Market Still Chaotic and Suspect– November 3, 2011

[Billy]

11267

I am not a news analyst but a trade setup analyst. What can you say when an economy like Greece is condemned to death and all their political leaders find to do is fighting about letting the people choose or not the color of the hanging rope…

The robots will try to grab whatever the market can offer once absurdity, uncertainty and chaos have abated. For the time being, contradictory LT/ST settings are still preventing us to even consider another optimal risk-reward setup than staying in cash.
Billy

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11266

[Riskslayer]

Hi Billy,

I was hoping you could share your views and thought process when you see IWM crossing back and forth above and below major, long time frame pivot levels, e.g. on Tu, Nov 1, IWM bounced around/between SS2 (6) = 72.33 & YPP (8) = 71.25.

Do you pretty much ignore all this as "noise" and focus only on the closing levels?

At this time, the EV tools (20d MF & robot signal) are indeterminate/Neutral; does this affect how you answer the forgoing? if the EV tools were signaling a trending move would you view the intraday action above/below key pivot levels as more relevant?

Thanks,

Shawn

[Billy]

Hi Billy,

I was hoping you could share your views and thought process when you see IWM crossing back and forth above and below major, long time frame pivot levels, e.g. on Tu, Nov 1, IWM bounced around/between SS2 (6) = 72.33 & YPP (8) = 71.25.

Do you pretty much ignore all this as "noise" and focus only on the closing levels?

At this time, the EV tools (20d MF & robot signal) are indeterminate/Neutral; does this affect how you answer the forgoing? if the EV tools were signaling a trending move would you view the intraday action above/below key pivot levels as more relevant?

Thanks,

Shawn

Shawn,
The most important levels here are YPP (71.84) and QPP (71.25). These are the market makers ‘s equilibrium levels for the year & quarter. They normally have not much long term inventory left on their books around those levels. Market makers trade for their own account and scale inventories in the direction of the order flow of their largest institutional clients.
These two levels have acted remarkably well as support, allowing for normal porosity. This is hinting that market makers are still scaling in to the long side, probably because they have enough accumulation programs to execute for their largest clients (longer term investors) over the near term. Their goal is to scale-in at the lowest VWAP with a first quarterly target at QR1 (79.02) and yearly target at YR1 (85.68). Their best interest is to pressure price down as much as possible to absorb selling pressure at the lowest buy price. Of course, their algorithms push price back up once at QPP (71.25), otherwise their inventory becomes too much of a loser.
So, from a discretionary point of view, although probably driven by artificial liquidity injections by the FED, I would see this activity as very constructive and bullish. It is also confirming my stage analysis. As I have often mentioned recently, only a decisive breakdown below QPP (71.25) would signal the abandon of accumulation programs by large professionals. With so much macro uncertainty and emotional news, this could happen with an ugly down gap overnight on any day similar, but in reverse, of what happened on Thursday October 27th.
If the 20 DMF is still in a late buy signal, it is also on the verge of issuing a short signal. Furthermore, the robot’s LT/ST settings are contradictory. Backtesting has objectively demonstrated that such conditions can lead very fast to an unpredictable big up or down move with no edge whatsoever in any direction. So, from an objective robot perspective, preservation of capital and cash come first.
Billy