Flight Control - May 1, 2012

[Billy]

Although the IWM robot pilot is advising a short position, Pascal and I acting as flight controllers would like to force you to stay in cash today. Over the weekend, I made a research on the correlation between IWM and the 12 sub-stages of market structure. This is part of a much wider project that I’m conducting and I will write an article about it when it is done, but here is an appetizer. I created a correlation score adding up the correlation coefficients times the percent of stocks in each substages. You can see that the score is sitting right around the zero line, meaning that the current market stages structure is completely neutral for the near-term fate of IWM. It is still below its falling 20-day moving average, favoring a bearish trend but looks ready to reverse up easily.



Here is a view of last month’s daily stages evolution and you can see that it is now well balanced between moderate percentages in accumulation, mark-up, distribution and decline stages. The conclusion is that we need to be patient, at least before trading the IWM ETF since it is the only one I used for the correlation study.



From a multi-pivot perspective, the bias remains bullish while IWM is trying to recover its 50-day moving average (81.60) with the confluent support of Monthly (81.20) and Weekly pivot (81.07), above a rising 5-day VWAP (81.07). There is no resistance pressure above the 50 dma before Weekly R1 (83.84).



Due to the LT/ST settings, the GDX robot is still avoiding a new position in spite of the GDX model being in a buy mode. Yesterday’s gap down seems to be linked to a manipulation by a major bank to pressure gold futures just before the cash market opening. Maybe is it the same bank who participated in the strong Precious Metals MF that we witnessed after the morning weakness was over. Manipulation or not, GDX did exactly what we wanted it to do: to bounce nicely on QS1, 5-day VWAP and the old downtrend resistance line with improving MF. All the mid-term bullish biases mentioned yesterday are confirmed; I am discretionarily long NUGT with 2/3 of my maximal position size and will buy the last third on a breakout above the new Monthly pivot (47.11). I’ll keep my initial stop at a daily close below QS1 (45.75).

For RT model followers, please note that the ATR% is allowing again a short position if the PM MF hits 0% - porosity (0.120% today).
Billy