Saturday, 5 January 2008

Changes for Gold and HUI Signals

I've just made a couple of changes to my table on my Latest Signals page. My newly revised trading setup for gold has hit its 12-percent stop, so it's gone to cash. It's been on a bearish signal since the Sept. 25 Commitments of Traders report, but as we all know, gold has shot to new highs since then. The signal was based on extreme bearishness by the "smart money" commercial traders, but they don't get it right every time. This is why we've got stops. The setup will remain in cash until there's a bullish signal or the price falls back below the entry price for the Sept. 25 trade ($750.60).

The second change concerns the HUI Gold Bugs Index. My newly revised HUI setup uses a price filter to minimize drawdowns and improve its statistical robustness. The filter was triggered in mid-October, when HUI rose along with the price of gold. My HUI setup, like that for gold, had gone to bearish with the Sept. 25 COTs report. My filter rule works like this: if the weekly open price causes a trade to see a drawdown of three percent or more, the setup goes to cash on the next weekly open. The trade is re-entered on the same side as the prevailing COTs signal on the following weekly open if the drawdown for the trade reverses and goes back under three percent. Failing that, the trade is re-entered on the same side as the prevailing COTs signal two weeks later.

Consider it a "time out" for a market that's not behaving right. I discovered the filter inadvertently while looking for ways to blend COTs signals with signals from the price data. In the case of HUI, my setup went to cash for two weeks, then re-entered on the short side after the Oct. 30 COTs report (with the entry as usual on the next weekly open, Nov. 5).

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