Mean Reversion Expected in a Trend-Following Trade - July 5th 2011

[Billy]

Billy, does GDX need to close above R3 (55.53) for confirmation, or just get there intraday?

At some point, I would be interested in hearing your views on the significance of closing vs intraday breaches/breakout of support/resistance, e.g. last week we saw the IWM trade above and below intraday the key IWM levels of QPP (81.80) and 50 dma (82.11); we always resolved and closed above the key marks, so I take closing to be much more important than intraday - is that correct? and, if so, when do we have to give into the intraday breaches/breakouts? the next daily pivot level?

Thanks,

Shawn

Hello Shawn,

Since the robot is an EOD system, we should focus on a close above daily R3. That would put the WR1, YPP and MPP confluence into a very strong first support cluster for tomorrow. Such a support cluster could then act as a springboard for crossing decisively the 50-day moving average tomorrow. A new strong cluster support including the 50 dma could then act as a springboard for breaking above SPP and QPP. Then these would act as a springboard for crossing the 200 dma and so on.

This is how market makers are planning their books, but in GDX case, market makers are seldom the main force. So far today they clearly shorted the gap up into the YPP resistance. We know it was them selling because retail traders don't care about YPP.

In intraday discretionary trading, if you have a bullish market direction bias and want to buy on strength and breakouts, you would buy at daily R3 (55.53) with a stop buy order and a stop at the first daily level below the resistance or just below daily R2 (54.89) today.
Billy