Large Players Must Show Their Hand Now - June 28, 2011

[Billy]

Forum Clusters 110628.xlsx

End of month/quarter/semester windows-dressing tactics consist mostly of dropping the worst stocks of the periods that are left in the portfolio managers’ holdings and buying the strongest stocks to replace them. This is just an illusion trick about true performance of course, but retail investors are excited to see new “hot” stocks in the fund’s report and feel comforted by the lack of laggards’ holdings when reviewing.

In IBD’s Accumulation/Distribution ratings, when the windows-dressing is underway, you expect to see a growing percentage of stocks both in the best “A” rating and in the worst “E” rating. This is exactly what is happening right now. The current market strength is certainly artificial in some ways, but it presents a short term opportunity for the bulls.



The true volume-weighted Accumulation/Distribution is actually under a net slight decline compared to market strength, not exactly a positive sign for the longer term.



We are beginning to see some increase in the percentage of stocks entering accumulation stages, but a new uptrend can only be confirmed if we see a sharp increase in the number of stocks breaking out in strong mark-up stage.



IWM showed some relative strength weakness yesterday and it is likely linked to the rebalancing of the index that took place on Friday’s close. Leading component stocks that weighted the most have been reduced in weight, while laggard stocks have been over-weighted. This distortion will progressively be digested over time and should not impact much the robot’s statistics. It could even boost the index in case of a “junk off the bottom” rally once windows-dressing season is done.

From a multi-pivot perspective, the easy progress for the week seems to be over. A very strong resistance cluster is awaiting starting 0.59% above yesterday’s close at daily R1 (81.03). Only one or two very strong days with a lot of large players support could break that cluster above the 50-day moving average (82.14). They may be tempted to do so, because if the breakout is successful, the next cluster resistances will be symbolic compared to the fresh support clusters. This would help them greatly in pushing prices up when earnings season starts in July, with the easiest to beat expectations since April 2009 according to Bespoke Invest. However, the current progress so far is still too slow for the robot to raise its trailing stop for its initial position. In case of weakness, like on all previous days, the key support level remains around QS1 (79.32) on a daily close basis.




The GDX robot remains in a very weak long position that is much hindered by the resistance/support clusters imbalance.
Billy