New Weekly Supports- July 11, 2011

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We may be in for big surprises as we are entering the July options expiration week, coinciding with the start of earnings season. IWM is now supported by two new weekly levels; WPP (84.88) and WS1 (83.78).

These floor levels are broadly defining a new support cluster with a strength of 8 filling last week’s void between YR1 (85.68) and QPP (82.28). Consequently, the robot’s limit entry price for a new position rose to 85.08, with a stop (83.26) almost equal to the trailing stop (83.17) from the initial position. As long as WS1 (83.78) holds on a daily close basis, there is nothing to worry about; there is still plenty of room below to the stops. Just make sure your stop instructions are in with your broker.

Since the first resistance cluster is twice as strong (16), the first support cluster (8) is now providing what might become a launching base for a final assault at YR1, barring any negative volatility. The 5-day moving average (65 periods on 30-minute charts) or VWAP are also good entry point references on pullbacks. A decisive breakout above YR1 would coincide with confirmed new all-time highs for the Russell-2000 index since June of 2007, a very positive long term signal. Total potential selling pressure (15 + 16 = 31) is equivalent to total potential buying pressure ( 8 + 22 = 30) and the ratio is neutral to start the week. Earnings surprises and opex volatility tactics will likely define the winning camp – if any- next week.

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The cluster outlook for SPY is certainly more bullish and encouraging, as the ETF already closed the week above its own YR1 (134.26) with a first resistance cluster strength (8) equal to only 2/3 of the first support cluster (12). Here, the total potential floor selling/buying ratio is astonishingly bullish at 23 to 34.

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The story for GDX remains the same as last week : SPP and QPP (56.61) need to be decisively conquered to facilitate and support the next assault at the 200-day moving average (57.76). But compared to last week, the first support cluster has now strengthened massively and appears very difficult to break from now on.
Billy

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