Signal Change Effective January 11, 2013

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The GGT Long-Cash Ratio (LCR), which is a measure of how many stocks in the database are outperforming their history over the past year, has hit a new local high of 4.2, meaning that 42 stocks of every 52 are firing on all cylinders (e.g., 10 are underperforming or 42:10 ratio).

This level has only been hit a few times in the past since September 2008 (when I started publishing GGT) and has lasted only 1-5 days in length before a significant drop in the markets has occurred.

Here's a graph which puts it in context:

Over 80% of the database is in some form of LONG status.  We certainly can move higher from here, but I do not think we'll go much higher before a drop occurs.  This is a terrible reward:risk ratio.

Since the long call in this account at the start of December we have moved up +4.3% in the C-Fund (tracks S&P500), +7.1% in the S-Fund (tracks the market ex-S&P500), and +5.9% in the I-Fund (tracks the EAFE index).  The F-Fund, which is a bond fund, has lost -0.4%.  Using the aggressive portfolio allocation values of December 3rd this is a total gain of  4.4% on this signal.

Today (Friday) is Day 2.  Monday will be Day 3, and I'm traveling.  Given the restrictions of this retirement account (2 trades per month) and the overbought nature of the markets, in combination with the extraordinarily high level of the % longs in the database and the ticking time bomb that has occurred when we hit these levels, I am moving 100% to G-Fund (Cash), effective with the close of markets on Friday, January 11th.  I may leave some money on the table, but in general, it is not worth the risk at this point.  I could easily lose 4% in a day or two, wiping out the work of the past 6 weeks.

Of course, you are responsible for your own investment decisions and I am not.  Please do your diligence, and please take ownership for your actions.

Regards,

pgd

Move to Cash 11/17/10

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Anticipating a dead-cat bounce today (Wednesday, November 17th), hence I have placed an order at http://www.tsp.gov/ to move all my account monies to CASH.

Please go to http://greekgodtrading.blogspot.com/ to review rationale on the present market climate and why I am taking this action.  Basically, my primary indicator, the GGT Long-Cash Ratio (LCR), has been heading down for 4 days solid and the Elder 13d Force Index simply confirmed the action.

Here's the composite chart using the 3-ETF/3-Fund equal-weighting approach:

If anything on the chart above is not clear, specifically why this chart is breaking down, then please post a note below and I'll respond for all to review.

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

Regards,

pgd

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

AGG / F-Fund has moved Long

If you are trading the AGG or F-Fund as part of the TSP strategy, this moved long with GGT as of 11/5/09.

There are two portfolios that are managed with the GGT/TSP methodology:  one uses the AGG, the other one does not.  See the previous blog to get an idea of the overall performance.

If you are trading the 3-ETF portfolio, do nothing.  You should be 100% in cash.

If you are trading the 4-ETF portfolio, you have two choices to allocation: 

a) 25% of your portfolio,with the balance in cash, or
b) based upon a weighted performance of the last month, 42% of your monies would be allocated in the F-Fund, with the balance in cash.

Happy trading!

As always, please leave a comment if you need to.