Porosity Precisions - March 23, 2012

[Billy]

Because the PM MF closed below the average + porosity, the EOD GDX robot stays short and is trailing its stop down to 51.43.

The porosity thresholds are used in our models to minimize whipsaws at key crossover levels. They are continuously adjusted for volatility and, after verification with Pascal, the actual porosity tolerance yesterday should have been 0.09% instead of the wrongly announced 0.13%.

As a consequence, the RT model did hit the average + porosity (of 0.09%) threshold at 10:10 AM yesterday for just one minute. This doesn’t change anything to the long position of the RT model, but it triggers a fail-safe protection of reversing to a short if the MF ever hits the average MF minus porosity from now on. But If volatility keeps contracting below a certain limit in the following days, the model will only turn to cash as an alternate fail-safe protection (but on a daily close basis).

The ATR-adjusted porosity for today will be 0.089%. A close today above the MF average + porosity will lead the EOD GDX robot to cover its short position and go long on Monday’s open with the same fail-safe protection as the RT model.

Yesterday’s gap down was modestly bought by large players and Daily S3 and Weekly S1 (48.66) held convincingly as support. If Mf remains just stable, with the falling MF average and reduced porosity, the probability increases for a confirmed buy signal today. The resistance floor clusters are significantly weak today and are offering a nice window of opportunity for the bulls.
Billy