Snapback Bounce - March 8, 2012

[Billy]

The IWM robot entered a new short position Wednesday at the open (78.91) with an initial stop at 80.57.
The 20 DMF briefly spiked above 0% at 15:45 pm before closing back down at -0.09%. It would switch back to a neutral signal with a close above porosity at +0.10%. Even in that case, the IWM robot will need to evaluate the EOD ST/LT edges before deciding its next action. A secondary short entry is advised today with a limit of 80.13.

IWM is in the middle of a typical snapback bounce from short term oversold which usually expires around the declining 5-day VWAP (80.25). The cluster strengths are about equal both for support and resistance. As long as Quarterly R1 (80.45) is not decisively broken, the pullback scenario stays technically alive. The bounce is happening with moderate 20 DMF and low volume so far; hence a slightly bearish bias is still at play but probably not enough to encourage large positions or leverage.

13283

GDX is consolidating with a flat GDX MF. All edges and floor clusters are still pointing to the downside, but no new position is advised.
Billy

13282

[davidallison@gmail.com]

Billy,

Does the real time robot which entered the IWM short at 79.28 remain in the trade? The stop would not have triggered as porosity of +0.10%, was never reached. Perhaps that is not correct as price could drift considerably higher with weak money flow. Just wondering for the ‘real time’ system how you suggest setting stops?

Thanks,
Dave

[Billy]

Billy,

Does the real time robot which entered the IWM short at 79.28 remain in the trade? The stop would not have triggered as porosity of +0.10%, was never reached. Perhaps that is not correct as price could drift considerably higher with weak money flow. Just wondering for the ‘real time’ system how you suggest setting stops?

Thanks,
Dave

Yes Dave,

You are correct, the RT stop is not price dependent but RT 20 DMF dependent.
An optimal suggested stop would be on the first crossing of the RT 20 DMF above +0.10%.
Billy

[Pascal]

Billy,

Does the real time robot which entered the IWM short at 79.28 remain in the trade? The stop would not have triggered as porosity of +0.10%, was never reached. Perhaps that is not correct as price could drift considerably higher with weak money flow. Just wondering for the ‘real time’ system how you suggest setting stops?

Thanks,
Dave

Dave,


This is a good question.
The IWM Robot uses the 20DMF as a market direction model, but applies its own money management (entries/Stops).
This means that if you want to include the 20DMF RT, you need to consider its role: a market direction model.

Therefore, if you trade the 20DMF independently from the IWM Robot, then you are still short.

If you trade the IWM Robot using RT indication from the 20DMF, you exited your short on a stop loss hit.
(However, you also used the 20DMF signal to enter at a better price.)

For the new IWM Robot short position, the entry price will not be affected by the 20DMF. However, if the 20DMF crosses above its porosity level, then you should consider this as a market directional change and exit - or not enter - the IWM Short position.


Pascal

[Riskslayer]

Hi Pascal & Billy,

We know that volume and Institutional activity is almost always highest at the end of the day, but I was hoping you guys could share your thoughts on the topic b/c it seems so high...

I would love to hear your thoughts on the subject, but here are some Q and practice points I have:

* In the last minutes, the volume is typically highest, but price progression can be pretty small, and the RT MF shows significant changes by as much as 1/2 ATR (i.e. +0.1%) in the last 5-min (sometimes even the last 2 or 3 minutes). This is reported sometimes as late as 16:04 PM. I assume when the values are volatile (spiking up and down) that this primarily due to time disparity between the various exchanges reporting their data, i.e. inherent to the data feed. But, I am mainly talking about when we don't see large spikes in both directions, but a clear directional change in the last few minutes.

* IB quotes on are still at good bid/ask spreads on IWM within several minutes of the close (say <16:05 or so), so I consider this to be an advantage to me to trade after the close (AH) and I can see how the RT MF and price close for the day. For example, on Th, Mar 8, I did not exit my short position... b/c I was waiting to see how RT MF closed (w/n 0.1% porosity), and I saw the price w/n the 0.2% of the porosity of QR1 (80.45), and I knew I could trade after-hours. Note, the leveraged ETFs spreads are poor immediately after close and I see trading them AH's as being unfair.

* there seem to be discontinuity in the RT MF from close to open (the red pins mark these points)- I thought there were some techniques to minimize this, e.g. disregarding the first min, etc. Anyway, what do these discontinuities mean?

Thanks,

Shawn

[Pascal]

Hi Pascal & Billy,

We know that volume and Institutional activity is almost always highest at the end of the day, but I was hoping you guys could share your thoughts on the topic b/c it seems so high...

I would love to hear your thoughts on the subject, but here are some Q and practice points I have:

* In the last minutes, the volume is typically highest, but price progression can be pretty small, and the RT MF shows significant changes by as much as 1/2 ATR (i.e. +0.1%) in the last 5-min (sometimes even the last 2 or 3 minutes). This is reported sometimes as late as 16:04 PM. I assume when the values are volatile (spiking up and down) that this primarily due to time disparity between the various exchanges reporting their data, i.e. inherent to the data feed. But, I am mainly talking about when we don't see large spikes in both directions, but a clear directional change in the last few minutes.

* IB quotes on are still at good bid/ask spreads on IWM within several minutes of the close (say <16:05 or so), so I consider this to be an advantage to me to trade after the close (AH) and I can see how the RT MF and price close for the day. For example, on Th, Mar 8, I did not exit my short position... b/c I was waiting to see how RT MF closed (w/n 0.1% porosity), and I saw the price w/n the 0.2% of the porosity of QR1 (80.45), and I knew I could trade after-hours. Note, the leveraged ETFs spreads are poor immediately after close and I see trading them AH's as being unfair.

* there seem to be discontinuity in the RT MF from close to open (the red pins mark these points)- I thought there were some techniques to minimize this, e.g. disregarding the first min, etc. Anyway, what do these discontinuities mean?

Thanks,

Shawn

The EOD spike is probably due to the "At the close" orders. As of now, I want to keep that data. Later on, we will probably be able to operate a back-test and see whether it is best to keep or remove the last minute of trading.

Concerning the first few minutes of trading, we have decided to simply delay the calculation start by two minutes, so that we avoid early instabilities. These instabilities are due to the fact that some stocks started trading, while others did not. Hence, we noted that a spike in the first minute was often canceled by an opposite spike one minute later.

Since the MF is recalculated every minute from the first minute, delaying the start of the calculation by 2 minutes (but still including the earliest data,) avoids the early instability.

Therefore, when you see an opening MF spike, it is a real spike that shows how large players are reacting to the overnight price gap/news.


Pascal