Now That The Uptrend is Obvious To Everybody And Their Sheep – June 29, 2011

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Let’s rejoice and let them join the momentum party that was carefully prepared by large players for the last two weeks. The daily stages of individual stocks are obviously evolving in the right direction: the percentage in strong decline has dwindled down to 15% coming from a high of 44% on 6/13 and 8% have joined the strong mark-up stage coming from a low of 3.5% also on 6/13. Undeniably, some fresh leadership is emerging.

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“Smart” money has stopped selling into the close since 6/14 and is now accumulating or even chasing momentum into the close.

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The buy programs were left running on their own yesterday as best exemplified by the cumulative TICK chart. This is a typical signature of trend days driven by algorithms, when relentless programmed buying of stock baskets never allows the Cumulative Tick to pause at its half-day (195 minutes) moving average.

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In such an environment, with the IWM position up + 4.36% from the initial robot entry (and + 15.21% for TNA!), with a trailing stop above the entry price, we are in the most comfortable situation compared to latecomers. This trade has as much statistical potential to turn into a long term trade-following venture as any other one from the robot. We’ll only know in hindsight, for sure, but I won’t hurry to deviate from the robot rules and exit prematurely under the pretext of “protecting some profits”. If such an urge really burns you, respect at least some basic risk-management logic. If you entered with the robot at 78.39, accepting the initial stop risk of 2.20% and you like to trade on a 3:1 reward-risk ratio, don’t book profits before the position is up +6.60%. If a pullback follows, you can try to re-enter at another lower daily robot entry price, but on a setup likely much weaker than the initial one which was a VERY STRONG signal. On the other end, if momentum accelerates to the upside after you sold, you may not see an optimal-reentry buy point before long. This trade will likely be exited after a 20DMF signal change rather than on a trailing stop hit. And this is the best consistent way of exiting a trend-following trade as demonstrated by backtesting.
For today, we have a weight advantage of first support cluster over first resistance cluster of 13-to9, that favors the bullish scenario for today. Pre-market is already well above the 50-day moving average (82.11) and only WR2 (82.84) stands in the way before the much stronger resistance starting at MPP (84.14). But the tip of the day here is: don’t worry too much about the ominous 19 strength of the second resistance cluster. MPP and SR1 will be extinguished Thursday night and that’s already 9 points of weight to deduct for Friday’s trading. In case of (unexpected) weakness, the 50-day moving average (82.11) in confluence with QPP (81.80) should be able to buffer most bearish blows, at least initially.

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For GDX, I will just draw your attention to the industry group SIGR (Sector-Industry-Correlated Relative strength) which is plunging into 189th rank out of 197 groups.

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Either the current long trade will become a true junk off the
bottom trade or it will probably not create much profits. The robot stop at 50.70 is only protected by WS1 at 51.22, but who really cares?
Billy

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