3 Attachment(s)
Tricky, Tricky... August 2, 2011
[ATTACH]9606[/ATTACH]
Although some buy programs came to life yesterday afternoon, the 20 DMF remained very negative all day, suggesting that large players continue distributing into intraday strength. Worse, the TEV extension on the inversed ETFs is now at the limit of tolerance before confirming a short signal. Another strong wave of selling today could easily turn sour for the market direction model.
Today, we have once again a very strong buy signal for IWM with a limit entry price at 78.07. The robot is faced with an awkward setting because the stop for the existing IWM position (78.19) is – 1.42% away from Monday’s close, just above the strong buy entry limit of 78.07. Therefore, the position can withstand some early intraday weakness and wait for an upside reversal. But if there is a big gap down with a hit of the stop in the early minutes of trading, and you are at your screen, you may wish to give some discretionary wiggle room to your stop.
A vicious test of the daily S1 area at 78.13 and a quick undercut below the 78.14 low from 7/29/2011 could be the low of the day before a reversal. If IWM subsequently reverses from there you’ll be able to stay in a strong buy trade. But don’t play with fire too long especially if there is an early failure to hold above QS1 (77.75). Keep in mind that the longer weakness persists, the higher the probability that a short signal might be confirmed at the close.
When such oversold conditions with high upward probabilities persist too long without any meaningful rebound while sitting around major long term support, the risk of a long term technical trend reversal to the downside is substantial. The first support cluster is rather strong with a strength of 15, so a failure to hold above the upper border of QS1 (77.75) would tell much about the total lack of buying appetite on behalf of large players.
The robot itself will respect the stop if hit, exit the position and wait on the sidelines until tomorrow’s new signal. My discretionary suggestion above is only valid if you are ready to accept some more risk than the robot normally tolerates.
[ATTACH=CONFIG]9605[/ATTACH]
The GDX robot found no edge for entering any new position today. GDX is squeezed between the 200-day moving average (57.93) as major resistance and the confluence of Quarterly and Semester pivots (56.61) as major support. The cluster support/resistance ratio is tilted much in favor of the long side.
Billy
[ATTACH=CONFIG]9604[/ATTACH]
