Discipline and Patience - February 27, 2012

Our decision to switch to a fail-safe cash mode for IWM on 02/03/12 hasn’t really made any difference from taking the short signal on that date at 82.47. The robot would still be in that trade after IWM has gone nowhere since then and starts the new week with a weekly pivot equilibrium of 82.31. This might suggest that the official “neutral” mode of the 20 DMF model is now correct and that the next model signal could be powerful. There are still no statistical edges to be found for trading in any direction, but the balance of support/resistance clusters tend to favor an upside resolution out of the consolidation. The ATR has dropped to a record low of 1.37% which, as we know, has historically been a very boring but winning environment for the bulls. However, a false move to the downside might precede a fast resumption of the uptrend, shaking out the mounting number of weak hands in the risk-on trades. It looks very easy to achieve and manipulate at this stage of the consolidation.

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On Friday, the GDX MF fell below our 1.35% protective overbought threshold after 40 minutes of trading and kept declining for the rest of the day. This is triggering a sell signal and the GDX robot will exit its long position at the open on Monday.

Technically, everything still “looks” bright and sunny for GDX, but we know how tricky trading based on traditional TA with this ETF has been in the past and nothing seems to beat a EV Money Flow-based model in backtesting. Discipline and patience should be your best guides until the next signal whatever it might be.

Billy

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