Weird Feelings - May 2, 2012

Yesterday’s market and money flows were very weird to say the least. The explosive morning momentum was almost annihilated by the afternoon accelerating sell-off. All this happened without real news and on rather low absolute volumes. In my mind, this type of action is a demonstration that the market is at some kind of equilibrium with equal bullish and bearish forces at play. Expectations could not be more neutral than they are now and the 2 next trading days will likely be erratic and random. This could change on Friday morning with the employment report and more certainly with Monday’s reaction to the French Presidential election. A victory of socialist François Hollande that would lead European institutions to revise their monetary policy plans is much discounted already but uncertainty over the final monetary solutions outcome will grow. A surprise reelection of Nicolas Sarkozy would probably boost European markets higher.

In the meantime, positions should be avoided in IWM which will likely wander and whipsaw around its declining 50-day moving average (81.57) for the next 48 hours with unpredictable volatility. The LT/ST settings are also pointing to flat returns for the next 3 days.

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Since the last MF buy signal, the GDX robot never found any edge for entering a new position and nothing has changed so far. Cash is recommended.

For my discretionary trade, I am suspicious of the lower high (compared to Friday) that GDX made yesterday and it is a serious warning of yet another bear flag in formation. I don’t want to hold my long position if GDX makes a lower low than Monday (45.71) since we all know that lower highs and lower lows are the hallmarks of a downtrend. Such a lower low would be a negation of the support offered by the nascent uptrend support line, by Weekly pivot (46.03) and Quarterly S1 (45.75) and due to the trend reversal pattern it would imply, I will exceptionally use a hard stop at 45.70 instead of an EOD stop below QS1 (45.75) that I explained in a post yesterday.

The RT model will turn short if it hits the negative porosity tolerance (-0.102%) today.
Billy

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