Robots Setups Outlook for July 15, 2011

[Billy]

Forum Clusters 110715.xlsx

SR1 and QR1 (62.12) remain the most likely top of the next GDX upleg. Meanwhile, the ETF takes a breather around WR3 (59.76) which is the normal highest area that can be expected on any bullish week.

Today’s buy limit entry at 58.88 is well supported by a strong first support cluster that includes a very resilient 200-day moving average. It was broken by an unfilled gap up on Wednesday; hence the possibility is here that a pullback attempt to fill that gap is in some large players’ programs. Indeed, the gap may have disturbed the full position VWAP in some accumulation programs that are now looking for a short term averaging down. That risk looks very affordable at today’s limit entry price. It would shake out some weak hands and bring more strong large players on board.



During yesterday’s last three hours, IWM traded in Tuesday’s pre-market area between SPP (82.19) and WS2 (82.44). So, this was actually a retest of this very strong cluster support area from where the robot had to wait for the open entry at 82.88. With some luck, the trade could have been entered as well around yesterday’s close!

It seems that large accumulating players have decided that it was not a bad idea to average down their VWAP in that zone while other nervous large players (with most of their bosses at the beach) were distributing their inventories in a foggy headlines news environment. This move looks more like a “career risk” management than a position risk management until proven otherwise.

Put open interest in IWM is high at and below the current level strike of 82, so the implied hedging suggests that most of the selling pressure on individual stocks is dead for opex day. The support/resistance strength ratios are much in favor of the bulls at today’s limit entry price of 82.21.
Billy

[Charl]

Hello Billy,

Observing that IWM, SPY and QQQ is currently trading around their respective longer timeframe Pivot Points (SPP/QPP/MPP) in confluence and that from Person work (Forex Conquered) he defines:
1.The Pivot Point is the focal price level/mean and regarded as the strongest of the support and resistance numbers.
2. Prices normally trades above or bellow the Pivot Points before breaking in one direction or the other.

Can we apply this theory to all the longer time frame Pivots Points (SPP/QPP/MPP), and consider a strategy that we could expect a clearer market direction/trend to develop once the "bosses at the beach" return to work ?

Regards

Charl

[adam ali]

Also, Billy, could you put up the chart and a brief analysis of SPY. I know you and Pascal don't wish to do this daily but with the macro environment being what it is, an update would be much appreciated.

Thanks.

[Billy]

Hello Billy,

Observing that IWM, SPY and QQQ is currently trading around their respective longer timeframe Pivot Points (SPP/QPP/MPP) in confluence and that from Person work (Forex Conquered) he defines:
1.The Pivot Point is the focal price level/mean and regarded as the strongest of the support and resistance numbers.
2. Prices normally trades above or bellow the Pivot Points before breaking in one direction or the other.

Can we apply this theory to all the longer time frame Pivots Points (SPP/QPP/MPP), and consider a strategy that we could expect a clearer market direction/trend to develop once the "bosses at the beach" return to work ?

Regards

Charl

Charl,

I don’t really agree with John Person that the PP points are the strongest supports or resistance areas. It is only true in sideways trading ranges, as the PP points are simply the equilibrium levels of the previous periods on all timeframes. Once a trend is building up in one timeframe, the other levels in that timeframe become much more important.

In my discretionary trading, I put maximum emphasis on R3 or S3 levels since statistically, prices approaching or hitting these levels on any timeframe have 95% chance of reaching their maximum extension for the period. That’s where resistance/support is maximal in a trend and where an inflection/reversal becomes highly tempting for market makers.

The fact that IWM, QQQ and SPY are all gyrating around their MPP, QPP and SPP simply confirms the sideways trading range of the current market, providing more mean-reversion than trend-following trade opportunities. The indices are near their equilibrium levels on those timeframes, but are far above their YPP, keeping the yearly uptend bias intact. The next big move out of the current area, up or down, will likely confirm the direction chosen by the largest players. The 20 DMF will play a major role in helping us tracking their choices.
The messy political and perceived risk environment during summer doldrums will tend to paralyze decision-makers until September and we could swing back and forth around the PP points until then.
Billy

[Billy]

Also, Billy, could you put up the chart and a brief analysis of SPY. I know you and Pascal don't wish to do this daily but with the macro environment being what it is, an update would be much appreciated.

Thanks.

Adam,
SPY is by far the weakest setup currently. The only encouraging development so far today is its ability to hold the MPP (131.03), likely helped by the proximity of WS3 (130.52) on the last day of the week, suggesting that bearishness is exhausted for this week. A close today below MPP would be very ominous for next week because of the lack of support before the 200-day moving average (127.74).

But this weak SPY setup may actually hide a rampant growing risk-appetite for relatively cheap small-cap (IWM) and growth (QQQ) stocks as these more aggressive indices have a much stronger multi-pivot setups. Money flowing out of SPY, as detected by the 20 DMF, may actually be funneled back into IWM and QQQ stocks, which would be a precursor of very bullish developments for the overall market.
Billy

[adam ali]

Thanks for this, Billy.

[Pierre Brodeur]

Money flowing out of SPY, as detected by the 20 DMF, may actually be funneled back into IWM and QQQ stocks, which would be a precursor of very bullish developments for the overall market.

In one of your previous posts, some time ago, you described yourself as the "idea man" in the Billy/Fred team while Pascal is the mathematician...! Again today you come up with a very interesting concept of money moving out of large to small /&Tech caps. Of course that happens, but its something I have taken for granted. However, the idea is that (more work for Pascal who is already looking at a long list of ideas) if one could measure a 20DMF for technology and small caps universes, we could visualize the money flow in and out of markets as far as volume is concerned. I know that probably many non S&P stock may not provide the minimum liquidity required for such an estimation, but perhaps with your experience you could find a liquid short cut that would approximate the real value of such 20 DMFs. Maybe a modified sectorial analysis might do the trick.
Just a thought

Pierre Brodeur

[Billy]

In one of your previous posts, some time ago, you described yourself as the "idea man" in the Billy/Fred team while Pascal is the mathematician...! Again today you come up with a very interesting concept of money moving out of large to small /&Tech caps. Of course that happens, but its something I have taken for granted. However, the idea is that (more work for Pascal who is already looking at a long list of ideas) if one could measure a 20DMF for technology and small caps universes, we could visualize the money flow in and out of markets as far as volume is concerned. I know that probably many non S&P stock may not provide the minimum liquidity required for such an estimation, but perhaps with your experience you could find a liquid short cut that would approximate the real value of such 20 DMFs. Maybe a modified sectorial analysis might do the trick.
Just a thought

Pierre Brodeur

Pierre,

You don't do fair justice to Pascal by thinking that he has not a plethora of genius ideas on his own! He also has the patience and open mind to listen carefully to my mathematically illiterate experience and to magically transform it into optimal backtested algorithms!

It reminds me of my Professor Peter F. Drucker at Claremont University who once told us the following true story about World War II:
The US army had all the best war jets except for one major detail: their gun sights were incredibly unreliable. They discovered that all the best gunsights had been assembled by the same factory worker. Instantly they sent a flock of engineers to study what he was doing that the other workers didn’t do right. In fact, he was not following one of the assembly procedures because he found another way more convenient. The engineers changed the procedure manual accordingly and all the new gunsights were suddenly aiming correctly at target!
That being said, the small cap universe of stocks is indeed much too illiquid for any use of EV tools, except for a small sample of stocks that could hardly be a proxy of IWM.
There’s a much more reliable and easier way to proceed and that’s the use of relative strength vs. SPY.
Billy

[Pierre Brodeur]

Pierre,

You don't do fair justice to Pascal by thinking that he has not a plethora of genius ideas on his own!

For the record, it is a given that what Pascal has accomplished on his own, EV concept, the book, the web site are a life accomplishment that is far above what I have accomplished in my 30 years as a pro. A genius he is.

Pierre Brodeur