Expecting A Shakeout - November 30,2011

[Billy]

Forum Clusters 111130.xlsx

The OB/OS indicator closed at – 82.11, rising further away from the fail-safe stop level of -90.
Money Flow was slightly positive again and fighting a very negative cumulative TICK pattern.

This is providing more evidence that large long term players are buying with conviction while small short term traders and HFTs are selling this rally attempt. Most HFT programs are used by market makers and they likely are trying to push prices down because they are short of inventories after the big gap up this Monday. It doesn’t mean that they are bearish ( they see the hurried buy order flow from institutions), but they will facilitate the rally only after reloading their own inventories at a good VWAP. The easiest way to proceed is to exacerbate any news-related weakness to manufacture a shake-out below the current consolidation and Monday’s lows and fish for all stops that are waiting there from weak hands.

If that scenario pans out correctly, our buy limit order at 68.74 is waiting at an exact 38.2% Fibonacci retracement level from Friday’s lows to Tuesday’s highs. This would be a “bullish” and normal retracement where many experienced bullish traders would be willing to enter the nascent uptrend, especially with daily S2 (68.59) as potential intraday support and low.

The setup and floor clusters haven’t changed from yesterday. Only the initial stop (64.83) is a little bit lower because of higher volatility.

For discretionary traders, if you are buying leveraged ETFs, I strongly recommend that the leveraged portion of your position (2/3 for TNA) would be protected by an initial stop not lower than IWM’s 67.50, just under the first floor support cluster. Indeed, there is only vacuum from there down to weekly S1 (65.21). You can have 1000 reasons to get in a discretionary trade, but you only need 1 reason to get out!
Billy