Road Map for June 8, 2011

[Billy]

Judging by the pre-market activity, IWM may gap down today just under QS1 (79.32). For my expectation from yesterday’s debriefing to prove correct, we should see a quick bounce above QS1 (79.32) and WS1 (79.43) and a gap fill before an easy assault of the first weak resistance cluster.
After five days of decline, institutional buy orders to execute “at best” in the next few days must have piled in and waiting inside market makers books. A fast spooky shake-out move to fish for the latest stops often precedes the start of a new buying wave. If we see no up-reversal and down-gap fill within 1 hour after the opening, then my scenario will likely be wrong and a proof that no large players are really interested to buy and they prefer to wait for a test of the rising 200-day moving average (76.55). However a first support strength of 13 vs. a first resistance strength of 4 within 1 ATR range offers all necessary and favorable conditions for a reversal and bounce. Note that both SPY and QQQ do offer the same kind of opportunity today and the move could become powerful.

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GDX is still stuck within two clusters of equal strength and hints at no clear directional move today besides a continuation of its current bearish bias.

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[adam ali]

Billy,

Great review.

A little off topic, but any ideas why the CBOE Implied Correlation indices are so somnolent? Same for the VIX. One would think they'd be showing a bit more pep at this point.

[Billy]

Billy,

Great review.

A little off topic, but any ideas why the CBOE Implied Correlation indices are so somnolent? Same for the VIX. One would think they'd be showing a bit more pep at this point.

Adam,

I've stopped using the VIX as a consistent meaningful indicator long ago, whatever everybody else is trying to prove me.
I have no clue about the correlation indices. I watch them flashing false signals without any consequences anymore. So I've stopped writing about them, just as English Bob.
These indicators (VIX and all) are all derived from the option market and are not reflecting the true state of the underlying stock market anymore, because too many sophisticated strategies are widespread and can skew the classic interpretations.
Billy

[Sandy]

Billy: Do you use 5 day for calculating ATR? I am almost positive that you use 5 day, but wanted to make sure.

Thanks.

[adam ali]

Thanks. Obviously, I'm trying to decipher current status of fear/greed among investors through these or other indices. It seems tougher to do these days.

[Billy]

Billy: Do you use 5 day for calculating ATR? I am almost positive that you use 5 day, but wanted to make sure.

Thanks.

Sandy,

As a rule of thumb, 20-day ATR using an exponential moving average is what works best for most securities. Billy

[slgerritz]

Adam,

I've stopped using the VIX as a consistent meaningful indicator long ago, whatever everybody else is trying to prove me.
I have no clue about the correlation indices. I watch them flashing false signals without any consequences anymore. So I've stopped writing about them, just as English Bob.
These indicators (VIX and all) are all derived from the option market and are not reflecting the true state of the underlying stock market anymore, because too many sophisticated strategies are widespread and can skew the classic interpretations.
Billy

Hi Billy,
Are there any available inverse gold minersw ETFs that I could use rather than short GDX when the GDX robot gives a short signal?

[Billy]

Hi Billy,
Are there any available inverse gold minersw ETFs that I could use rather than short GDX when the GDX robot gives a short signal?

DUST, the double inverse gold miners ETF, is the only one I am aware of.
It is highly illiquid and only adequate for small limit orders.
Billy

[Pascal]

I updated the 20DMF. We can see that some money is moving in. However, the imoprtant data is that the OB/OS signal is now still more OS, down to -87. There is settings on the 20DMF that closes short positions when the OS condition reaches -90, because the probability of a bounce from -90 is maximum based on the past three years data (even during the worst of the market crash).

I closed my TZA long (short on the market).

I will now closely look at the sectors with the worst price RS and see if shorts start covering their position.



Pascal

[Billy]

Key for the next swing direction will be a decisive breakout or breakdown from the opening 30-minute trading range (79.07-79.72). At this oversold stage, I think it is as simple as that. Billy

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[Billy]

I have made a simulation for tomorrow's IWM clusters based on current day's highs and lows. Any close below QS1 (79.32) would be unfavorable, while any close at or above QS1 will be very bullish with a 13: 4 support/resistance strength ratio.
Of course jobless claims tomorrow before the open are a big unknown.
Billy