Some Surprises Coming? - January 13, 2011

[Billy]

As next week is both another shortened 4-day week (MLK Day Monday) and opex week, we must be ready for some surprises. Or for more complacency/lethargy. The IWM volatility as measured by ATR% is now back near its standard low bull market level (1.55%) at 1.69%, down from over 3% just a few weeks ago and 5% last summer. This is promoting better risk-reward setups on the long side for most trading systems and algorithms. For the IWM robot, it is reducing significantly the edges on the short side and tightening the floor clusters and stops.

I still view the current short setup mostly as a potential quick retracement from entry (Limit 77.53) to the 200-day moving average (75.99) next week. I already mentioned my fear of an opex pinning at the 79 strike instead. The initial stop at 79.24 should protect the position in that scenario and keep us short at an extremely overbought level. Maybe just in time for a 20DMF short signal confirmation. I see no need for betting the house on the robot ST/LT settings alone, but I would bet part of the garden as an initial position before scaling more aggressively after a 20 DMF short confirmation.

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The GDX position is now up + 6% from the initial entry (51.62) after several opportunities for secondary entries. It is becoming a little late in the game and the GDX robot can’t find any edge for a secondary entry today. If quarterly pivot (54.78) can hold as next support intraday, yearly and semester pivots (55.88) should be hit easily. The trailing stop can be raised to 51.06.
Billy

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[nickola.pazderic]

Billy,

Does today's price/volume action in GDX foreclose the possibility of reaching the yearly pivot point, 55.88, during the next few days?

Thanks,

[Billy]

Billy,

Does today's price/volume action in GDX foreclose the possibility of reaching the yearly pivot point, 55.88, during the next few days?

Thanks,

Nickola


Just my 2 cents thinking:

The price decline after 12.00 pm was not confirmed by MF which stabilized .
The combination of a closed Monday with Opex creates a big time value decay on options between today and Tuesday’s opening. But I’ve seen very growing large bids on calls since 12:00 pm and they were absent at the same price this morning. Some large players seem to anticipate an afternoon reversal and don’t want to wait for Tuesday’s time-discount prices.

I think that if GDX closes today above intraday VWAP (now at 53.68), a new tentative assault at YPP may be in the cards for next week.
Billy

[nickola.pazderic]

I'm also watching the accumulation at 53.40 or so with interest.

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[adam ali]

Billy,

This isn't a very well thought-out question, but do you regularly watch the action in calls/puts to confirm 20DMF/Robot direction before trades? Have you and Pascal done any work using options as a confirmatory tool? I know Pascal has said in the past that Thannasis is the options guru on the site, but wondering if this area might be a topic for further study.

I'm no expert in options, but gut feel has always been that there's valuable information to be gleaned here.

[Billy]

Billy,

This isn't a very well thought-out question, but do you regularly watch the action in calls/puts to confirm 20DMF/Robot direction before trades? Have you and Pascal done any work using options as a confirmatory tool? I know Pascal has said in the past that Thannasis is the options guru on the site, but wondering if this area might be a topic for further study.

I'm no expert in options, but gut feel has always been that there's valuable information to be gleaned here.

Adam,
I’m no options expert neither. It just happens that I have accumulated some GDX calls (on dips) over the last few days and they will expire next Friday. I’ve sold half yesterday around WR2 (55.33) and planned to exit the remainder today to avoid the time-decay factor. So I kept watching the GDX call options today and that’s why I’ve noticed the surge in bidding activity, the largest I’ve seen this whole week. The ask volumes for calls remained average.

The timeframe for big profits in options near expiration cannot depend on the slow robot. You just need an opportunistic mind in the context of the robot signals.

Neither Pascal, Thanassis or I have made research on options confirmation for the robot signals. It goes the other way: the robot confirms that I am trading options in company of the edges.
Hedge funds apply so many complicated options strategies that often cancel one another in aggregate that I think it is an impossible task to research seriously for confirmation.
Billy

[nickola.pazderic]

Billy,

It is always very interesting to learn from your choices. Thanks.

The play by play continues:

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Now above the 5 Day VWAP. Who will stand in the way?

[Billy]

Billy,

It is always very interesting to learn from your choices. Thanks.

The play by play continues:

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Now above the 5 Day VWAP. Who will stand in the way?

Above day's VWAp. 5-day VWAP is at 54.22.
It is a close above day's VWAP that matters to make sure the weakness triggered buy programs and no more selling.
Billy

[nickola.pazderic]

Thanks. I've got both on my screen now.

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