IWM On The Sidelines - July 19, 2011

[Billy]

Forum Clusters 110719.xlsx

Today, both IWM and GDX have an IBD RS rating of 67 while exhibiting totally opposite short term behaviors. IWM remains in daily late accumulation sub-stage, while GDX started its first day of daily strong mark-up stage yesterday. Now is probably the best of all times to allocate your funds equally in the two non-leveraged robot ETFs. If you use double leverage, 1/3 GDX and 2/3 UWM is the optimal mix for the long term, while use of triple leverage with TNA doesn’t require investing in GDX for maximizing long term risk-adjusted returns. But remember that the more leverage you use, the higher the risk for painful drawdowns.

The 20DMF came very close to issuing a short signal yesterday and is less than one hair of issuing one today. As I wrote earlier, this can be interpreted as a “stay in cash” signal for today. The new IWM robot long entry of 79.76 is 2.15% below Monday’s close and 2.8% away from current pre-market quotes, so the robot is actually forcing us to wait on the sidelines today.

If today’s likely gap up reverses with a negative 20 DMF into the close, then the short signal will be issued and the robot will try to enter short at a 3:1 risk-reward ratio tomorrow.

If yesterday’s shake out was a bear trap and IWM acts strong regaining its 50-day moving average (81.88) or better QPP (82.28) with a strong 20 DMF, tomorrow’s long entry will be somewhere within or above today’s first resistance cluster. In that case scenario, we may witness another of these “from failed moves come fast moves” scenario that would be worth the patience of staying on the sidelines today.

If IWM drifts lower near our long entry price, but the 20 DMF is positive, then large players are still in accumulation mode and 79.76 is an optimal entry price near the next strong support cluster including the 200-day moving average (78.96).



For those who added or entered a new position yesterday at 82.69 with a stop at 80.93, they just need to keep that stop today. For a discretionary early exit of that late entry, I would focus much more on the intraday 20 DMF evolution than on any specific floor level. As long as the 20 DMF remains positive today, you can hold the position whatever the choppiness . MPP (81.62) looks like a line in the sand for the clusters, but I would personally discretionarily exit only after a decisive breakdown similar to yesterday’s and on very weak intraday 20 DMF and/or cumulative $TICK. The bear trap scenario can win and your last long entry would be very good in the near term.

The GDX robot trade is maturing into the heavier cluster resistance that starts at WR1 (61.46) up to SR1 and QR1 (62.12). We’ve seen that GDX seems to be controlled much more professionally than usual and now that every blog and newsletter is screaming to their retail public to buy gold and silver miners, expect the large players to start distributing part or all of their positions while GDX is approaching the resistance cluster. That’s why I still view new long entries as increasingly risky, while holders of the initial GDX robot are sitting in a comfortable cushioned sofa to withstand any potential pullback near WPP (58.38). The total support/resistance clusters strengths or floor buying/selling pressures ratio remains very bullish at 37: 21 and an intermediate term breakout above SR1 and QR1 is a high probability from the multi-pivots perspective.
Billy