What's next? - October 28, 2011

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“[B]It seems when the “risk on” trade is present you only need to buy one security with the highest beta (volatility measure) and not bother with doing anything more thoughtful. This is the result of easy money policies globally and how integrated the world has become[/B].” David Fry – October 28, 2011

The ”easy gains” have been made through the weak resistances of WR2 (73.60) and WR3 (75.90). Remember that a market statistically only trades 5% of the time above R3 levels and we are there on the weekly levels before the last day of the week. Of course, prior weak resistance becomes weak support, while a strong floor selling pressure cluster is waiting within 1 ATR range just above current prices, including Monthly R2 (77.28),Semester S1 (77.56), 200-day moving average (77.87) and Quarterly R1 (79.02).

The strong resistance confluence is appearing after the most overbought readings in a decade on most indicators. Such readings point undoubtedly to a longer term trend-following regime switch but also to an imminent short term pullback. Yesterday’s close was just above today’s multi-pivot short limit entry of 76.36, and even if the IWM robot was on a buy signal today (it is still neutral!) he would not buy above a limit of 73.35 for a minimal 3:1 reward-risk setup.

If you’re going to do something stupid, like chasing the market from here, at least do it on smaller size and add to your position after the next pullback or robot’s buy signal.
Billy

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