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Turn Off All Of The Noise and Emotions – July 18, 2011
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In spite of all the uncertainties and lack of market direction clarity stemming from the ambient headlines noise, all indices managed to close the week above their strongest floor support confluences. This indicates that not all large professional players have thrown out the towel, and many keep accumulating long positions into weakness. This is why the 20 DMF has not issued a sell signal yet and may still run back higher into more overbought territory.
The daily stages structure is showing over 80% of stocks in accumulation or mark-up stages, compared to a low of 21% on June 17th. Clearly, last week’s pullback hasn’t done any damage to the technical uptrend characteristics. IWM itself has progressed into a late accumulation sub-stage for two days in a row, setting up for a major breakout into the strong mark-up sub-stage. This is the phase of the daily timeframe market cycle where maximal returns can be achieved. GDX is more neutral as it sits in mid accumulation sub-stage.
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If maximal returns are profiling on the horizon, IWM also will start the week with minimal risk for the robot’s long position. The first cluster support/resistance ratio is over 3.4 (24:7), one of the strongest we’ve seen to start a fresh week. The trailing stop is conveniently waiting under and beyond the strong support cluster to keep us in the trade as long as possible before a 20DMF sell signal. Everything is suggesting that an easy retest of YR1 (85.68) is coming soon, with some pauses around weekly levels (83.13 and 84.21). Our trailing stop/risk would of course follow the potential upward move. The day’s new limit long entry of 82.69 is just above Monday’s daily pivot (82.63) and has a good probability to be hit intraday, barring any runaway gap up.
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SPY only needs to break and hold above QPP (131.78) and WPP (131.86), or a few cents above Friday’s close, to have a similar easy risk-reward road to a retest of YR1 (134.26).
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QQQ has only one weekly resistance, WR1 (58.75) before testing its own YR1 (59.02). But it is also the ETF most prone to a nasty pullback since it is the most extended from a strong support cluster.
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For GDX, after the expected pause on last week’s WR3 materialized, the road is clear to SR1 and QR1 (62.12). The first resistance/support ratios will increasingly deteriorate until then, so I would hold with confidence any existing long positions, but it is becoming a little late in the game for optimal reward-risk new entries.
Billy
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