New Monthly Floor Levels - February 1, 2012

Once again the 20 DMF was much weaker (-160.2%) than the small price degradation could suggest Tuesday. The sideways consolidation is characterized by large players selling more aggressively into strength and buying less into weakness, amid a strong cumulative TICK that reflects manipulative HFT programs luring the trend-following crowd into potentially being injured soon by systematic large players sell programs.

The new monthly floor levels are finally building much more bearish clusters that could have been anticipated, mostly due to a rise in ATR widening the clusters. The first resistance wall up to Weekly R2 (81.61) has a strength of 14, more than twice the combined strength of the two support clusters (6+6= 12). Although it threatens somehow the trailing stop at 81.27, which is in the middle of the first resistance cluster, professional algorithms are likely to wait for a better floor risk-reward outlook before buying and position instead for some profit-taking.

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The GDX robot’s short signal is within the context of a neutral GDX MF and the decision to short was made by the LT/ST settings but for less than a hair of porosity. Indeed, a simple difference of 0.01% of 20-day ATR would have kept the robot in cash! And as Pascal did comment, all the edges are super short term for a fast mean-reversion play. This is quite a different signal and expected scenario than the previous shaky but successful buy signal which had strong LT edges.

For the outcome to be successful, the vicinity of the 200-day moving average (57.39) must keep its ability to trigger institutional sell programs and the super strong potential support from dual Semester and Yearly pivots (55.88) shoul break decisively to breach a most powerful support cluster down to the 50-day moving average (54.74). Large players need to be more focused on a ping-pong play between 200 dma and 50 dma than on other floor considerations.

Due to the neutral GDX MF and the ATR porosity limit, I agree with Pascal that this trade should be played cautiously and preferably unleveraged. I will participate in shorting at the open – unleveraged- because I want to trade every signal and the earlier one enters a robot trade, the better the edge. Secondary entries often present less risk-reward sex-appeal.
Billy

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