Mostly Neutral, But Extended - January 23, 2012

[Billy]

Now that options expiration’s unpredictable price moves are behind us, we will soon know if last week’s strength was a constructive accumulation campaign by large players or just an illusionary ramp up by market makers’ HFT programs. Total exchange volumes so far in 2012 are 30% below last year’s YTD volume! Such light trading facilitates HFT price manipulation and keeps the uptrend “innocent until proven guilty” in the eyes of many traders.

Indeed, all the characteristics of a typical nascent intermediate-term bull market are popping up day after day, except for rising volume on a substantial number of leading stocks breaking out into new highs. From my experience, this fact alone justifies a neutral stance for the mid-term and the 20 DMF’s neutral signal or Dr. K’s market model cash position are confirming this view.

That’s why I am increasingly confident that shorting the currently overbought market with the good probabilities of the IWM robot in our quiver is one of the most reasonable trade setups that can be ventured today. Of course, it can fail if more sidelined money keeps flowing in, but then it’s all a matter of risk-reward management. The robot optimizes this factor and the very tight stop (79.23) on the existing position doesn’t make the ongoing trade very painful in case of a failure scenario.

A new short entry at a limit of 79.85 would allow for an even more attractive overbought setup at a strong floor cluster resistance. And without Friday’s last minutes jump above Monthly R2 (78.05), the limit short entry for today would have been 77.93. If by any chance IWM doesn’t trade much or close today above MR2 (78.05), this level will likely become a distribution starting point with a first target at Weekly pivot (77.63) and a second target at Monthly R1 (75.90) just above the 200-day moving average (75.81).



The GDX MF remains in a buy signal and 2.42 days away from a short signal. Serious floor resistance starts at the second cluster spanning Monthly pivot (53.89) to Quarterly pivot (54.78). There are no robot edges for entering a new position.
Billy