IWM Correlation Warnings

I am briefly wading out of my summer break to report warning signs from the IWM correlation indicators.
The highest correlated and most reliable indicator is with the IBD’s Acc/Distr ratings. It closed just below the 20 dma last Friday triggering higher edges for short setups and for exiting previous long positions on strength going forward.

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Futures are pointing to a big back-to-back gap down today and according to various studies (Masterthegap.com, markettells.com,…) probabilities are exceptionally high for a close above the open. My plan is to enter short positions as close as possible to the Quarterly pivot (78.83) which also marked Friday’s low.

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The correlation score with daily stages is turning down but still has a long way before falling below its 20 dma. This indicator is always lagging the IBD correlation score and has been good in confirming the bearish bias after a few days when it pays to turn even more aggressively short IWM. The expected short signal from daily stages correlation is clearly building up as the percent of stocks in accumulation and mark-up stages is now declining fast and the strongest short signals in the past happened once this indicator crossed below 50%.

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You can see in the chart below that accumulation is exhausting itself while distribution stages are growing fast. IBD ratings tell us that this distribution shift is happening with a very negative price/volume behavior on the past 3-months horizon.

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On the weekly timeframe, the last 6-week rally attempt was unable to lift the percent of stocks in weekly accumulation and mark-up stages above the 5-week MA and it is turning down far below 50% in a very similar way it did at the exact same date last July 2011 just before the deep August plunge by the indexes.
Billy

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