Today is Death Cross Day – August 11, 2011

[Billy]

Forum Clusters 110811.xlsx

The 50-day moving averages of IWM, SPY and QQQ are all expected to close today below their respective 200-day moving averages. Known as a “death cross” this signal is usually assimilated with very bearish conclusions for the long term trend. However, we have witnessed many times before that such an event coincided with the bottom of the first wave down in a major downtrend. A very good tradable rally often starts right from the “death cross” day leaving behind those who become too obsessed and paralyzed by the ominous cross. That’s why, although the 20 DMF still didn’t issue a buy signal after being poised to at 2:00 pm yesterday, any buy signal today or in the coming days might prove very powerful.

This would also confirm that YS1 (64.40) was the low target area of the first wave down. Staying in cash allows us to calmly watch if that support around Monday’s lows holds. An intraday undercut down to WS2 (62.66) seems the maximal floor extension acceptable to avoid a total panic crash. There are simply no significant floor supports left below to build a credible multi-pivot strategy in case of a further freefall below YS1.



In contrast, today’s buy signal at the open on GDX has a wonderful multi-pivot setup, with a very strong first support cluster (strength = 25) and moderate first resistance cluster (strength = 18). The total floor resistance clusters with strength of (18 + 6) 24 compared to total floor support clusters with strength of (25 +15 ) 40 suggest that floor traders and market makers will be supporting momentum to the upside, barring any adverse news.
Billy