Expected Consolidation and Trading Range - October 31, 2011

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After the outlier and extremely strong month of October, multi-pivots odds certainly do favor a consolidation for next week. The 20 DMF, and hopefully the IWM robot settings, will help us to be rightly positioned before the next big move out of the consolidation.

The most likely trading range will be limited by the strongest nearby floor clusters. On the upside, the confluence of Semester S1 (77.56) and the declining 200-day moving average (77.85) is the main reference for floor selling pressure. On the downside, floor buying pressure really only starts at Semester S2 (72.33). In the middle, there are only minor daily levels and the weekly pivot (74.51).

Weekly pivot is the previous week’s equilibrium price and often marks the middle point of a subsequent consolidation week. WPP is waiting exactly at the lows of last Thursday’s impressive gap-up gains. Failure to decisively break below these lows and WPP would hinder a successful attack of the 200-day moving average. Indeed, a shake-out of weak bulls with a filling of Thursday’s gap will attract more strong bullish hands for the long term horizon. These strong buyers algorithms are most likely to trigger near the second support cluster with a buying pressure strength of 24.

For discretionary traders, the 3:1 reward-risk limit entries are 76.35 for shorting and 73.34 for buying. I have made simulations with the projected new monthly levels that will be active Tuesday, and these limit prices are expected to be unchanged into early November.

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GDX had already conquered its 200-day moving average and regained its 50-day moving average (59.59) last Friday. The first support cluster is bounded by these two institutional levels and is fairly strong. Here a consolidation is less likely while the path of least resistance is biased to the upside.
Billy

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