GDX and IWM Robots – July 26, 2011

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GDX had a typical reversal day yesterday, gapping up into a strong resistance cluster and then heading lower for the rest of the day. It can almost be qualified as a “key” reversal day because the low of the day did undercut the previous day’s low by 2 cents. But such small undercuts have led to fast bounces more often than not in the past.
As Pascal warned in his GDX comment, the precious metals sector money flow is very near a short signal and today’s limit entry at 58.97 could be hit at the same time that a short signal is issued. It is advisable to pass on today’s entry which provides almost no ST/LT edges anyway. The first support cluster is also weak with a strength of 6 compared to the first resistance cluster strength of 20.
The precious metals mining stocks are ignoring the new high prices in gold. The diminishing correlation between GLD and GDX is also warning that something bad for gold stocks might increasingly be anticipated by large players.
If a short signal is issued by the close, the robot will exit its long position and enter a new short position at the open tomorrow.

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IWM remains stuck in the middle of a 2-week trading range and found support at the weekly pivot (83.12) which is usually a positive signal on the first day of a week. Today is the last day of seasonal weakness before the bullish turn of the month bias that will start tomorrow. The first support cluster is extremely strong and should easily cushion any weakness today. Resistance is weak and an entry at 83.06 will allow latecomers to align themselves with the robot position entered at the same limit price.

Billy

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Billy,

Is there anywhere one can get a list/compendium of seasonality and dates in the stock market? I know about the Stock Trader's Almanac but am wondering if there are other/better resources.

Thanks.

I believe Billy is using MarketSci's monthly map. Here is July:

[URL="http://marketsci.wordpress.com/2011/06/30/seasonality-map-for-july-2011/"]http://marketsci.wordpress.com/2011/06/30/seasonality-map-for-july-2011/[/URL]

My own work has found slightly bearish seasonality on days of the 2, 5 and 7 year T-Note Auctions (today, tomorrow and Thurs at 1:00 pm) when the market is in an up trend. Intraday, I've also observed the market tends to be down more often before the report, with a relief rally after the auction. I will try to update this study and post in VIT after I return from a trip next week.

[url]http://marketsci.wordpress.com/2011/06/30/seasonality-map-for-july-2011/[/url]

The market for IWM closed at $83.06 which is today's entry price, the 8th time the robot likes this entry price to my knowledge. I actually entered at that price on July 20th and now my stop is $81.56. What I still don't understand is that if I doubled my position today, I would have 1/2 stop at $81.56 and 1/2 stop at a lower $81.38.

The answer I will get is presumably based on the IR of 3 because ATR is about 30 basis points lower today than it was on the day of purchase. I have been associated with a risk management co in my past life for 12 years and I would argue that ATR alone as a measure of risk is imperfect as the very short term historical risk of IWM may have dropped in 5 days but the real risk of the instrument has remained essentially the same. Thus whatever ATR (x) is being used is probably too short and perhaps there should also be a longer time frame used to arbitrage the evaluation of risk when we have the situation that I am describing.

This is none of my business but the quant in me believes the robot should be aware 'more human" :_)

Pierre Brodeur

Thanks, guys, for the assist.

Adam,

Yes, marketsci is a good starting point.
And Wayne Whaley is also doing a top-notch seasonality research.
But I was much influenced this month by reading Hulbert's comments on Fosback's system.
[url]http://www.marketwatch.com/story/maybe-the-best-market-timing-system-ever-2011-07-12[/url]
Billy

Very interesting. More info here:

[URL="https://www.fosback.com/seasonality_system.htm"]https://www.fosback.com/seasonality_system.htm[/URL]

[QUOTE=Pierre Brodeur;15052]
This is none of my business but the quant in me believes the robot should be aware 'more human" :_)

Pierre Brodeur[/QUOTE]

Pierre,

The robot is using the risk-management algorithms that gave the optimal long term risk-adjusted returns in backtesting. These algorithms are indeed not human. And the robot performance is neither human too. They will remain proprietary and we cannnot answer your question without breaching our confidentiality commitments.

ATR is not a measure of risk but of volatility. The answer is hidden behing that simple sentence, that I can tell you.

Billy