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

TSP Portfolio Signals LONG Across the Board

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While it pains me to say this, all my indicators show that we need to move back into stocks.  Even the 4-Fund version, which includes the F-Fund/AGG, is indicating such a move.

Before we go there though, let me explain why this one is "different".  Luckily, I can talk about now as well as about the past from the same chart:

The first thing that I want to draw your attention to is the area listed as 9/10 -- September 1st, 2010.  Now go up to the window entitled "MACD" directly above that date.  See where the MACD lines crossed, and the status of the MACD Histogram on September 1st?  The MACD and MACD signal lines were NEGATIVE, they crossed in NEGATIVE territory, and for the next two months they moved upward, finally crossing from above right around October 19th (this is when I issued my sell signal).  Furthermore, take a look at what the Elder Force Index (EMA and SMA) signals were doing just prior to 9/1/10 and then on the signal date after 9/1/10. 

Fast forward to now, which is the right side of the figure -- November 3rd, 2010.  Here we have a number of things happening, but most important, we have the Elder Force Index (EMA and SMA methods) both crossing back into positive territory (green), we have the MACD Histogram almost ready to cross over into positive territory, and we have the slope lines of the 13d and 34d EMAs crossing each other from below, which is a very bullish sign.

Given all of this, you would think it's time to jump into the TSP with both feet.  Well, "this time it's different".  Here's why:

We may certainly move aggressively higher in the coming days -- your crystal ball is as good as mine.  BUT, there is an arguement for not putting all of our eggs in the market:

1. The MACD line and the signal line are on the positive half of the chart window.  They can certainly move up, but they have a historical "maximum value ever achieved" and according to my records, we've only exceeded the recent peak only in the March/May 2009 time frame -- all others have turned down when reaching the region we just reached.  The past isn't a predictor of the future but where you start the future from (e.g., reference point) is a very telling indicator.  A better place to start would be if the MACD lines were in the bottom half (negative).  Well, they are not, so we should be careful.
2. The slopes of the 13 and 34d EMAs are already positive.  The crossing from below simply makes them bullish.  While they can rocket upward from here, they can't go *much* further rom here -- the higher values simply cannot be sustained.  Note that this is a metric of how fast the bull is raging, and right now, the bull is clipping along at $0.2993 / day for the 13d EMA and $0.2995 / day for the 34d EMA.  This is a good, solid gain on a day for day basis, so going up dramatically from here, while possible, isn't too likely for any length of time.

Given these things, and other minor indicators, I think it prudent to hold back 50% of our holdings in Cash. 

In terms of allocations, here is what I'm looking at with 50% in the G-Fund (money market):

3-ETF Portfolio:

I-Fund/EFA:  16%
C-Fund/SPY:  15%
S-Fund/VXF: 19%

4-ETF Portfolio:

F-Fund/AGG: 3%
I-Fund/EFA: 15%
C-Fund/SPY: 15%
S-Fund/VXF:  16%

If you make this transfer at http://www.tsp.gov/ prior to 9 a.m. or so Thursday morning then it should go into effect at the end of the day.

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

Regards,

pgd

10OCT19 -- POTENTIAL MOVE TO CASH SIGNAL

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Folks,

With the close of the markets today, Tuesday, October 19th, we have a move to cash signal for EFA/I-Fund, SPY/C-Fund, and although a weaker signal, for the VXF/S-Fund.  Note that GGT has NOT confirmed this transition -- these signals are being derived from Elder's 13d Force Index method as well as my 13/34d slope method. 

First, here is what GGT has to say about the TSP ETFs:

As far as GGT is concerned, we are still above historical, optimized price and volume levels so holding these ETFs is still a valid position (obviously with the exception of AGG/F-Fund).

When we dig deeper using a different method, we get a different picture.

EFA / I-Fund:

• Price closed below the 13d EMA after obeying this line for 7 weeks.  For the conservative, this is a sell signal.  For the aggressive, if tomorrow has any point in the day below today's low, then we have a confirmed sell signal.
• Elder's FI(13) signal closed negative.  This is an automatic sell of any security.
• MACD Histogram has moved negative.  This is an automatic sell of any security.

While not shown in the graph above, the slope of the 13d EMA has crossed the slope of the 34d EMA from above, also signalling severe weakness.

The link to this chart is here.

SPY / C-Fund:

While the price of the SPY did not close below the 13d, we do have two indicators shown that signal danger for this equity:

• Elder 13d Force Index is negative, which is an automatic sell signal
• MACD histogram has just transitoned negative, which is an automatic sell signal

Again, while not shown, the slope of the 13d EMA is crossing the slope of the 34d EMA from above.

These three indicators, taken together, are enough for me to transition to cash for SPY / C-Fund. 

The link to the SPY chart is here.

While we're here, we might as well take a look at VXF / S-Fund:

The price closed right on the same value as the 13d EMA, so technically, it has not violated the 7-week rule.

The Elder FI(13) value is still positive.

Not shown is the crossing of the slope of the 13d EMA and the 34d EMA from above.  This is an automatic sell signal.

The MACD histogram is newly negative, which is an automatic sell signal.  Combined with the slope 13x34 from above, we have a confirmation. 

The link to the VXF chart is here.

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I am a conservative investor so I will sell my positions in EFA/I-Fund, SPY / C-Fund, and VXF / S-Fund and transition everything to cash / G-Fund.  The markets may recover and move higher from here, in which case we still can use one of our transfers to get back in the market and we may miss a couple of days of run up.  I had rather do this than lose the 6% that we have gained since the beginning of September.

Place your order by 9 a.m. EDT if you want TSP to enact the transfer on the close of business on Wednesday.

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

Regards,

pgd

AGG / F-Fund in CASH, All Others LONG

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Overall, the GGT system, as applied to the TSP, is still LONG on EFA (I-Fund), SPY (C-Fund), and VXF (S-Fund).  AGG (F-Fund) has transitioned to CASH.  Here's my dashboard view; as with all my images, right-click to open in a new window or tab within your browser:

If you are investing in AGG/F-Fund I recommend that you review those holdings immediately, as you are losing value rapidly.

Here is a view of AGG for discussion:

There are a number of reasons you should seriously consider moving out of AGG/F-Fund:

• Bull Power is negative.  Bull power is Dr. Alexander Elder's creation, and it calculated by subtracting the 13d exponential moving average (EMA) of price from the day's high.  When the day's high is below the 13d EMA, this value is negative.  This means that the bears are winning.
• Bear Power is negative and more negative than Bull Power.  Like Bull Power, this is calculated by subtracting the day's low from the 13d EMA of the stock.  The more negative, the more the bears are in control. 
• Elder's 13d EMA and SMA (Simple Moving Average) on the Force Index are both negative.  The Force Index (FI) is calculated by taking the change in daily price multiplied by the volume of the day.  The FI(13) is calculated by taking the EMA or SMA -- I show both.  When these two transition either way on the same day we have a powerful signal, and as you can see, they both moved below 0, which is bearish, two days ago.
• MACD histogram is negative.  This equity has lost bullish momentum and is accelerating to the downside.  It will bottom eventually, but it will take you with it.
• The slope of the 13d EMA on price has crossed below the 34d EMA on price.  We are losing price value rapidly on these two time scales.
• The 13d EMA slope is negative, which is bad.
• The 34d EMA slope has just turned negative, which is bad.  The combination of these two confirm that "the car is driving backwards and it is accelerating backwards"
• The "slope of the slope" of the 13d and 34d EMAs are pointing downward.  Not only are we losing price value rapidly, we are accelerating to the downside.
• Price is trading below the 13d (recall Bull/Bear Power) as well as the 34d EMAs.  As of Friday's data there is no floor in sight.

Again, I see no compelling reason to hold AGG/F-Fund.

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With respect to the other funds, they are LONG in general, but looking at the aggregate chart, they look "toppy".  Here's what I'm seeing:

This view is created by equal-weighting the EFA (I-Fund), SPY (C-Fund), and VXF (S-Fund).

As you can see, the price index for this grouping is at $164.  If you look above that area, you see that the 13d EMA slope is changing (positively) at $0.53/day and the 34d EMA slope is changing (positively) at $0.44/day.  This is healthy.

Of notice is that the 2d Force Index -- FI(2) -- has moved negative with Friday's action.  The large price change of the index, coupled with the higher-than-normal volume, has caused this value to drop below 0, which is either 1) a warning shot, or 2) a buying opportunity.  1) occurs if we do not close above the price index value on Monday and possibly continue to fall, and 2) occurs WHEN we close above the previous day's high.

This run has been strong and we can only follow the trend after it prints the day's actions, so simply be alert.

I am fully invested using the three funds in this account.  Since our buy signal was generated at the end of September 14th we have experienced the following increases to the individual positions:

Index (equal weighted):  +5.9%
EFA (I-Fund):  +7.3%
SPY (C-Fund): +4.6%
VXF (S-Fund): +6.9%

My actual portfolio has increased  +5.98% in this time frame.  If you follow me, yours should be doing the same too.

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Trading Plan for the Next Week

Basically, do nothing and stay on autopilot.  My new contributions are going in at

• 29% for the C-Fund,
• 36% for the S-Fund, and
• 35% for the I-Fund.

as this is the present allocation of my holdings.

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

Regards,

pgd

End of September Rebalance? Not Necessary ...

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Here at the end of the month I would like to re-examine whether we should rebalance.

The short answer is no; I intend to stay the course.

Since our move from the G-Fund on 9/14 we have the following performance:

F-Fund:  -0.2%
C-Fund:  +2.17%
S-Fund:  +3.68%
I-Fund: +2.60%

Overall, I do not invest in the F-Fund, as bonds simply are not going anywhere and all it does is dilute my funds available for the C/S/I funds.

I suggested the following weighting on 9/14, and this weighting is unchanged:

C-Fund/SPY:  29%
S-Fund/VXF:  36%
I-Fund/EFA:  35%

When you weight the performance since the close of 9/14 through the close of 9/29 the net return is +3.30%.  Yes, I missed the run-up of 9/1/10 due to being on vacation; despite this, I am quite pleased with a 3.3% return for the month (not including what the G-Fund contrinuted).

Stay the course for now.

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

Regards,

pgd

New Long Signal for S-Fund and C-Fund

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With the close of the markets on Monday, September 13th, 2010, we have a new long signal simultaneously appearing in the VXF (S-Fund) and SPY (C-Fund).  The EFA (I-Fund) already was long, although I had not transitioned to this signal because of my vacation late August.

Although I do not trade the AGG (F-Fund), it is affirming a position in CASH.

Allocations for the 3-fund portfolio (C-Fund, I-Fund, S-Fund) are as follows:

EFA / I-Fund:  35%
SPY / C-Fund:  29%
VXF / S-Fund:  36%

Allocations for the 4-fund portfolio are as follows:

AGG / F-Fund: 4% -- KEEP IN CASH (G-Fund), not in F-Fund.
EFA / I-Fund: 33%
SPY / C-Fund: 28%
VXF / S-Fund: 35%

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

Regards,

pgd

Moving All Funds to G-Fund

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As of today (August 31st), I am placing an order to move all my wife's funds to the G-Fund.  Rationale:

1) All of the equity funds (VXF, SPY, EFA) within the TSP Universe are in Affirmed Cash or Cash, indicating a very bearish condition
2) All of the equity funds within the TSP Universe have a 13d and 34d downward slope on the price EMA, so they are losing money on those time frames
3) I'm leaving on vacation, and I don't want my wife's monies exposed when I cannot do anything about it.

I'll look at reallocation upon my return.

Regards,

pgd