Fair-value gaps and a copper moving-average channel

A statistical path and a timing rule

Price was modeled as an effect in a multiple-regression framework. The resulting statistical path was then paired with technical timing rather than used alone.

TradersWeek editorial reading: treat the two pieces as layers, not as substitutes. The regression-built path changes risk posture only when price leaves that equilibrium. A long-or-cash moving-average plus an upper price-channel then turns the posture into one copper trend-following procedure whose entry, exit, and abstention rules can be tested together.

What an obstat path is for

An obstat path is an objective statistical price path from a multiple-regression model that treats the traded price as the effect of candidate macroeconomic and related causes.

A valuation-gap is the difference between the traded price and the contemporaneous obstat path. In the archive workflow that gap was a warning to tighten technical filters, not a timed entry.

For gold after early 1983, foreign-exchange rates ranked as more important than domestic inflation among the regression causes of price. TradersWeek editorial reading: that ranking belongs to the cause layer of the model. It does not, by itself, specify a long-or-cash stance.

Gaps that warned without a start time

During 1987, a widening gap between the Standard & Poor's 500 and its obstat path was treated as a downside-risk warning that did not, by itself, specify when a decline would start.

Palladium in 1989 rose far above its obstat value on cold-fusion demand news and then fell back toward that value once immediate new demand was judged unlikely.

Gold, silver, and platinum models pointed to further declines in obstat values after September 1989 and did not show that the bear phase had already been overdone.

Copper at the September close

At the September close, copper had the largest actual-versus-obstat gap after a rally into the 1.40 area, a five-month stall, and a later drop.

Copper's mean and median intraday volatility exceeded the other futures compared and was described as more than twice the S&P 500 contract figures shown.

TradersWeek editorial reading: copper is the market in which the valuation-gap warning meets a contract that had already shown wider mean and median intraday movement than the other futures compared.

A long-or-cash moving-average and an upper channel

A span of moving-average lengths was tested on copper. The rule carried forward used a 13-day average and went to cash at the next open if the prior close was below that average.

The copper trend-following procedure stayed long the nearest contract, or the second nearest in the expiration month, or else held cash. Rollover days were treated as a cash day and transaction costs were omitted. The base rule is long-or-cash: either long a nearby futures contract or entirely flat, with no required short sale.

Short-term pullbacks after sharp advances produced large drawdowns in the moving-average tests, so an upper price-channel of a six-day average multiplied by 1.05 was added to flag when to tighten stops.