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

[pdp-brugge]

Billy,

If the stop is hit on our short IWM Robot trade, the Robot suggest to make a new short entry at 79,85.
If both conditions are met, will that second trade (short @79,85) also be in the official IWM Robot track report?

PdP

[Billy]

Billy,

If the stop is hit on our short IWM Robot trade, the Robot suggest to make a new short entry at 79,85.
If both conditions are met, will that second trade (short @79,85) also be in the official IWM Robot track report?

PdP

No. The IWM robot never exits an old trade and enters a new one on the same day. If the robot is stopped out it will only re-enter at the the next day’s limit if an edge is still present overnight. Note that it is not the case with the GDX robot.
All secondary entries are for discretionary trades only and are never included in the robot’s track record.
Billy

[Billy]

Early morning buyers have been trapped by a severe reversal from daily R2 (78.84). The first target WPP (77.63) is now marking the low area of the morning session. A weak rebound to MR2 (78.05) is possible during lunch hours. 78.05 is the crucial multi-pivot risk-reward threshold where a new short limit entry tomorrow will vary between 77.93 (close < 78.05) and 79.85 (close => 78.05).

Intraday VWAP now declining at 78.35, enough to temper buying appetite for the rest of the day. A retest of VWAP may mark the high area this afternoon.

This morning low (77.55) was right on the 5-day VWAP (77.55) and (65,5, 30 minutes) volatility stop (77.53). But I deem that MR2 was the most important support to break. A breach of the 5-day VWAP and of the volatility stop seems quite realistic today or tomorrow for a test of WS1 (76.75) before a second target of MR1 (75.90) and 200dma (75.81).

RT 20 DMF (second chart below) has currently a negative bottom divergence with IWM, so large players are in no hurry to buy at weekly pivot (77.63).
Billy

[lulzasaur]

thank you Billy, this intra-day update was immensely informative and the analysis is spot on.

[Billy]

Thank you Luiza,

VWAP acted as resistance at 78.25 this p.m.
As I mentioned, likely the high for the afternoon.
RT 20 DMF is improving slightly at this time, but large players buy programs remain mostly quiet.
We still need to see a daily close < 78.05 to improve the risk-reward of a short position. We’ve often seen astonishing MF moves in the last minutes, so we need to be ready for any closing scenario.
Billy