Moment of Truth - June 20, 2012

Today’s the moment of truth with the unpredictable reaction to the FOMC policy statement. We can’t control the market reaction, but we can control our risk of loss if we’re already long by keeping tighter stops than usual around 12:30 pm and, if in cash, we can control our risk of missing out a rally by being quick to buy any breakout after that time. The safest protection is to wait in cash like the IWM robot for the next EOD setup to trigger.


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I sincerely hope that the next signal will be a buy setup on a pullback because that’s where there will be the best edges according to the IWM composite correlation score. It was confirmed by the correlation score with daily stages structure yesterday while IWM’s relative strength vs. SPY jumped ahead. This is a sign of risk-on and abundant liquidity anticipations. Market structure is also pointing to steady accumulation with a quiet and orderly blossoming of the mark-up stage. The decline stage already seems to be a thing of the past by now. Of course, this bright picture can be destroyed in a flash if large players start fleeing the market again.

The VIX rose strongly at the end of the day, hinting that funds have heavily hedged their recent buying ahead of the FOMC dateline. This is so much less selling pressure in case of bad news.

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Nothing has changed with the GDX robot setup from yesterday. This ETF is much more sensitive to the FED’s statements and likely to react today with high volatility in the afternoon. I still feel it is dangerous to short aggressively with the current multi-pivot outlook, but also with the very constructive evolution of the IBD Accumulation/Distribution ratings. One month ago, 95% of the components had ratings of D or E and you can see today’s ratings below. The current consolidation may provide some violent dips of course, but it looks more like a digestive break before resuming its climbing walk.
Billy

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