Bloody IWM And Golden GDX - April 11, 2012

[Billy]

With the 20 DMF tumbling down as it did yesterday, it will take many days if not weeks to repair the damage done to the market. Every snapback rally in the short term will offer secondary entries with good probabilistic edges.

Today’s initial short entry for the IWM robot is at a limit of 78.35 with a stop 2.25% above the actual execution price. I would recommend a relatively small initial position because IWM is already extremely oversold for the week and near Weekly S3 (78.09) where 95% of the week’s down move is statistically achieved. I prefer to keep ammunitions dry for better secondary entries in the coming days if the new protection level from the 20 DMF Oversold doesn’t reverse to a long signal. Please read Pascal’s “comment of the day” about this rule. Entries as close as possible to Weekly S2 (79.75) would be ideal opportunities even for today. The logical next target to the downside is the 200-day moving average (75.61) bounding the lower frontier of the strong second support cluster. That is why the multi-pivot reward/risk is 3:1 even at a limit short entry of 78.35.



Yesterday, the GDX RT model not only triggered a buy signal at the average + porosity level but rose also later above the 0% + porosity level. This maintains the buy signal active at a higher protection level. The protection where to reverse from long to short is at 0% - porosity or -0.133% today. It closed at -0.04% so there is a risk of whipsaw near the open if large players are selling early.

The EOD GDX robot will enter a long position at the opening tick today with an initial worst-case stop 6.38% lower than the execution price. For the EOD GDX, The protection level is below the Average - Porosity (-0.052%.) The Overbought level is waiting far above at + 1.35%.

GDX is testing the declining 5-day VWAP (47.18) and it is the next technical hurdle to jump above. A decisive breakout above Weekly pivot (47.65) and last Wednesday’s wide bar high (47.77) should open the road for a gap-fill assault up to 48.80. Floor resistance are only daily and weekly levels whose strength are paling in comparison to the massive support clusters.

Yesterday was the second day in a row of outstanding relative strength vs. SPY and the first day in a very long while where GDX outperformed metal gold. Both RS are powerful catalysts of strong GDX advances and they need to confirm for a sustained up move.
Billy