Patiently Waiting - April 16, 2012

The IWM robot found enough edges to enter a new short position today at a limit price of 80.03 with an initial stop 2.00% above entry. Futures are pointing to a lower opening price and we’ll likely need an intraday reversal for our setup to be executed today.

The 5-day VWAP (79.61) is still heading lower and the support clusters are weak. A decisive breakdown below Monthly S1 (79.26) leaves only two weekly supports before Quarterly S1 (75.90) and the 200-day moving average (75.60). The confluence of these longer term supports is the logical next target for an ongoing corrective wave. However, option expiration week usually offers volatile choppy activity in all directions and we must be patient and wait for our limits to be hit (today or later this week) to maximize our reward/risk setup.

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A look at a 20-day window of the Precious Metals MF indicates bullish accumulation by large players with a rising average and limpid positive divergence with GDX. It displays a reverse picture of the 20 DMF and relative strength compared to SPY and GLD kept improving all week long. At least a good portion of the money that left the overall market has rotated into the multi-month laggard gold miners group and it offers an attractive hedge to a short IWM position.

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The RT model whipsawed with a fall of the MF below the 0% protection level last Wednesday but it stopped just above the rising average and regained the 0% (+ porosity) level issuing a new long signal Thursday which was still in force by Friday’s close. Both the RT and EOD models remain protected by the 0% minus porosity (0.153% today) level.

On top of the promising MF outlook and a rising 5-day VWAP (47.11), the powerful imbalance of strength in favor of the floor support clusters (total strength ratio = 31:6) should stimulate market maker’s algorithms to buy any weakness in price occurring without large players pressure. There is no advised secondary setup today.
Billy

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