A Good Lesson - January 25, 2012

[Billy]

It is discouraging to see both IWM and GDX robots under pressure. Although all trades and scenarios are still open, the main lesson is that if the market refuses to meet the highest short-term probabilities it is most likely transitioning to a new character with new dominant participants. The low volume tells us that short term traders are quiet and long term trend-following players are accumulating slowly with a winning hand so far in this upleg.

Tuesday’s IWM gap down was bought by large players as indicated by the 20-day money flow strength.
Weekly pivot (77.63) held as main support after a quick overshot and the day-VWAP closed above the monthly R2 (78.05), indicating that the average buyer felt comfortable taking risks above that price level. This is a bullish episode because MR2 is now proving to be an inventory size-in rather than size-out monthly level for market makers. Without Weekly R1 (79.15) and Daily R1 (79.14) acting as a confluent resistance, the IWM robot stop (79.23) could be hit sooner than not. This is the very last line of defense for the position.

12447

The GDX MF is only 1.18 day away from issuing a short signal after gapping down and trading all day below the weekly pivot (52.77). Contrary to IWM, this is creating a bearish bias for the remainder of the week.
Billy

12448

[nickola.pazderic]

Billy,

In the past you have traded these announcements very aggressively if I recall correctly.

Do you have any plans for today's announcement?

Thanks much,

[Billy]

Billy,

In the past you have traded these announcements very aggressively if I recall correctly.

Do you have any plans for today's announcement?

Thanks much,

Nickola,
I don’t feel much inspired today because there is no special big news expected unlike the last time I did post about such a FOMC announcement trade.
The expected pattern remains the same: price will tend to wait at or near intraday VWAP prior to the announcement. The best entry is once VWAP has acted as clear support or resistance, avoiding the (usually false) very first seconds reaction move.
I will focus instead on observing the RT 20 DMF to learn some new lessons for the future.
Billy