IWM Trading for May 16, 2010

[johnboy70]

From a multi-pivots perspective, IWM is still stalling under its strongest resistance cluster YTD. YR1 (85.68) was first unsuccessfully tested on 04/06/11 and led to a rejection toward the 50-day moving average. The second test was successful for the last three days of April before reversing nastily on May 2, from QR1 (86.66) and failing to find support at YR1.

This week’s activity is setting up a severe potential bull trap pattern, as Tuesday’s bounce was stopped once again at the confluence of SR1 (85.46) and YR1 (85.68). Another test of the 50-day moving average (82.93) is most likely next week. Due to the previous pattern with rising volatility and the proximity of the summer season when large players avoid deploying new long term strategies, a failure to hold the 50 dma next week could quickly lead to a sharp selloff. The probability of such a scenario is higher than the previous 50dma test that occurred with a neutral 20 DMF mode. The 20 DMF actually turned into a short mode on May 5 while testing the 50 dma and remained short until now. The failing bounce to SR1 (85.46) and Friday’s run toward the 50 dma on a very negative 20 DMF of -150% increases the selloff probabilities. Also IWM’s relative strength (lower pane on the chart) started to rise while approaching the 50 dma on May 4, while it is now starting to fall.
All these developments are among the main reasons for the IWM robot to hold its short position with rapidly rising 3-day short edges. The next logical area of potential support and strong bounce is QPP (81.80) since QR1 (86.66) is now the reference resistance level for the year. The highly rotational nature of the current correction will probably avoid a longer term (10-day) short edge and I expect that a buy signal might come around QPP from a very oversold 20 DMF level.
So far this year, the robot has been excellent for switching from trend-following to mean-reversion strategies and let’s simply follow its next signals once they come around.

Billy,

Please help me to understand the terminology a bit better. When you use such terms as QR1, SR1, YR1 and QPP, my presumption is that the prefixes Q, S and Y refer to daily, weekly, monthly or yearly support and pivot point levels somehow? That terminology is not explained in "Forex Conquered". Can you please help me to understand. Thanks, John

[Harry]

Billy,

I am also interested in learning more about your pivot work and terminology.

Thanks!

[Billy]

John,

I will soon start a multi-pivots methodology tutorial series that will help novices starting from scratch. I plan to do one per weekend.

The formulas for calculating pivots are as follows:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)

They are the same for all timeframes.
W= Weekly
M= Monthly,
Q = Quarterly,
S= Semester or Half-Yearly
Y = Yearly

Billy

[johnboy70]

John,

I will soon start a multi-pivots methodology tutorial series that will help novices starting from scratch. I plan to do one per weekend.

The formulas for calculating pivots are as follows:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)

They are the same for all timeframes.
W= Weekly
M= Monthly,
Q = Quarterly,
S= Semester or Half-Yearly
Y = Yearly

Billy

Billy, Thanks John

[nickola.pazderic]

Hello,

I'm new. This is my first post here or elsewhere in a financial blog for that matter.

I appreciate this new format very much. It makes it very easy to find my bearings. Thanks, thanks.

My point: look at either the SPY or IWM charts. One can draw a line or even a small channel from Feb 21/22 to May 17/18 and discover that, in essence, the market has not moved at all, minus some volatility.

I have played a simple and stupid game with this market: I choose a back month put; buy it when its cheap, sell a day or two later for a profit. go flat and wait for the market to return to me, and try it again. I got a good price today, as you can imagine.

All market indicators that I follow, including this one, say the market is in a sell mode. I have a load of short ETFs, including TZA. And I'm betting that the down trend line from May 2 holds. The next move must break "the line" from Feb 2. If not that, then all lines converge during the last week of May and contrary to American evangelicals who claim the world will end this Sunday, the market will disappear and there will be no June. (Insert smily face)

Ok-- waiting some reply, gratefully yours,

Nick in Seattle.

[Charl]

Hi Billy,

I'm in !!!!

Glad you can find the time to teach !

What format will you use to conduct the training, and what time zone?


Regrds
Charl

John,

I will soon start a multi-pivots methodology tutorial series that will help novices starting from scratch. I plan to do one per weekend.

The formulas for calculating pivots are as follows:
Resistance 3 = High + 2*(Pivot - Low)
Resistance 2 = Pivot + (R1 - S1)
Resistance 1 = 2 * Pivot - Low
Pivot Point = ( High + Close + Low )/3
Support 1 = 2 * Pivot - High
Support 2 = Pivot - (R1 - S1)
Support 3 = Low - 2*(High - Pivot)

They are the same for all timeframes.
W= Weekly
M= Monthly,
Q = Quarterly,
S= Semester or Half-Yearly
Y = Yearly

Billy

[Billy]

Hi Billy,

I'm in !!!!

Glad you can find the time to teach !

What format will you use to conduct the training, and what time zone?


Regrds
Charl

Charl I hope I won't disappoint you if it is simply a word document or powerpoint format!
Billy

[asomani]

Billy, share as you see best.

I think most or all of us are appreciative of whatever knowledge you're willing to impart, regardless of how you do it. I will personally be happy to take it anyway I can get it.

Thank you.

[Charl]

Charl I hope I won't disappoint you if it is simply a word document or powerpoint format!
Billy

Billy,

I'll study it in anyway format you choose to share.

Thanks

Charl