal otherwise.  the VXF is saying we should be long -- this is a riskier trade.  See my commentary above.

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

If you have questions or comments please leave me a note.

Regards,

pgd