Pascal
07-25-2013, 11:30 AM
The ATR is a measure of volatility.
The Figure below compares the 20D ATR for GDX since 2007.
There are few interesting elements to point:
1. The 2008 ATR jumped to 12%, because we were in the post Lehman crash: "everything must go." We can however see that the GDX bear trend of 2012/2013 does not correspond to a high ATR level. Most of the downtrend in fact corresponded to low ATR levels, which is strange. This indicates a systematic shorting pattern and probably the evidence that funds have been "long equities - short commodities"
2. Usually, High ATR levels (5%) correspond to fast sell-offs
19289
However, we can see that the very right that we are still at the 5% ATR level, although a bounce has been underway. This might indicate that some funds do not want to hold their short position and short covering their shorts in a hurry.
19287
I believe that we are at the start of a possible broadly based short covering activity where the biggest sharks will eat the smaller sharks.
For this reason, I am afraid that the GDX Model could be stuck in a very volatile MF activity that will force it to whipsaw around the Overbought level as it is doing right now. Hence, I prefer to interrupt the production of trade signals by the GDX model for now and until the ATR stays high.
Pascal
19288
The Figure below compares the 20D ATR for GDX since 2007.
There are few interesting elements to point:
1. The 2008 ATR jumped to 12%, because we were in the post Lehman crash: "everything must go." We can however see that the GDX bear trend of 2012/2013 does not correspond to a high ATR level. Most of the downtrend in fact corresponded to low ATR levels, which is strange. This indicates a systematic shorting pattern and probably the evidence that funds have been "long equities - short commodities"
2. Usually, High ATR levels (5%) correspond to fast sell-offs
19289
However, we can see that the very right that we are still at the 5% ATR level, although a bounce has been underway. This might indicate that some funds do not want to hold their short position and short covering their shorts in a hurry.
19287
I believe that we are at the start of a possible broadly based short covering activity where the biggest sharks will eat the smaller sharks.
For this reason, I am afraid that the GDX Model could be stuck in a very volatile MF activity that will force it to whipsaw around the Overbought level as it is doing right now. Hence, I prefer to interrupt the production of trade signals by the GDX model for now and until the ATR stays high.
Pascal
19288