The TSI Trader

S&P 500 - 20 Year Study of Buy and Sell Signals

2013-05-25T14:49:00.000-05:00

In a previous post I made the claim that the S&P 500 was not ready to crash yet based on a custom indicator I created some time ago that plots the percentage that price closes above or below its 200 day ema and uses the trend line break technique to generate accurate buy and sell signals.

I supported my assertion with a daily chart of the E-mini S&P 500 Index Futures (/ES) detailing the sell signals this indicator and the trend line break technique have generated over the past 3 years (chart shown below) and demonstrated that the conditions required to support a SELL signal are not in place at the present time.

As there appears to be significant interest from readers in seeing how this indicator would have fared in trading the S&P 500 during previous years (and particular interest in its performance preceding memorable historic crashes), I thought it would be fun to document its prowess for the entire 20 years of S&P 500 daily trade before today and let you decide for yourself.

Let's begin with another look at the chart that initially generated such interest in this indicator and my interpretative technique.

When the indicator crosses the red horizontal line in the center of the indicator panel (reads '1' on the far right) it means that price is crossing the 200 day ema. A reading of 1.05 means that the ES is 5% above the 200. A reading of 0.95 means that the ES is 5% below the 200, and so on. On this chart I set a magenta horizontal line at 1.12 and you may notice that price in the past 3 years has been able to stretch to 12% above the 200 on a few occasions - most notably one week ago.

We'll continue now with a chart of the ES picking up late 2003 and continuing well into 1997.

First, I must tell you that what you are going to see on these charts makes trading look quite easy. I want to be the first to admit that nothing could be further from the truth. Trading in real time has so many head fakes that even if you have a system that looks as accurate as this one you are not always going to be able to make the 'ideal' decisions.

Second, I am often asked how one knows, in real time, when to 'draw' these trend lines to generate the BUY and SELL signals. That's a very good question.

Unfortunately, there is an intuition factor that is difficult for me to teach, but fortunately there are some guidelines that I personally try to be mindful of as 'real time' progresses.

Here are some of the clues. Nearly every sell signal was given at a negative divergence. That is, price made a higher high while the indicator made a lower high. Buy signals were sometimes accompanied by a positive divergence (indicator makes a higher low while price makes a lower low) but probably more importantly, buy signals that had the best odds of paying off occurred when the trend line break torpedoed the indicator above ZERO. You will probably notice that in the bear market of late 2001 to 2003 I did not even bother to draw in the buy signals. My reluctance to do so reflected my understanding of the implied significance of the indicator being below ZERO.

Moving along, here is the chart covering late 1996 to 2001.

The benefit of hindsight is such that one could say, looking at this extremely powerful bull rally, that simply a buy and hold strategy would have worked out nearly the same. And I would agree with that. The problem, as usual, is that no one can trade with a crystal ball or with the simple understanding given by hind sight. In that light I think this strategy has a few things going for it.

The preceding chart brought us to the top of the secular bull in later 2000. This next chart gives us a view of the bear market that followed into 2002.

And this chart brings us through the bear market and back into the next bull into 2004.

As we continue with the next bull phase of 2004 - 2008, we notice that the sell signals once again coincide with the negative divergence setup. Trend line break buy signals are again occurring above ZERO.

Here are some more details for the late 2005 through mid 2007 time period.

Now let's see what the time frame from late 2006 to mid year 2008 looked like. The final top in October 2007 was reached with a negative divergence to its predecessor of July 2007. From about 1450 and higher the situation described by the indicator was both shaky and volatile. Price fell to the 1450 price level a couple of times before falling precipitously, then retesting 1450 again before its descent towards its ultimate destiny at 666.

Looking at the action of the ES after 2008 got underway yielded a couple of trades as seen in the following chart.

And continuing on into 2009 and 2010 ...

Which brings us back to where we began.

I have not marked up this chart any further since initially posting it, but the surety of looking for the negative divergence to validate drawing the trend line break sell signal is clearly more loosely defined in these most recent years.

However, the notion that price has been limited by a 12% ceiling above the 200 day ema is notable. If I had to guess I would think at some point we will have a new high that does not reach anything close to the 12% measurement (see late April 2011) and may indeed yield a negative divergence. This possibility suggests that price may drift around for a while and bring the indicator down to the blue trend line. At that point price will then rebound 'one more time' to new highs and leave the negative divergence print for all to see.

Another possibility is that price falls and the indicator reaches the blue trend line quickly. After giving it a little thought price just continues south and the trend line break sell signal is in effect right then and there. There is no way I can possibly know which scenario will play out at this point.

So there you have it. 20 years of good information and now is your opportunity, as promised, to decide for yourself how well this system seems to work.

BTW, this indicator using the trend line break technique work very well on all kinds of ticker symbols and all kinds of various time frames. And changing the moving average from 200 periods to 100 periods or even 50 periods is effective, as well. It is similar, as you probably noticed, in interpretation to the True Strength Index (TSI) indicator. The reason that both indicators work as well as they do is that they accurately capture trend direction and accurately reveal when trend direction has substantially changed very early in the momentum transition.

I hope you enjoyed contemplating this post and have found new possibilities that you may never have dreamed existed.

Be good,

John
tsiTrader@gmail.com

Sayonara, I Wish. Gentlemen, Start Your Engines!

2013-05-23T19:56:00.001-05:00

Sayonara to the mess Japan is making, I wish. The volatility being unleashed on the world financial markets from Japan's most recent decision to print away their ails (on top of the insane degree of QE everyone else has been doing) is giving us all one heck of a head-ache. The volatility affects everything - Japanese bond trading has been halted repeatedly, the Nikkei drops 1,500 in a single day, interest rates are spiking higher, and for some mysterious reason, precious metals are continuously under pressure.

Grab a glass of water, perhaps an aspirin or two and pull up a seat. This post will show you why there is good reason to start your engines in preparation for getting the green light from precious metals and also why the stock market is not likely to crash ... just yet.

Our charts will include the US Dollar (DX), the E-mini S&P 500 Index futures (ES), followed by gold (GC) and silver (SI).

Let's begin with a look at the precarious position the US Dollar (DX) has found itself at the end of today's trade.

As you can see from the daily chart below, the dollar has formed a megaphone topping pattern. The increasing volatility within the megaphone pattern eventually creates a sense of uncertainty, leads to profit-taking, and deters some of the bulls from making any further commitments. The bears will eventually triumph.

Click on any chart to ENLARGE

Yesterday's volume traded 70,789 contracts which is an all-time record. Today's volume of 61,583 was not terribly fall behind. Generally, when there is high volume and price is not going anywhere, this is a massive distribution of shares from strong hands to weak.

As I assume the dollar's megaphone top pattern will resolve with downward price movement, that should help sustain the S&P 500, which we will look at now.

Below is a daily chart of the E-mini S&P 500 index futures (ES) showing a span of over 3 years. Actually, it is the same chart glued together 3 times, but each time the indicator below price is changed.

The custom indicator below price is something I made quite a while ago to show me the percentage to which price is either above or below a particular moving average. The first indicator looks at the relationship of price vs. 200 ema, the second chart considers the percentage that price is either above or below the 100 ema and the third chart uses the 50 ema.

On the far right of each indicator is a 1 (aka red horizontal line). If the price of the S&P 500 is exactly on the moving average the indicator will have the value of 1. If the price is 5% above the moving average the indicator's reading will be 1.05. Likewise, if price is 5% below the moving average the indicator will read 0.95, and so on.

I like this indicator because it can be easily used to determine just how out of line price can get above or below a particular moving average before it is typically forced to revert to the mean. For example, over the past 15 years the daily S&P 500 has only rarely reached 12% above the 200 ema. (We reached that last week on Friday).

But for this post we will look at the incredibly powerful technique of using this indicator's information for BUY and SELL signals by drawing trend lines on the indicator itself (exactly as I do when using the True Strength Index (TSI) indicator). Where these trend lines break is usually a very good location for a change in price trend direction.

For the fun of it (mostly my own curiosity, that is) I am showing this technique on three moving averages to show their differences. Each is equally accurate it appears, though the shorter the moving average length the more signals are generated. That does not surprise me at all ...... and also explains why I prefer to use TSI (7,4) than TSI (25,13), for example.

Back to the ES chart, the current blue trend line drawn on all 3 charts shows that we are not ready to crash....yet. But when that indicator slices down through the blue trend line, look out below!

Moving on to a weekly chart of gold futures (GC) we have an updated look at that incredible TSI compression that has been building for 8 months now. Start your engines and keep them running. When this spring is sprung you will want to be strapped in and ready to launch.

The purple dashed trend line that has been defined in earlier posts is still in place. It's taken a couple of punches, but still standing firm.

The daily chart of the gold futures (GC) shows a series of BUY and SELL signals I drew using the trend line break technique. And look what we have now ... a BUY signal! (position foot on the gas pedal and eyes on the lights....red red yellow yellow green green).

And finally to silver, which is looking real good at this point!

The worst is over and it's about to get real fun!

John
tsiTrader@gmail.com

To Log or Not to Log. Is that the Question?

2013-05-19T20:40:00.002-05:00

This post is going to steer clear of any heavy thinking and just focus on a few ideas and observations regarding the weekly charts of gold futures (GC), the Gold Bugs Index (HUI) and a single daily chart of silver futures (SI).

I've been curious to untangle in my own mind how the various downside price projections for gold and the mining index are being calculated by others, so I did a little investigating and will show you what I figured out so far.

To log or not to log? This does seem to be a question that explains some of the projections I have seen. I am talking about whether one charts price and its trend lines using log scale or not. The results of choosing one method or the other does provide some striking differences, as we shall see.

Let's begin with a long term weekly view of gold futures (GC) using log scale. This chart probably looks familiar to you because this is the setting I use to make my charts usually. You will note the three different colored line segments of increasing slope that define gold's parabola as it has developed. And you will observe that price currently is right on the uppermost trend line.

Click on any chart to ENLARGE

Now if we look at this NOT using log scaling, the True Strength Index (TSI) indicator will not look any different, but look what happens to the display of price and the location of the three segment trend line.

I've read that a number of analysts are calling for gold to reach $1050 but I have never been quite sure why. Probably this chart gives us a good clue in that the trend line projects to around $1050. Also coinciding at this general price level is the 2008 parabolic C-wave top and its successful retest in February 2009.

Moving on to a long term view of the weekly Gold Bugs Index (HUI) using log scale we see something rather disturbing. Price has already broken below the trend line that I would think should have been significant support.

Besides the price break below the trend line of support using log scale I notice that the 2008 low actually took out the lows of 2004, 2005, 2006 and 2007. I had never really given that much thought.

And, at present our 2013 low of this past Friday has taken out the lows of 2012, 2011, 2010 and is just $4 above the low of 2009. I assume the HUI will now take out the 2009 low which, when you think about it, is very similar to the 2008 low in that quite a number of preceding annual lows (4) will have been taken out.

Let's see what this looks like on a chart of HUI weekly that does NOT use log scaling.

This scaling suggests the trend line is presently under this week's candle at around 217.07 so I have to wonder if, in this instance, the 'not log scale' trend line will be the one that prevails. Additionally, I have identified the 2009 low (241.78) and the 2008 low (150.27).

I also found on the weekly HUI chart a couple of decent examples of TSI compression. The reason I point this out to you is to reference what you observe on the chart above (1st massive compression marked the start of the HUI bull market in late 2000, and the 2nd massive compression marked the conclusion of the 2008 low) with what I would like to show you that exists on gold's weekly chart right now.

I have been watching this massive TSI compression build up for the better part of 8 months.

To refresh you recollection of how the TSI works, when it is below ZERO and falling (as is presently the case), price is always falling.

The interesting problem I see is that the present TSI reading of -60 needs to fall and hold below -78 by the end of this week to make a lower TSI low. Price could make a lower low along the way this week but I doubt the TSI would settle with a lower low unless price falls rather considerably....like a weekly close $100 lower than last week, otherwise a positive divergence would be formed and that would likely be the end of the compression.

And finally, here is a daily chart of silver futures (/SI).

I had previously put this Fibonacci tool on my silver futures chart and not too long after the Sunday evening market reopened somebody had an itch to pick up some more silver bullion at a great price by dropping around 1500 contracts on the market within the span of about two minutes. Anyway, look where price bounced .... right off the 161.8%.

You can't tell me these traders and their computers don't know exactly where these Fibonacci numbers and trend lines are located. But as for the question of 'To Log or Not to Log?' I'm still not sure the answer. Maybe both?

Good luck this week!

John
tsiTrader@gmail.com

Thoughts on Japan, the US Dollar and Gold

2013-05-11T23:40:00.001-05:00

I sure do hope these guys in Japan get a clue that they need to knock it off - stop the madness on the currency devaluation experiment- and get a hold of what is happening in reality before they blow themselves up.

Yes, I'm talking about their insane idea of more than doubling their printing of Yen, causing their stock market to rocket higher some ungodly percentage in a matter of weeks, and causing their bond market to repeatedly crash, tempered by numerous trading halts as more investors want to sell than buy.

This whole scheme has come about due to a change at the top of the Bank of Japan with the dismissal of Shirakawa on March 19 and his replacement as Governor of the BoJ Haruhiko Kuroda.

On April 4th Kuroda’s new policies were announced and that is when the problems in the Japanese bond market began. Searching through one report after another it appears to me that since that date the Japanese bond market has been halted - due to circuit breakers kicking in because there are not enough buy orders to match up with the sell orders - at least 10 times, and as recently as this past Friday. These unusually large moves have elicited some comparisons to the market action of the late 1980's, before the bursting of Japan's economic bubble.

This really looks like it is going to end very badly.

You have the Bank of Japan BUYING its government bonds with its make-believe money and on face value why should that have the unintended consequence of owners of the same bonds selling in mass? Intuitively one would think that if the Central Bank is providing ammunition to support the price of your investment (bond), what could be better?

And for the first few hours of trade following this incredible announcement of policy change, Japanese bonds actually traded higher. After that, I think quite a few light bulbs lit up and bond investors started running for the door. And they are still running for the door as of last week.

Why?

Well for starters, would you want to hold an investment that pays .5% per year when you see your stock market rising that much EVERY HOUR? And since your currency is going to be severely devalued, do you really want to be paid back with DEVALUED Yen at .5% per year?

And if your Central Bank has announced an all-out war to get the inflation rate up to 2%, no doubt the rise in inflation will cause interest rates to rise and how will your already extremely broke government pay you back on your bond (debt) investment if its costs to borrow rise?

Everyone knows that Japan uses 25% of its tax revenue just to pay the interest on its debt. How will things work out if they have to use 50% or more of their tax revenue (due to a rise in interest rates) to service their debt?

Anyway, some of the excitement this past week was the 'accomplishment' of the USD/JPY (dollar/yen) rate cracking higher than 100. Early Friday morning this feat was given as the reason for gold's sharp sell-off. Then the Fed floated some trail balloon nonsense that it had new plans to begin slowing down the QE here and there. Even with all this going on, gold still managed to reverse direction and close strongly. Silver even completed a positive reversal.

Let's get to some charts. I have prepared 5. We'll begin with the USD/JPY weekly chart on the 20 year time frame. Next we'll look at the US Dollar Index (DX) weekly chart on the 10 year time frame. Then we'll move along to check out gold's (GC) secular bull market parabola situation with a weekly chart followed by a close up of a daily chart, and conclude with gold's daily chart featuring Fibonacci and daily cycle observations.

Here is the infamous USD/JPY that has everyone so excited.

Click on any chart to ENLARGE

That is quite a run the Japanese Yen has had lately vs. US Dollar. The media is fixated on the 100 level because, well, its an easy number to talk about. It's 100!

But what is just above 100 at, oh say about, 101.75? Yes, a blue line that runs left to right about 20 years. The line was support for at least 10 years and has been resistance since 2008. Good luck getting much higher on the first attempt. I'm not saying it cannot be done, especially the way the nuts are on the loose at the Central Banks. But I am skeptical.

Now let's see the US Dollar (DX) and it recent 3 year cycles.

I really thought the US Dollar was showing signs that it was finally ready to drop dead, but I got that wrong, didn't I? Anyway, I do find it interesting to see that these 3 year dollar cycles seem to find a way to top in a rather classical manner - a head & shoulders, a double top and if things go according to plan, another double top.

Some time ago I took a shot at figuring out the scheme of gold's parabola in terms of the increased steepening of 3 line segments. I redid that exercise today and got a slightly different result, but surprisingly found 3 line segments still define the parabola so far. I am guessing that this time I used a weekly chart on log scale and I probably used a daily chart on log scale last time. Anyway, here is what I found.

The three line segments are colored magenta, blue and red. The third line segment (red) connects the weekly low in 2005 with the weekly low in 2008 - then the line is just continued upwards and to the right.

Wait til you see where the red line travels at our recent low!

Talk about cutting it close. That red line is $5 above the low, if that. I put this final low on the 5 min time as I was curious what it would look like. Every single bar for 55 minutes was just above and below that line. Like the final war was being waged, then it was over (the bulls won, obviously).

Last, but not least, our daily chart of gold.

The dashed purple trend line is the daily cycle trend line which is ALWAYS broken before a new daily cycle can begin. We got that behind us on Friday. The daily cycle top occurred on Day 13 making it a bullishly right translation. The Fibonacci retracement managed to slightly dip below a very mild 38.2% retracement. We have completed day 18 and though on the short side of the average 24 days, it works.

Also, gold achieved a Blees rating of 100 again this past week - 3 weeks in a row. Silver had a blees rating of 95. The managed money crowd pushed their luck even further last week by taking off long contracts and adding to their ridiculously historic short position.

A top in the dollar should give us show time. And I can't wait to see it for myself!

Best always,

John
tsiTrader@gmail.com

Gold and Silver: Sentiment Reversal is Inevitable

2013-05-05T13:57:00.001-05:00

The usefulness of sentiment's stealth crystal ball is about to be revealed to the litany of unsuspecting precious metal bears and skeptics who have convinced themselves that gold's bull market is either over or, at the minimum, in need of lengthy ongoing retesting, restructuring and consolidation.

This article will bring us up to date as to the degree of current bearish sentiment regarding both gold and silver using no fewer than 5 sentiment indicators (with 9 illustrative charts), as well as provide the reader with an opportunity to observe the price outcome of previous bearish extremes using these sentiment indicators.

When we begin the sentiment indicator discussion we will look at charts of the put/call volume ratio (options) of SPDR's Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV), then examine Hulbert's Gold Sentiment Index, followed by the Blees Rating, then gold's Commercial and Non-Reportable (futures) traders positioning detailed in the most recent Commitment of Traders Report (COT) from the CFTC, and conclude with a daily gold futures price chart that includes the corresponding readings of the Ulcer Index indicator.

But first, let's briefly consider the concept of investor sentiment.

My observation is that sentiment's crystal ball, particularly when observed at an extreme, works reliably despite conflicting and clever arguments of either a technical or fundamental nature, and plays the ultimate trump card in foretelling a market's reversal of price direction.

Sometimes the occurrence of a high volume "capitulation selling" event provides the most obvious observation of sentiment exhaustion. But there are numerous other means to assess this phenomenon and we will get to these shortly.

Sentiment extremes, simply put, tell us that there are too many traders at one end of the boat and therefore the boat is about to tip over. Sentiment can strongly suggest that the trade, as some say, has become "crowded". When someone finally yells "fire" in the "crowded" room there are so many of the market's participants motivated to get out the same door and in the same direction that most get trampled - unable to reverse their trade fast enough.

Another way of characterizing a sentiment extreme is to say that the trade simply runs out of buyers or sellers, as the case may be. The extreme price momentum in one direction "exhausts" itself of all available ammunition to continue the trend and is sometimes signaled when someone yells "fire" in the "crowded" room, but often comes to a conclusion unrecognized by most traders as price reverses direction in an unassuming manner.

Yet another saying is "when everyone is thinking the same thing, then no one is thinking". The sentiment indicators we will look at today will give us a clear sense as to whether this saying is potentially a significant and foretelling factor in future precious metal price movement.

And yes, there are indeed two players for each trade - the buyer and the seller. In our present precious metals situation, this leads us to consider the concept of shares moving from "weak" hands to "strong" hands.

The Claude Resources (CGR) shares I have been accumulating and holding with a considerable draw down are in "strong hands". Barring some unanticipated but significant company news, I have resolved to not sell any of my position even if price should continue to fall from the current $0.30 per share to $0.10.

However, as Claude Resources share price has fallen from about $1.00 last September to around $0.60 last January and just a couple months ago $0.50, obviously there have been too many shares of CGR still held by "weak hands". This will change because when the last "weak hand" is willing to sell their last share at this incredibly exaggerated market price, that obviously, will be the bottom.

You may have heard comments when a particular market bottoms and then begins to trade higher and then continues to trade even higher yet, despite "bad" news, the assertion that the bullish price movement seems to make no sense - that it cannot possibly be sustained. At this time it appears to nearly everyone the common sense question to ask is how "bad" news that used to cause a market to go into free fall now seems to have absolutely no negative effect? And to observe that as this market continues higher, it always leaves behind those traders stuck in pessimism to declare that the market is "climbing a wall of worry". That is, the "bad" news continues in the media, yet this particular market's price reversal continues upwards.

These thoughts are precisely what make this article's argument dead on target, in my opinion. That is, sentiment at extremes can and often does trump both technical and fundamental analysis. We are about to examine a number of these sentiment indicators which will leave little doubt that the precious metals market is presently at a sentiment extreme of historical proportion.

As markets usually swing from one price extreme to another, and markets usually swing from one emotional extreme to another (such as fear to greed), I believe the following sentiment indicators and their readings literally guarantee the continued reversal of gold and silver price to the upside.

So let's now take a look at the 5 sentiment indicators I have prepared for detailing the current gold and silver market sentiment and see what they are telling us.

We will begin with the put / call volume ratio of the options trade of the SPDR Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV). Charts courtesy of Schaeffer's Investment Research.

Click on any chart to ENLARGE

The red line in the charts are the ETF's price movement over the recent 2 years (GLD above, SLV below). The blue line is the put / call volume ratio. This considers the trading day's volume of puts traded and is divided by the volume of calls traded. Generally, the higher the put / call ratio, the more bearish traders are about the ETF's likely price movement, while the lower the put / call ratio, the more traders believe the ETF is bullish and going to rally higher.

Undoubtedly you have noticed that both charts reveal that the put / call ratio is at the highs of the past two years; meanwhile price is at the lows of the past two years. I will leave it to you to observe the repetitively flip flop relationship between this sentiment indicator and price movement. For me, anyway, this indicator leaves little doubt as to the upcoming direction of GLD and SLV.

Next up is the Hulbert Gold Sentiment Index. This chart courtesy of Mark Hulbert's Newsletters. The chart that follows this first chart is courtesy of Short Side of Long.

This first Hulbert Gold Sentiment Index chart shows us that gold sentiment at present is even more depressed than at gold's infamous 2008 low.

The second chart offers a sweeping view of gold's price movement over the past 17 years, as well as the locations of noteworthy extremes of bearish sentiment. And incredibly (and once again) our current bearish sentiment breaks all previous records with a reading of -31%.

Now we will turn to the Blees Rating with another pair of charts. The Blees Rating is simply a calculation that uses the COT report data on the positioning of commercial traders in comparison to their positioning 18 months previously.

The first chart is one that I made. It looks at the price movement of gold since September 2008 in the upper portion of the graphic, and displays the corresponding Blees rating in the lower portion of the graphic. The Blees rating this week, for the second week in a row, is 100. The green bars I added to the chart are intended to draw your attention to price action once a Blees rating of 100 is triggered.

The red bar I added connects a Blees rating of 99 with price just before our infamous episode of a two day price crash in gold. Though I neglected to add another red bar in September 2008, you will notice that nearly the same thing happened at that time. That is, the commercial traders bellied up to the bar with a reading of 94 then apparently and correctly smelled a rat. They backed off and price indeed made one final swoon. Then in early November 2008 they bellied back up to the bar and held a 100 Blees rating for 2 consecutive weeks followed by another week at 99. They nailed the true bottom. I have no doubt they have done it in 2013, as well.

The following chart of $GOLD courtesy of SmartMoneyTrackerPremium details the locations of the maximum Blees rating since 2003.

Our next pair of charts looks at the positioning of gold futures traders as reported in the most recent Commitment of Traders (COT) report. Both charts are courtesy of GotGoldReport by Mr. Gene Arensberg.

First up is the commercials (dark blue line) and their net positioning of gold futures contracts since 2008. The price of gold is shown in magenta.

This group of traders is considered the smartest of the players and are hedgers by nature. It is indeed rare to find their net positioning anywhere near to just slightly short, as they are now positioned. Incidentally, they are now positioned exactly as when they correctly called the 2008 bottom.

In Mr. Arensberg's accompanying dialog with these charts he noted that the commercial traders method of operation is to add shorts as price rises and add longs (or sell shorts) as price falls.

But interestingly, as gold has been raising $150 over the past two weeks, the commercials have been doing just the opposite of their norm. Instead of adding to their shorts as price has gravitated higher, they have reduced their shorts and added to their longs.

Yowzer! My take is that the commercials are essentially saying to the market, "bring it on".

Now for the chart of the little guys trading gold futures, otherwise known as the non-reportables.

You can see that for the first time since 2008 this group (sometimes also known as the 'dumb money') has a net position that is just barely short (below ZERO). In effect, this group does not have any skin in the game and that has not been seen before. They have been suckered into losing their net long position and will have to buy, buy, buy when they figure out the trend is up.

And finally we conclude our pondering of 9 charts with this daily chart of gold futures (/GC) from 2007 and forward.

I created this chart and have added in the lower panel the Ulcer Index indicator. This is a volatility indicator that measures downside risk. The higher the indicator reads the higher the risk is considered to be if one continues to hold 'Old Turkey'.

From a sentiment point of view, the higher the indicator reads the scarier the ride for the long investor. I looked at this indicator on the daily gold futures chart back 20 years and I can tell you what we just experienced was the first place roller coaster drop of the past 20 years. If you still have your lunch (like me) you are likely qualified as a "strong hands" investor.

So there you have it. Sentiment on GLD and SLV options is crazy extreme, Hulbert's Gold Sentiment Index reveals sentiment is not only more bearish than the 2008 bottom - it's more bearish than anytime in the past 17 years (at least). The Blees Rating has been at the max of 100 for two consecutive weeks. The smart money commercials of the Comex gold futures market, despite the $150 rally we have had off the capitulation low a couple of weeks ago are not being shy. Price has been going up and they have just added to their long positions and reduced their short positions. Meanwhile the non-reportables have played themselves right off the field and will have to become buyers to get back in the game. And finally, the Ulcer Index confirms that gold has taken a hit that should have left EVERYONE running for the door.

You know, I don't make this stuff up. And after putting about 10 hours non-stop into making this article what it is, I have nothing more to say other than encourage you, another time, to consider the evidence that sentiment plays a powerful role in the trading markets and that if there was a better precious metal setup than the one we presently have - I simply do not believe it.

Best always,

John
tsiTrader@gmail.com

Gold: Struttin' with ATTITUDE

2013-04-30T15:44:00.002-05:00

There goes gold again, doing something today it has only been able to do 8 other times in its entire bull market beginning in 2001. Details with charts in a second.

And what is with this specific angle of trajectory that the True Strength Index (TSI) indicator's trend line break technique continues to use to call SELL signals? I'm talking about 7 times in the past year or two. Very curious. We'll get to these details with charts in just a second, too.

But first, let's listen in on gold talkin' to da boyz in the locker room. I need you to hear this for yourself before we proceed, lest you have any doubt about gold's present frame of mind.

"Bro, y'all need to git dem smellin' boo-tays of yurs outta my way cuz now I ain't taken no mo of y'alls homie BS. UH...ha. (Jive strut or two). Uh...ha. (Spit that barely misses the dog, but doesn't miss somebody's shiny black shoe). Outta my way fore I stick this here knife thru the bottom of yur cock roach infested moolah bag over dat fire and make y'alls (Comex) papers turn bright red and orange".

Oh boy - now that was INTENSE.

Serious attitude. Uh...huh.

Knives, fires and boo-tays. Very serious stuff.

Well, now that you have heard it for yourself ... I hope you will be motivated to keep reading. I am going to show you why gold is struttin' with attitude. I promise my tale will give you a couple of new things to ponder and maybe even render some advice to keep you out of gold's way.

S0 let's begin with today's ongoing action in the US Dollar Cash Index ($DXY). First we'll take a look with the TSI (7,4) in the lower indicator panel, then take a second peek to include the TSI (25,13).

Click on any chart to ENLARGE

Hey, no wonder gold is getting cocky - the dollar sports 2 daily cycle failures and could well begin a free fall. On top of that, the True Strength Index (TSI) indicator shows that the angle of the trend line (red) and the current location of the TSI have provided a Grand Canyon of bad times ahead for the dollar (blue green scribbles). It looks like weeks, at least, before the dollar will be able to convince the TSI to break out upside through its trend line.

OK, now the $DXY with TSI (25,13) - which measures momentum in more of a trending manner than the sports car TSI (7,4).

On Wednesday April 17th I penned this article proclaiming US Dollar Index - Good Odds for a Meltdown and used the /DX daily chart with TSI (25,13). What I really didn't explain adequately (my apology) was more about why a likely subsequent rally in the dollar (which we have briefly had since that post two weeks ago) had high odds for failure.

The reason I felt strongly about this was because I could see that the dollar was in an absolutely impossible position with respect to the TSI.

That is, the previous dollar rally took the TSI up to +40. But as the hot air balloon was now taking the tops of trees off with a reading of just +3 when a new rally might begin, there was no way - even if price made a higher high - that the TSI was going to make a higher high. The TSI (25,13) just does not move that fast.

It appeared to me inevitable that a negative divergence of magnitude would cause the referee to blow the whistle, throw the flag and call negative divergence - you lose, and now it's time for price to crash. That is the penalty price must pay when the TSI begins to cross from positive to negative readings. As of today, what I thought was inevitable is happening.

Getting down to the specifics of gold's price action today, I created another (simple) indicator to locate for me all the times that the TSI (7,4) was positive 10, 11 and 12 days in a row.

As of today, and providing /GC closes somewhere around $1470 or better, it is the 11th consecutive day in a row that the TSI indicator has risen. I thought this might be unusual, and it is. Let's see when it has happened in the past beginning with 2001 - 2007.

Looks like the TSI rose 10 consecutive trading sessions 3-4 months before the late 2004 parabolic C-wave top, and 12 consecutive days 8 or so months before the 2006 parabolic C-wave top.

Here is 2007 - 2012.

In this time frame we find 5 more instances ranging from 10 - 12 consecutive days. And as in the earlier chart, these strong and extremely unusual momentum moves do not seem to necessarily spot the tops of price movement. Indeed, they usually seem to precede a HUGE move even higher.

OK, here is 2012 - present.

And we have two more of these things, including one presently. The other one (on the left) is kinda odd. That sure did not precede a big follow through higher like all the others. That's kinda strange, don't you think?

Well hold on, I'll explain what actually happened very shortly.

But for now, let's get to that incredible TSI trend line angle of trajectory that has nailed 7 SELL signals in the past year or a little more.

I make these charts using the ThinkorSwim platform and it has a little utility that, as one clicks on a point then drags the trend line to where you wish to click again and have it remain on the screen, it also shows very precise angle measurements.

You know, I have been drawing these darned trend line breaks on the TSI for years and years.... and I got to looking at a few of these on GC and wondered to myself if they were the exact same angle. Then I remembered I had a way to find out the answer to my own question.

And look at that. The trajectory of those blue trend lines above are nearly identical - just a shade more than 40 degrees.

So then I decided to keep doing some more TSI trend lines and here came 4 more - all right about 38 degrees.

Well I'll be darned. Probably just coincidence (wink!).

Finally, I promised to get back to you on that one recent TSI run of 10 positive and consecutive days that instead of preceding a strong leg higher, actually preceded a strong leg lower. We took a look at that 3 charts earlier.

Here is what happened.

The TSI rose for 10 consecutive days. The most days it has ever risen consecutively is 12. Once you get to 10, 11 or 12 days, it is time for a breather. Happens every time, as you noticed. Price can just fumble around for a couple days, causing the TSI 'winning' streak to falter, then price rockets higher OR price can actually go into a fairly brief and stronger down draft - THEN resume higher.

And guess what? That is precisely what I saw setting up right before my very eyes.

Price quickly corrected downwards sharply for 3 days then came right back and heading upwards. The TSI (7,4) was actually nudged right up against the underside of the orange trend line I drew. The TSI was perfectly positioned for a trend line break BUY signal, right below ZERO and ready to break out upside.

Then Samson's look alike showed up. Hour after hour I watched as he held the massive iron rod in his mighty hands, straining and gasping for air as he slowing caused the iron to begin to bend. It was incredible. The TSI that was nudged right up against the orange trend line began to whither .... slowly ...... whither. Further and further it withdrew from the orange trend line. Like watching a candle melt slowly for hours. I could not take my eyes off what I was seeing.

Then an order to sell 400 tons of paper gold hit the market. Price plummeted. The TSI plummeted. There would be no bullish trend line break BUY signal that day.

But Samson's look alike put so much into bending the iron bar that a couple of days later he collapsed. His mighty strength was gone. After that, he passed away and is no longer with us. May he rest in peace and prepare for receiving his friends soon, in the place where those who destroy the fortunes of honest hard working citizens for sport belong. Amen.

Ah, shhhh... I hear gold talking to someone. He still has his attitude, I can hear that. And over and over again, I can just barely hear his cry at this distance ....

CHARGE!!!!!!!!!!!!!!!!!!!

Miners - True Strength Index (TSI) BUY Signals by the Dozens

2013-04-25T21:49:00.000-05:00

We have all waited far too long for this day, but it finally got here. My goodness! I have never seen this many True Strength Index (TSI) indicator BUY signals in the mining sector in my life. Hallelujah!!!

I've ripped through my portfolio of 150 or so miners to show you what I am talking about with this post. What follows is a list of 92 miners that have a TSI BUY signal with the close of today's trade. Some have a single BUY signal, most have two BUY signals and yes, there are even a handful with three BUY signals. Holy cow!

I'll give you a quick refresher course on the TSI BUY signals using a chart to demonstrate each, then turn you loose on the huge list that follows.

The trend line break (TLB) BUY signal is given by a descending straight line that is connected by the TSI indicator's peaks and when it slams into a rising TSI the momentum has shifted from southward to northward.

The ZERO crossover (ZC) BUY signal occurs when the TSI indicator crosses up through the ZERO line, from negative readings to positive readings. When the TSI is rising above ZERO, price is always rising.

The positive divergence (PD) BUY signal is given when the TSI makes a higher low while the corresponding price lows make a lower low. This suggests that price has 'exaggerated' too far to the downside and is not in line with the actual momentum.

Click on the chart to ENLARGE

The trend line break (TLB) BUY signal is in white above, the ZERO crossover (ZC) is in gold and the positive divergence (PD) is green.

Enjoy this scenery - it's a welcomed change!

	Thurs. 4/25/13
		TLB - Trend Line Break
		ZC - Zero Crossover
		PD - Positive Divergence
	Ticker				TSI
	Symbol		DAILY CHART - TSI (7,4)		BUY Signal(s)
		Last Price	Percent Change	Company Name
1	AAU	1.72	+7.62%	Almaden Minerals Ltd	TLB
2	ABX	19.48	+3.01%	Barrick Gold Corp	TLB
3	AEM	33.52	+0.81%	Agnico Eagle Mines Ltd	TLB
4	AG	12.96	+7.46%	First Majestic Silver Corp	TLB, PD
5	AKG	2.69	+3.06%	Asanko Gold Inc	TLB, ZC, PD
6	ANV	11.79	+2.34%	Allied Nevada Gold Corp	TLB
7	ARNGF	6.66	+7.85%	Argonaut Gold Ltd	TLB, ZC
8	AU	19.48	+0.67%	Anglogold Ashanti Ltd	TLB, PD
9	AUMN	1.79	+2.87%	Golden Minerals Co	TLB
11	AUQ	5.16	+3.61%	Aurico Gold Inc	TLB
12	AUY	12.55	+1.77%	Yamana Gold Inc	TLB, ZC
13	AXU	2.19	+5.29%	Alexco Resource Corp	TLB, PD
14	AZC	2.50	+3.31%	Augusta Resource Corp	TLB, ZC, PD
15	AZK	4.23	+1.20%	Auizon Mines Ltd	ZC
16	BAA	1.28	+0.79%	Banro Corporation	TLB, ZC
17	BCEKF	2.59	+2.78%	Bear Creek Mining Corp	TLB
18	BGLPF	2.56	+3.58%	B2 Gold Corp	TLB, ZC
19	BRD	0.66	+7.70%	Brigus Gold Corp	TLB, ZC
20	BVN	21.60	-0.60%	Compania De Minas Buena	TLB
21	CDE	15.60	+2.83%	Coeur D'alene Mines Corp	TLB, ZC
22	CDY	0.20	+5.26%	Cardero Resources	TLB, ZC
23	CELTF	0.69	+15.23%	Centamin Egypt Ltd	TLB, ZC, PD
24	CGR	0.31	+4.07%	Claude Resources Inc	TLB, PD
25	COLUF	2.45	+8.42%	Colossus Minerals	TLB, ZC
26	CROCF	0.23	+10.00%	Crocodile Gold Corp	TLB, ZC
27	DGP	39.17	+5.63%	DB Double Gold Long ETN	TLB, ZC
28	DPMLF	6.34	+1.81%	Dundee Precious Metals	TLB
29	DRD	6.86	+0.44%	DRD Gold Ltd ADR	TLB, ZC
30	EGI	0.30	+3.93%	Entrée Gold Inc	TLB, ZC
31	EGO	7.59	+0.53%	Eldorado Gold Corporation	TLB, ZC
32	EXK	5.10	+3.87%	Endeavour Silver Corp	TLB
33	GDX	30.61	+1.26%	Market Vectors Gold	TLB, ZC
34	GDXJ	12.83	+1.58%	Market Vect Junior Gold	TLB
35	GFI	7.63	+4.66%	Gold Fields Ltd ADR	TLB, ZC
36	GG	30.02	+2.01%	GoldCorp Inc	TLB, ZC
37	GLD	141.76	+2.45%	SPDR Gold Trust ETF	TLB, ZC
38	GLDX	4.27	+4.15%	Global X Gold Explorers	TLB
39	GOLD	81.43	+1.55%	Randgold Resources Ltd	TLB, ZC
40	GORO	10.20	+1.80%	Gold Resource Corp	TLB, ZC
42	GPL	1.13	+10.78%	Great Panther Silver	TLB, ZC, PD
43	GSS	1.03	+1.98%	Golden Star Resources	TLB
44	GUYFF	1.95	+4.54%	Guyana Goldfield New	TLB, ZC
45	HL	3.45	+0.58%	Hecla Mining Co	TLB, ZC, PD
46	HMY	4.91	-6.02%	Harmony Gold Mining Co	TLB
48	IAG	5.33	+0.19%	Iamgold Corp	TLB
49	ISVLF	0.70	+6.53%	Impact Silver Corp	TLB, PD
50	JAG	0.45	+8.72%	Jaguar Mining Inc	TLB, PD
51	KGC	5.67	+0.18%	Kinross Gold Corp	TLB
52	KGILF	3.47	+12.38%	Kirkland Lake Gold	TLB, ZC
53	KLNDF	1.22	+6.68%	Klondex Mines Ltd	ZC
54	MDW	0.99	+0.52%	Midway Gold Corp	TLB
55	MGH	0.30	+3.11%	Minco Gold Corp	TLB, ZC
56	MUX	2.12	+1.68%	McEwen Mining Corp	TLB, ZC, PD
57	MVG	7.79	+6.42%	Mag Silver Corp	TLB, ZC
58	NAK	2.71	+5.86%	Northern Dynasty Minerals	TLB, ZC
59	NCMGY	17.51	+0.86%	Newcrest Mining Ltd	TLB
60	NEM	34.40	+0.22%	Newmont Mining Corp	TLB
61	NG	2.48	+3.66%	NovaGold Resource Inc	TLB
62	NGD	7.89	+2.94%	New Gold Inc	TLB, ZC
63	NSU	3.72	+1.64%	Nevsun Resources Ltd	TLB, ZC
64	NUGT	13.27	+3.27%	Direxion Gold Miners 3X	TLB
65	OSKFF	4.13	+4.39%	Osisko Mining Corp	TLB
66	PGM	32.85	+3.40%	iPath Platinum ETN	TLB
67	PIRGF	2.26	+15.30%	Premier Gold Mines	TLB, ZC
68	PTQMF	0.39	-0.39%	Petaquilla Minerals Ltd	TLB, ZC
69	RBY	1.82	+12.41%	Rubicon Minerals Corp	TLB, ZC, PD
70	RGLD	56.12	+3.91%	Royal Gold Inc	TLB, ZC
71	RIC	2.09	+4.40%	Richmont Mines Inc	TLB
72	RTRAF	0.49	+14.46%	Romarco Minerals Inc New	TLB
73	RVM	1.39	0.00%	Revette Minerals Inc	TLB
74	SEMFF	1.86	+7.51%	Semafo Inc	TLB, ZC, PD
75	SGCNF	0.17	+11.28%	Sunridge Gold Corp	TLB, ZC
76	SGRCF	0.22	+7.37%	San Gold Corp	TLB, ZC
77	SGSVF	1.25	+2.95%	Sabina G & s	TLB
78	SIL	15.13	+3.35%	Global X Silver Miners ETF	TLB, ZC
79	SLW	24.33	+1.77%	Silver Wheaton Corp	TLB
80	SMNPF	0.49	+8.84%	Scorpio Mining Corp	TLB, PD
81	SSRI	7.37	+3.08%	Silver Standard Resource	TLB
82	SVLC	2.22	+9.36%	Silvercrest Mines Inc	TLB, ZC
83	SVM	3.07	+8.87%	Silvercorp Metals Inc	TLB, ZC
84	SWC	11.72	+1.56%	Stillwater Mining Corp	TLB, ZC
85	TC	2.90	+14.13%	Thompson Creek Metals	TLB, ZC, PD
86	TCK	26.42	+1.15%	Teck Resources Ltd	ZC
87	TGB	2.23	+6.19%	Taesko Mines Ltd	TLB
88	THM	1.01	+4.12%	International Tower Hills	TLB
89	TRQ	6.97	+2.05%	Turquoise Hill Resources	TLB, ZC
90	TRX	2.95	+2.08%	Tanzanian Royalty Expl	TLB, ZC
91	USGIF	0.97	+15.48%	US Silver and Gold Corp	TLB
92	VGZ	1.66	+0.61%	Vista Gold Corp	TLB, ZC

How much Further can Gold's Price be Compressed?

2013-04-21T17:52:00.000-05:00

This study looks at 20 years of daily gold futures (GC) price and asks: Which 5 days in the past 20 years did price close at an extreme percentage below a particular exponential moving average (10, 20, 50 and 200 ema)?
% that Closing Price is Below the 10 ema
	DATE		% BELOW
1.	April 15, 2013		10.99
2.	October 23, 2008		9.14
3.	June 13, 2006		8.17
4.	September 26, 2011		6.64
5.	December 14, 2011		5.93
% that Closing Price is Below the 20 ema
	DATE	% BELOW
1.	April 15, 2013	12.84
2.	October 23, 2008	12.19
3.	June 13, 2006	10.47
4.	August 15, 2008	9.45
5.	September 26, 2011	8.06
% that Closing Price is Below the 50 ema
	DATE	% BELOW
1.	April 15, 2013	14.93
2.	October 23, 2008	14.57
3.	September 11, 2008	12.44
4.	June 13, 2006	10.19
5.	December 9, 1997	8.39
% that Closing Price is Below the 200 ema
	DATE	% BELOW
1.	April 15, 2013	17.71
2.	October 23, 2008	16.42
3.	December 9, 1997	14.26
4.	September 11, 2008	13.80
5.	June 10, 1999	9.36

Using the percentage to which price can be compressed below a particular moving average is usually a decent means of assessing how 'oversold' price has become. After all, price has a tendency to regress to the mean which, of course, is akin to a moving average.

If one can make this assessment over a longer period of time, say 20 years of daily data, that should make the extreme findings significant. And how about add to that the challenge of making this assessment using a broad smattering of moving averages, both long and short? Sounds something like an acid test to me.

So I made another (simple) indicator to display the data, sharpened my pencil to take notes and started my self-assigned quest.

It turns out that last Monday April 15th, of every single day gold has traded for the past 20 years, broke every record possible for compression below the 10, 20, 50 and 200 day exponential moving averages. Wow!

October 23, 2008 clearly took second place, also in every moving average category. That was the day before gold reached its 2008 low of $681 and then put in a green reversal candle, closing at $730.3 Also known as the D-wave bottom following the 2008 parabolic.

Btw, the $681 low of October 24th was retested 14 trading sessions later then the bull let out an angry yell, put its head down and charged $1,000 higher.

Third place, I suppose, would have to go to June 13, 2006. That day made the top 5 on all but one moving average. It turns out that day was the D-wave low that followed the 2006 parabolic.

Hummmm...... so how much further can gold's price be compressed at this point?

My answer is - not much (if any at all).

US Dollar Index - Good Odds for a Melt Down

2013-04-17T07:00:00.001-05:00

A friend of mine who lives somewhere on the other side of the world and definitely on the other side of the equator was conversing with me yesterday about gaming the ultimate demise of the S&P 500. One of the clues we determined would be extremely helpful for timing purposes was the behavior of the True Strength Index (25,13) on a weekly chart.

We observed the TSI (25,13) weekly at the crucial point in both 2000 and 2007 when the S&P 500 was just turning from a cyclical bull to a cyclical bear and saw the same clues that were in place. And we noted that for now, it is time to be patient as the setup is not ready.

But this got me to wondering what to make of the US Dollar Index (/DX) so this morning I took a look. And I made a chart to document my thinking which follows.

Click on the chart to ENLARGE

What I see is a price chart with a failed and left translated daily cycle. I also see an intermediate cycle that has topped and failed to make a higher high (April 2013 vs. July 2012).

I also observe that the previous US Dollar crash beginning in August 2012 was announced by the daily TSI (25,13) by a multi-month trend line break SELL signal that was right at the ZERO crossover of the indicator.

And, the current setup has much in common with the preceding melt down. If the US Dollar is going to melt down sometime in the upcoming months I've got to think the setup we have now is a clear warning.

Gold's Volatility

2013-04-16T07:33:00.001-05:00

A few posts back I showed how gold's parabola was progressing and was comprised of three line segments. An updated chart follows below and it appears price has fallen such that the three line segments have been reduced to two line segments.

Click on any chart to ENLARGE

I've been curious to see how the recent volatility in gold compares with the history beginning in 2001, so I made a simple indicator to give me some readings for comparison.

The indicator plots a histogram that measures the percentage change in the height of the daily candles. For starters I was looking to see which single days exhibited the greatest % difference between their candle high and low. Then I expanded the study to show me the greatest % difference over any two consecutive day period.

The purple trend line in the above chart is the same trend line mentioned in the first chart - that is a continuation of the second (magenta) line segment.

My little study was yielding interesting results so I continued it to 5 days, 20 days, 50 days and 200 days.

The simple conclusions this data offers us is more validation that we have witnessed a volatile event of unusual proportion. To date, it compares favorably with the volatility of 2008.

Will it measurably exceed the rampage of 2008? I guess we'll know soon enough.