November 7th Weekend Update

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This week saw a transition from cash back to a 50% invested position.  I moved into cash on the October 19th signal (actual transfer date was the 20th), and if we equally-weight between the three funds that I hold, we missed out on 4.1% gain in 11 days.  This is a big loss of potential gain so it's illustrative to understand the cause/effect that got me to that decision the evening of the 19th.

Here's a chart of the 3-Fund TSP, as represented by the following ETFs:

• EFA / I-Fund
• SPY / C-Fund
• VXF / S-Fund

As with all my charts, right-click on any figure to open in a new window:

Signals telling me we were in trouble on October 19th:

1. The first ribbon bar on the top is the 13d Elder Force Index [   FI(13)  ], calculated with an exponential moving average (EMA).  It turned pink, indicating that the FI(13) had moved negative.  This is generally an immediate sell signal.
2. The MACD window shows signal lines as well the histogram.  Here, we had the MACD historgram moving negative on October 19th, which generally is another immediate sell signal.
3. The 13d/34d EMA Slope window shows the slopes of the 13d EMA of the price of this group of ETFs, as well as of the 34d EMA.  We see that the faster one (13d, red) crossed the slower one (34d, yellow) from above, and if not a sell signal, certainly indicates that we have problems.
4. The price window contains an additional EMA in green, which is an 8-day signal.  General thought and good practice is that if a price closes below the 8d EMA of it's price series, then it should be unloaded.  The composite index of all three ETFs closed below the 8d on October 19th, as did all of the underlying ETFs. 

Hence I threw the towel in and moved to cash on October 20th.

In hindsight, I should not have relied on the index chart to make a broad decision about all the constituent holdings.  Specifically, although the 3-ETF composite chart above is poor, here is the Vanguard Extended Market Index ETF's chart, which is my proxy for the S-Fund:

Of particular note here is that the Elder Signals [ Bull Power, FI(13) ] have never transitioned below 0 during this last effort.  Although the MACD histogram, 13/34d EMA slopes, and price series took significant hits on Octobe 19th, these were mitigated by the positive (and strong) nature of Bull Power and the FI(13). 

VXF experienced a 4.7% gain while I was in cash.  Had I held onto VXF, which we had a 36% allocation, we would have maintained a 4.7% x 36% = 1.69% gain over the last 11 days, reducing our apparent loss from +4.1% gain - 1.69% = 2.41%. 

Putting this in perspective, a 4.1% gain in 11 days is equivalent to an annualized gain of 279%.  Being able to gain +1.69% in VXF is the equivalent of an annualized gain of 74%, so every little bit helps.

With respect to the SPY/C-Fund and the EFA/I-Fund, their charts look the same as the 3-ETF index, so I would have sold them despite the VXF signal.

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So a question was emailed to me about why I'm only 50% invested, now that we've apparently entered a new bull leg.  The simple answer is that we are incredibly overbought on the short-term indicators, and I'd like to see a pullback to put the other 50% on the table.  Stay tuned, I'll let you know when (and if) I move the rest of the funds into play.  I note though:

1. We are at extremely high levels in terms of many of the indicators.  Of specific importance is that the MACD is already in the upper half of the chart; the run can last but it's not the same type of run as from below.
2. All the individual ETFs are well above their 8-day value.  This is incredibly overbought, and I fully expect a pullback.
3. If we pullback and hold the 8-day I'll move the rest in, provided that the rest of the market isn't collapsing around me.  I'll determine the latter using the slopes of the 13d, 34d price signals as well as the GGT LCR movement and slopes.

Make sure you pay attention to my other blog:  http://greekgodtrading.blogspot.com/, as well as my trading partner Hsin's:  http://athenastrategytrading.blogspot.com/, as these will give better indicators as to what we are thinking about the markets and a potential entry.

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Disclaimer:  As of this writing I am presently long in the I-Fund, S-Fund, and C-Fund, as well as am holding positions in EFA and VXF.

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Remember, you are responsible for your own trading decisions, not me.  Please take ownership for your actions.

Regards,

pgd