Turnaround Or Pullback Tuesday ? – October 26, 2011

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Here we’ve had the pullback in IWM and it closed just between the crucial yearly pivot (71.84) and the quarterly pivot (71.25). This area was indicated in yesterday’s comment as the lowest acceptable closing level for a normal standard pullback and it will remain valid for today’s session. A lower close today would mean that yesterday was a true Turnaround Tuesday.

Any timeframe pivots are typically the equilibrium points for all floor participants and their algorithms over these timeframes. The confluence of yearly and quarterly timeframes doubles the importance of equilibrium and neutral forces. Market makers are normally flat and neutral with their inventories at these levels and will actively decide to scale-in long or short from here depending on institutional order flows in their books. Barring any news, they have a bearish bias because of the imbalance of pressure between floor support and resistance clusters pressures.

Monitoring the 20 DMF evolution, VWAP and cumulative TICK is most important today, but will only be reliable after the EU summit news late in the session and tomorrow. I expect the market to wait for the news release right on the intraday VWAP and have an initial very brief wrong directional move, like it often happens on Fed days. Remember that the largest players are slower to react because of their more complex and collegial strategic decision-making processes. Today’s news will also have an important “politically qualitative” content which will need some time to be correctly analyzed.

The neutral settings from the IWM robot are well in line with the multi-pivot equilibrium conditions ahead of major market shaking news.

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The GDX position will be exited with a painful loss at the open today. Please read Pascal’s GDX comments for details.

We can notice that GDX closed just around the 200-day moving average (57.98), the most important long term inflection point for institutional investors. It is also sandwiched between many neutral equilibrium floor pivot levels : monthly (58.75), quarterly (58.40), semester (56.61) and yearly (55.19). One can hardly find a more clueless and neutral floor configuration. Here too, the European news will be key.
Billy

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