Multi-Pivots Robot Setup - August 1, 2011

[Pascal]

This market is proving itself very difficult, to say the least. From a review of the EV charts, it looks like we could have a short signal on the 20DMF at EOD and at the same time have the OB/OS chart reaches oversold status. Pascal, is this an unusual circumstance in your experience?

The issue about market direction is the inversed ETFs. As you can see, three of them are now above their average, but that does not give certainty regarding to a confirmed short signal at the close. There is still much time left.
I would say that if we have a sell-off at the close, then we'll probably get a 20DMF confirmed short signal. Otherwise, as far as I can tell, the IWM robot will again turn to a strong buy.

Regarding more specifically to your question of OB/OS. I have to go back to the data and see what the OB/OS signal was in the past, but out of memory, this level is not critical unless we go through it and then come back up. Finally, the ATR is still around 1.8%, while it should be around 3% to be in-line with the level during confirmed short signals.

I am not as confident about staying long as I was last Friday, but I am pretty reluctant to turn short here after seeing large players buying last week.

The issue is: what has changed today? Something has changed, but what is it? If I had to venture in an explanation, I would say - without any hard fact to prove it - that this is maybe a liquidity issue and I would say a "manufactured one". Knowing that the US Gov will soon be able to sell bonds again and get cash that it will be able "emergency lend". It means that for now, this cannot be done. Hence, if you attack some weak link (for example Italian banks) you might be able to cash-in before the cavalry comes to the rescue. Yes, the FED and China would help Europe to save these banks because of the now overused "systemic risk" argument. But, as of now, rescue possibilities are limited.

Anyway, this is just conjecture. What is important is our trading position. I will just keep the stops where they are and wait... By the way, the GDX robot might very well issue a buy signal by the close. As far as I can see, the MF direction model has moved back above the critical -1.4% level. Of course, it still might reverse back down before the close. So we will wait and act tomorrow.


Pascal



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