Robot Against The Crowd - January 19, 2012

[Billy]

The IWM robot entered its long awaited short position at 77.52 with an initial stop at 79.23. A secondary entry is advised today at a limit of 77.51.

It is always psychologically difficult to trade against the crowd and what looks now like a too obvious uptrend. The 20 DMF was very strong too, being 2.5 times stronger than a normal buy day and the IWM TEV extension was at record levels. Yet, these are exactly the kind of conditions necessary to mark a short term top and the robot is trying to take advantage of the favorable odds on the short side. As long as the 20 DMF remains in a neutral mode, we cannot expect a long term trend reversal, just a quick pullback and likely down to the confluence of 200 dma (75.88), WPP (75.91)and MR1 (75.90). Position size accordingly.

The first support cluster is rather weak today and can facilitate the start of a down move.
However, maximal opex pain for IWM’s put/call open interest is around 79 and market makers will try to push prices higher until Friday. If the stop is not hit, the position must be held because next week should then start with a selloff from extremely overbought conditions.



GDX went nowhere yesterday, holding quietly at the bottom of its recent trading range. The strength ratio between the first support and first resistance cluster is slightly in favor of the bears but they don’t act aggressively so far. The GDX MF improved and closed 1.5 day away from a short signal. There’s no edge in initiating secondary positions currently.
Billy