The TSI Trader

Bought LSG @ $1.47

noreply@blogger.com (John Townsend, The TSI Trader) — Sat, 28 Jan 2012 16:32:00 +0000

I bought shares in another Canadian gold miner yesterday. This one is Lake Shore Gold Corp (LSG) which trades on the AMEX exchange. My purchase price was $1.47.

This first chart is a weekly of LSG and uses the slower 'trending' setting of the True Strength Index (TSI) indicator set at (25,13). The TSI rendered three BUY signals which I regard as strong confirmation this stock has turned the corner on its downward momentum and should see better days ahead soon.

Click on any chart to ENLARGE

The next chart is a daily and compares the price performance of Lake Shore Gold (LSG) with gold (XGLD) and the Junior Miners ETF (GDXJ). Here we see the familiar TSI BUY signals, as on the weekly chart above - trend line break, positive divergence and ZERO crossover - and note that this stock has severely underperformed both XGLD and GDXJ beginning last May, 2011. We also note that Lake Shore Gold now trades at just 60 cents on the dollar with respect to its book value.

I have done several hours of due diligence to learn what explains the sky dive from $4.50 per share to $1.05 in the past 9 months. The company has several mines in Canada with one that went into production beginning January 2011. The expectations for the amount of gold they could process were lowered by the company at about this time and that triggered several analyst downgrades. Add to that the general swoon one can easily see in the GDXJ beginning last May and the recipe for price to move to the opposite extreme was put into action.

My interest in this stock begins with its ridiculously under priced stock market valuation and is sustained by the technicals (TSI) that suggest it is a candidate for price appreciation in the near future. Also, the current book value of Lake Shore Gold is $1 Billion and it began trading on the AMEX exchange last August.

Price projections are usually tough to get real excited about because they are often overly optimistic, or so my experience has led me to believe. But, for what its worth, here is what the 11 analysts who follow this company think about its prospects for future price appreciation (Jan. 26, 2012).

Bought CGR @ $1.46 - CDY Update

noreply@blogger.com (John Townsend, The TSI Trader) — Fri, 27 Jan 2012 04:28:00 +0000

First a brief update on Cardero Resources (CDY). I introduced this stock to readers on December 26 when it was trading for 95 cents. Though I did not purchase CDY (I set a limit price that was never hit) I am very pleased that many readers did buy the stock, as it closed today at $1.53. This daily chart updates the stock's subsequent performance and highlights what can happen when the overhead resistance of the 50 dma and 200 dma are overcome.

Click on any chart to ENLARGE

Today I purchased Claude Resources (CGR) for $1.46 per share. Having missed the strong run of CDY I decided to just get on board Claude Resources and be patient. Let's begin with a look at the weekly chart.

I've looked over a couple hundred miner charts to find this one. I was impressed with the cup with handle pattern and the recent/current retest of the handle. In a really ideal environment, such as I think is now developing in the mining stocks, the retest that pulled price down from $3.00 to nearly $1.00 in the space of a single year could act like a sling shot - energizing upward price movement when selling pressure is finally exhausted.

This chart of daily price movement shows that CGR currently has some of the same challenges as CDY had when I brought it to your attention. That is, overhead 50 dma and 200 dma resistance.

The stock has made it up through an initial price trend line of resistance just this week, but there are a couple others waiting overhead. The True Strength Index (TSI) indicator shows that sometime before the end of February we should have a break out of significance, up or down. Should price be able to navigate through the next 50 cents of landmines - up past $1.90 - there will be little if any resistance from there on, whatsoever.

If we take a look at a closer view of the daily chart we can see that CGR has some positives going for it at the moment. Two BUY signals have been given by the TSI - a trend line break and a ZERO crossover. Additionally a stealth positive divergence has been building for a number of weeks as price seems to be consolidating and at last dissipating the last of the downward momentum of the past year. Today we had our first test of the 50 dma and it's not surprising to see it fail on the first try. But I am quite sure there will be more attempts.

You may have noticed the earnings projections for Claude Resources that I put on a couple of the earlier charts. I found it nearly impossible to find another stock with more explosive projections: 2010 2 cents, 2011E 10 cents, 2012E 21 cents and 2013E 30 cents.

CGR has a smallish number of shares outstanding, with 164M. It is a Canadian company with all of it's mining operation in Canada. And best of all, for me anyway, is that it is currently priced at just 1.4X book value. That's cheap. There are a several other AMEX miners that trade with a lower price to book value ratio - CDY, KGC, AUMN, GSS, GBG, BRD - but the estimated earnings of these did not impress me as favorably as CGR.

In closing, here are a couple tidbits from my study. The first is from The Motley Fool (11-17-2011) and provides an overview of Claude's business/operation. The second tidbit shows that despite the stock's continual slide over the past six months, large institutional buyers have continued to load up on CGR.

Go get 'em!

The MouES Bit Too Hard - Covered ES @ $1322.50

noreply@blogger.com (John Townsend, The TSI Trader) — Wed, 25 Jan 2012 23:26:00 +0000

I have a certain tolerance for pain when trading and when it is reached I get out of the position and move on. Today the MouES (E-mini S&P 500 Index Futures ES) bit me repeatedly - until it reached my tolerance level. Then I covered my two sold futures contracts with a buy at $1322.50.

I had a number of very excellent trades earlier in the month and decided to define my tolerance level such that it would not allow those trades to go entirely for naught. So, if this should be my final trade of January (unlikely) I will conclude with a very modest 3% gain in my account value for the month of January 2012.

Here is the daily chart of ES as of a short while ago.

Click on the chart to ENLARGE

Yesterday I spent a few hours studying the S&P 500 price movement since the March 2009 low. The takeaway for me is the similarity of this rally with the fall 2010 rally. In that case, rather than the daily cycle bottoming on Day 35-40, it bottomed on Day 59 - clearly stretched in response to QE2.

But we don't have QE3 to account for current price action. Or, do we?

Is the FED printing money to 'loan' to the European Central Bank (ECB) at 0% and we don't know about it? Maybe Saudi Arabia is selling oil to China for Chinese currency - rather than US Dollar currency? Maybe there is huge liquidation of accounts in Europe that is being first converted into US Dollars (which would be US Dollar bullish) but then invested in our or other stock markets (which would be US Dollar bearish)? Or something else having to do with credit default swaps (CDS) between the US and Europe?

Or maybe I am just being paranoid and the overdue daily cycle for the S&P 500 is just a little late arriving this time. At this moment that explanation seems (to me) about as likely as Santa Claus visiting my chimney on December 25 or 26 and saying he forgot what day it was, but I guess it is possible.

In any event, the TSI is now sky high, price is at the very top of the 3 week price channel and the downtrend line from 2007 is still overhead. The FED meeting is over and I would think that the ES will go into a profit-taking correction soon.

The Mother of All Trend Line Breaks (?)

noreply@blogger.com (John Townsend, The TSI Trader) — Sun, 22 Jan 2012 22:04:00 +0000

With the Sunday overnight trade about to begin in the Asian futures market, how about we take a look at what could be the mother of all trend line breaks this week. Yes, I'm talking about the Standard & Poors 500 (SPX). We'll look at a couple of daily charts that should frame exactly what is at stake and take a guess as to how this intriguing question will soon be resolved.

I created a new indicator this weekend and it is shown in the lower indicator panel of the SPX daily price charts. The output of this indicator shows us the relationship between the daily price of the SPX and its 50 day moving average (dma). A reading of ZERO means that the SPX and its 50 dma are the same. Positive readings are the percentage the SPX is above the 50 dma while negative readings are the percentage the SPX is below its 50 dma. Also, positive readings differ in color as the SPX rises above its 50 dma.

This first chart covers the past 3 years and begins just before the historic 666.79 March 2009 bottom. Additionally, I have identified the daily cycle lows (DCL) which are typically 35 - 40 trading days apart and the intermediate (weekly) cycle lows (ICL) which are generally 5-6 months in duration.

Click on any chart to ENLARGE

The things I note about this chart is that a daily cycle low (DCL) is now due. Also, it's fairly unusual for the SPX to exceed its 50 dma by 3% (magenta), quite unusual for a reading greater than 4% (dark blue) and 5% has been a very rare reading for the past 2.5 years - in fact, in the most recent 2.5 year time frame I can count only 3 such occurrences and each lasted a matter of a single day.

By the way, we nearly reached the 5% mark this past Thursday with a SPX close 4.76% above its 50 dma.

So, here is the trend line that all eyes are on. It is derived by connecting the 1576.09 high achieved on October 11, 2007 with the highs achieved in April and July of last year, 2011.

We are very close to reaching that trend line. Something in the neighborhood of 1330 would be a break out. Heck, that's only 15 buck higher than last Friday's close of 1315.38. That does not sound like much, does it?

So we slice right through 1330 and keep heading to 1400, maybe to all-time highs and rival 1576.09 by summer. Kewl!

NOT.

I think all the profit taking that stopped the SPX in April and July of 2011 is about to repeat, leaving the daily cycle to top and go into its timely sky dive. Additionally, those two runaway rallies since 2009 went by the name of QE1 and QE2. My hunch is that we need a QE3 to inflate the stock market so it will blast up through the line of resistance overhead. I have not heard that QE3 will be announced, nor do I think it will be announced at this Tuesday's Ben speech.

But 4sure - if Ben does announce something like QE3 I have no doubt we will see the mother of all trend line breaks.

Have a great week!

4 Hour Dollar Chart Reveals Imminent SP-500 Correction

noreply@blogger.com (John Townsend, The TSI Trader) — Thu, 19 Jan 2012 03:24:00 +0000

I was looking at the US Dollar Index ($DXY) 4 hour chart this evening with my favorite True Strength Index (TSI) indicator set to (7,4) and I began to notice the occasional but very severe down spikes in the TSI over the past 8-9 months. These unusually severe readings are, of course, temporary periods in time when the US Dollar Index has come under extreme selling pressure and downward momentum is incredibly and unsustainably intense.

But just looking at this chart really did not tell me much more.

Then I got to wondering. How do these down spikes compare with a chart of the S&P 500? I mean, is there any correlation between the two? Could these extreme and unusual selling episodes in the US Dollar Index possibly tell us something about the movement of the stock market?

So, being the researcher type that I am, I dutifully wrote down the meanest looking down spikes noting their dates, hour and TSI reading. Then I began to locate these dates on a daily chart of the SP-500 - then I recalculated the stock market's daily cycles.

Somewhat to my amazement, there it all was in one easy to grasp picture. The down spikes were not random after all.

Each daily cycle had just two of these critters, with the second one coinciding within days, if not hours, of the beginning phase of the journey into the final cycle low.

Click on the chart to ENLARGE

The most severe reading was recorded on July 26, 2011 at -0.86 (far left daily cycle rectangle). The second most severe reading occurred today with a measurement of -0.81 (far right daily cycle rectangle).

As we are on something like Day 35 of the current daily cycle and with the TSI reading of an unusually severe sell-off in the US Dollar Index occurring today I have no doubt the stock market is about to take a nice nose dive.

The other thing I would mention is the size of these daily cycle finales. I don't see one on the chart any less that 100 S&P points. Do you?

UPDATE:
Thurs. Jan 19
2:30 pm est

The current reading is not -0.81 as last evening, but -0.89. This is incredible selling pressure.
I think if the US Dollar's sellers put any more logs in the fire the iron pot belly will begin to melt.

ES, GC + SI - Riding the TSI Teeter-Totter

noreply@blogger.com (John Townsend, The TSI Trader) — Wed, 18 Jan 2012 13:35:00 +0000

You can probably remember those good old days when you and your friends would head down to the local park and play on the teeter-totter. I sure do. And my memories of watching my children discover the joy of riding a teeter-totter, remembering their laughter and their screaming back and forth at one another is very precious to me as well.

The topping process in the stock market is much like the teeter-totter, it seems to me. Using the True Strength Index (TSI) indicator to observe the up and down swings of momentum as price begins a new rally, continues to rally then reaches an expiration or temporary peak, can be seen as an easily understood and familiar teeter-totter ride.

This post will look at three of our favorites - S&P 500 Emini Futures Index (ES), gold futures (GC) and silver futures (SI) - and use the TSI to examine the teeter-totter experience of a rally that, as always, needs to take a break before beginning anew.

Let's begin with this 4 hour chart of ES. Notice the up and down swings of the TSI - much like a teeter-totter - as this current rally has unfolded.

The teeter-totter is great fun but also requires lots of energy to be expended. The TSI indicator shows us that at some point - like the point where we are right now, as a matter of fact - fatigue begins to set in. The highs in the TSI indicator begin to not reach as high and the indicator drifts lower and lower, like a hot air balloon running out of umph, towards the ground. The ground, in this case, is the trend line break (green line) and the ZERO crossover (red line).

Another observation of this teeter-totter characteristic can be seen in this 4 hour chart of GC. Here we observe that as this rally has continued, the length (measured in terms of time) of each upswing shortens. It is indeed like watching children play on a teeter-totter. The initial burst of excitement yields a lengthy and robust time of play, but as time goes on fatigue begins to set in and each following burst of enjoyment becomes shorter and shorter - until the kids just get off the thing and take a rest.

And how about a third and final look with a 4 hour chart of SI?

I hope you enjoyed your time at the park today!

Oh Wow! I Just Caught Another MouES ($1300.0)

noreply@blogger.com (John Townsend, The TSI Trader) — Tue, 17 Jan 2012 13:23:00 +0000

I had my trap set to try and catch another mouES overnight and surprise, surprise - I caught one. Not another mouse like the kind with a long tail and cute little ears. No, this one is the kind that is spelled ES - as in E-mini S&P 500 Futures Index. Actually, as soon as the mouES was captured I sold him to someone else for $1300.0 with a promise to buy the cute critter back at a later date.

Here is a daily chart of the ES futures index.

Click on any chart to ENLARGE

It kinda looks like this mouES is never going to stop running higher and higher. Well, I agree.

But all mouES have to stop for a drink of fresh water and a nap sooner or later ......

Next, a 4 hour chart.

Still looks good for the mouES, wouldn't you say?

I guess if I have a card up my sleeve, besides knowing today is Day 35 of a daily cycle that usually bottoms somewhere between Day 35 - 40, it is this next chart.

This is a 4 hour chart of the SP-500 and it shows the True Strength Index (TSI) indicator's closing whereabouts from last Friday afternoon's session. If the mouES continues to run another couple hours until the NYSE opens we will get an impressive gap opening in the SPX. And no doubt the TSI indicator will take a healthy pop higher, as well.

But how high will it jump? From 0.07 clear past 0.35?

Obviously, I am skeptical. And besides eye-balling the possibilities, I have seen this drill before. The futures get run up over a (long) weekend, the SPX opens with an impressive gap higher, creating a negative divergence SELL signal on the TSI, then price gets (for some reason or another) clobbered.

We shall see.

Gold: Next Direction

noreply@blogger.com (John Townsend, The TSI Trader) — Sun, 15 Jan 2012 19:43:00 +0000

With overnight Sunday trading of gold futures set to begin in a matter of hours I offer this post to lay out some of the parameters of the precious metal's current technical situation. We will look at gold through a variety of time frames beginning with a monthly and weekly chart, then progress to the daily and four hour cycle charts.

It would be gratifying for me to jump to the conclusion that gold has finished its multi-month correction but I cannot do so in good conscience considering the particular set of technical tools I use. A few brave souls (Hubert Moolman, Alf Field and Rick Ackerman), however, have a different skill set than I and have recently suggested gold's low is probably, if not definitely, in the bag. Could be - but I am just not quite so sure.

Our first chart to contemplate is the monthly of the World Gold Index (XGLD). We see that the price of gold has continued on a nice trend line and is presently contained by a descending line of resistance originating from the September high. The True Strength Index (TSI) indicator has been declining for the past 5 months - yielding no clue of an end in sight....yet.

Click on any chart to ENLARGE

Next up is the weekly chart of XGLD which does hint that there may be an end in sight. None of the TSI BUY signals have been triggered decisively, but it sure is looking promising.

Well, the TSI on the daily chart just made me smile. Not so much because it tells us where gold is going next, but because it did another incredible job of perfectly nailing the recent December 28 low with not one or two, but three BUY signals.

Anyway, I also threw the trending TSI (25,13) magnification on this chart to give us a clue whether this rally was the definitive start of something new - think 'A-wave'.

Here again, we are close to having confirmation but nothing decisive. If gold were to now immediately turn lower the TSI (25,13), as it is still below ZERO, would also turn lower (perhaps with the lag of a day or two at most). Should this happen it would spring load the slower TSI with a lot of energy that, when unleashed, would launch gold into orbit.

Now for a look at the 4 hour cycles chart of gold. We will begin with a broader view of the last several months then zoom in even closer with a final chart that includes the True Strength Index.

The observations that catch my eye are the top on Day 9 of this daily cycle, the top on Bar 21 of the current four hour cycle and the price trend line break of the daily cycle.

These cycle count readings put us just barely on the 'not so safe side' of left translated cycles. If these tops are not taken out soon I would have to wonder if the $1605.7 level of this four hour cycle will hold. If that does not hold, then possibly the $1523.90 level of this daily cycle will not hold either. And that of course would mean that the D-wave is continuing and the A-wave has not begun.

And as promised, here is the final chart with the TSI having the last word.

The week ending trade of last Friday saw the True Strength Index yield two accurate trend line break SELL signals (purple dots). The trending TSI (25,25) began to roll over suggesting a possible change in trend direction from up to down. This would be considerably more ominous if the TSI were below ZERO - but as the (25,25) is above ZERO this little bull flag could just be a breather before an advance in price higher.

So the next direction for gold is ...... you got it! I really do not know. But heck, I already told you that in the second paragraph.

Anyway, if you read this far perhaps you have a few new things to keep your eye on this week as you decide for yourself how you will trade the gold bull.

Have a great week!

TVIX: The Sentimental Dinosaur - RSI and P/C Data

noreply@blogger.com (John Townsend, The TSI Trader) — Thu, 12 Jan 2012 19:23:00 +0000

I'd like to introduce you to an acquaintance of mine. I call him the Dinosaur of Sentiment, the Sentimental Dinosaur and just plain T-Rex for short. His real name, however, sounds like T-Rex, but is actually spelled TVIX. And TVIX is actually short for his full family heritage and description which is VelocityShares Daily 2X VIX Short Term ETN (and I thought the names at school were tough to remember).

Anyway, TVIX is a volatile fellow. He falls in price when people are happy about the stock market - when their 'sentiment' is happy and confident. But when investors get scared and start running for the exits, TVIX gets his toes stepped on by investors - hard - and he jumps skyward like a cat climbs a tree when chased by a big mean barking dog.

Right now TVIX is taking a nap. Shhhh...... please don't disturb him. Let's tip-toe to a 4 Hour chart of TVIX and see him asleep, but also observe what happened to him the last time investors decided to awake him rudely.

We see he is fast asleep - resting comfortably around the $24 price range. But a day or two before Halloween last fall, when the S&P 500 daily cycle last topped, poor TVIX jumped 67.5% in two days. I heard he had his feet in a bucket of ice for days afterward, trying to get the stampede induced swelling to abate.

And right now it kinda looks like some investors are starting to nudge him and see if he would like to wake up now. That TSI is just daring him to come out of his slumber. One little slip across that green line may be all it takes to wake him up immediately.

This Daily Chart of TVIX tells us he may have a few more days to slumber. If he is really lucky he may even get to sleep in this Saturday and Sunday. But after that I doubt he will get much rest.

Pleasant dreams T-Rex..... while they last.

What follows are a couple of charts from www.IndexIndicators.com The top portion of the chart looks at the RSI (10) of the SP-500 and yields a standard deviation calculation of the number of stocks reading over 70. The bottom portion of the chart looks at the Total Put/Call volume ratio and also calculates a standard deviation figure to assess the relative degree of bullish/bearish sentiment.

In both charts we see, mathematically, just what we would expect to see near the conclusion of a SP-500 daily cycle. That is, a high degree of its stocks reading in excess of 70 on their RSI (10) and an unusually low amount of interest in buying puts as compared to interest in buying calls. I mean, if the stock market is going to go up forever you would buy calls, right?

Oh-oh - Two Horses Just Got Out of the Barn (SI + PL)

noreply@blogger.com (John Townsend, The TSI Trader) — Thu, 12 Jan 2012 13:33:00 +0000

OK - this is getting interesting. Silver (SI) and Platinum (PL) have opened the barn door and started to run to freedom. The farmer will, without a doubt, start to give chase - with rope in hand - but I think it's too late. It's just a matter of time now until Gold (GC) and Palladium (PA) hear all the commotion and decide to add to the excitement with their own burst to the great outdoors.

What follows are three charts of Silver Futures (SI). A daily, 4 hour and 1 hour.

Then a chart of daily Platinum Futures (PL).

The farmer has a big fence around his farm and so the animals are still contained. He'll catch up with them and do his best to pull them to the ground. And at times he will probably succeed. But most likely this is the start of "Something New" and things will never be the same again.

Long live gold's secular bull (and the horses).

Sold ES - $1287.25 - S&P 500 Update

noreply@blogger.com (John Townsend, The TSI Trader) — Thu, 12 Jan 2012 00:29:00 +0000

About an hour ago I decided to sell a single contract of the E-mini S&P 500 Index Futures (ES) at $1,287.25. I have made a couple of charts to show us where the S&P 500 index is sitting going into this evening's overnight session.

This first chart is simply a daily chart of the ES continuous contract. Of particular interest is the length of the past two daily cycles - 39 and 38 days respectively. The current daily cycle is beginning Day 33 this evening.

Also, and not shown in this chart, is the fact that in the last 12 months the daily True Strength Index (TSI) indicator (7,4) has reached and then peaked at +0.75 only three times. Each of these occurrences marked the absolute top for price. At this moment the TSI (7,4) is reading 74.24.

This second chart is a four hour look at the ES futures contract. It is normal to expect a daily cycle to break its price trend line before its cycle conclusion is reached. That being the case I would think the S&P would trade down to at least $1250 to meet this expectation.

For those readers interested in learning some of the bare bones basics of futures trading, this ES contract has a leverage of 50:1. For each single point the S&P 500 moves, the value of my position either increases or decreases by $50.

If I have mistimed this entry and the index rises overnight from $1287 to $1297, I will wake up in the morning under water by $500 (and regrettably, it has been known to happen). Worse yet if I awake and the S&P is trading at $1307 - then I will be $1000 under water (yes, I know about that one first hand, as well. And some others, now that I think about it).

On the flip side, if I have timed this pretty well and hold on long enough to see the S&P take out it's daily cycle trend line around $1247, then I would make $2000.

A last basic: a person "sells" a futures contract if they think price will fall and they can "buy" it back at a lower price. It is very similar to shorting a stock in that regard.

Good trading to you for the rest of this week!

Sold DUST @ $35.99

noreply@blogger.com (John Townsend, The TSI Trader) — Wed, 11 Jan 2012 17:39:00 +0000

I was pleasantly surprised to see my position in Direxion's Gold Miner Bear 3X ETF (DUST) rising in the pre-market and after the opening bell. But I had to make the responsible decision to not try and serve two masters - my trade and my class. So I sold.... @ $35.99 ..... and got on with teaching my students.

My TSI Trading Record has been updated.

A more current look at DUST on this 4 Hour Chart (below) shows some strong BUY signals in place. Not shown is a chart of the S&P 500 which looks like it is holding up by a prayer - or so says the TSI. Should the stock market begin its daily cycle ending correction soon I imagine DUST could do well, and I may re buy it at some point.

Buy DUST @ $35.19

noreply@blogger.com (John Townsend, The TSI Trader) — Tue, 10 Jan 2012 19:31:00 +0000

I decided to buy Direxion's Gold Miner Bear 3X ETF at $35.19. I am playing this on the hunch that this second 4 hour cycle is going to be left translated (already topped at $1641.4) and thus the entire daily cycle will be left translated, as well. This is consistent with my concern that gold may not have concluded its D-wave correction. However, as we are on the fourth daily cycle (if December 29th was not the weekly (intermediate) cycle low), gold is running out of time to fall from the sky - as best I can tell, anyway.

If gold is now able to best the last daily cycle high of $1643.7 it has an excellent chance of making a run to the downward line of resistance drawn from the September 2011 All-Time high through the mid-November and early December highs. That location comes it at around $1695.

My TSI Trading Record has been updated.

Sold NUGT @ $23.40 Pre-market

noreply@blogger.com (John Townsend, The TSI Trader) — Tue, 10 Jan 2012 14:39:00 +0000

I sold my position in Direxion Gold Miner Bull 3X ETF (NUGT) at $23.40 in the pre-market.

My TSI Trading Record has been updated.

BUY NUGT @ $21.90

noreply@blogger.com (John Townsend, The TSI Trader) — Tue, 10 Jan 2012 01:17:00 +0000

Late in today's trading session I saw enough evidence that gold's current 4 hour cycle was finished and likely to lead to a rally - however short term. With that assumption in place, I purchased shares of Direxion Gold Miners Bull 3X ETF (NUGT) at $21.90.

What follows are three charts:
NUGT at the time of my purchase
GC 4 hour cycles overview
GC 4 hour cycles closeup

My TSI Trading Record has been updated.

The Triple True Strength Index (TSI) Indicator

noreply@blogger.com (John Townsend, The TSI Trader) — Sun, 08 Jan 2012 16:25:00 +0000

This weekend I was musing through my litany of programming experiments that include numerous indicators and all sorts of concoctions and I came across this one - the Triple True Strength Index (TSI) indicator - and as I had forgotten how well it appears to work I thought we could look at it today.

First off, and I have said this many times previously, there is no indicator that is the panacea for getting rich. At least, none of my indicators, anyway. ☺ I do, however, think that indicators can be helpful at putting the odds in one's favor and from that point, risk management is what ultimately separates the winners on Wall Street from the losers.

Anyway, my favored TSI magnification is TSI (7,4). But for a successful trend trading outcome it plays a pretty fast game of tennis. The TSI (25,13) is much better suited for trading trends, but with the caveat that it will give the BUY/SELL signals a bit late. The middle ground, of course, would be the TSI (13,7). And for several years I would have all three of these TSI magnifications separately displayed below price in three separate indicator panels, as I attempted to understand how each worked in relation to each other and with respect to price momentum movement.

More recently, as I have developed my programming skills using the Think or Swim platform, I got the bright idea ☼ of a way to combine all three TSI settings into one indicator.

And this is how it works: when all three TSI magnifications are rising - simultaneously - the indicator displays a blue ball. When all three are falling - simultaneously - the indicator displays a red ball. And when the three different TSI settings are not moving in the same direction a cyan colored ball is displayed. To add a little contour to the indicator's movement I threw a 7 period moving average on the Triple TSI indicator. And that's it.

So let's see what this looks like. I arbitrarily chose a ticker symbol that I have been watching lately - Direxion's Gold Miner Bull 3X ETF (NUGT) - and made four charts. This first chart is of daily NUGT price movement over the past 10 months.

The indicator seems to work really well for the slower paced swing trader - someone who likes to make a single swing trade every month or so.

Click on any chart to ENLARGE

The next time frame to test the Triple TSI is the 4 hour.

This seems to work well, also.

The novice TSI user would likely have been confused on the indicator's movement in the latter half of December - mistaking the crossover of the moving average and the indicator's rise as a BUY signal. But it would not have fooled me. HA! That is because I understand that when the TSI is below ZERO, it does not necessarily rise because price is rising. In fact, it rises because the downward momentum is being dissipated as price consolidates sideways. The positive divergence - below ZERO and just after Christmas - THAT was the signal to pay attention to.

OK - let's look at a 60 minute chart now.

Again, understanding how the TSI works is really important. And I have reviewed the basic "rules" on the chart itself.

Just for grins, how about we see what the Triple TSI can do with a 1 minute chart.

For starters, it's obvious that NUGT is not the most liquid ETF on the NYSE. That price action looks like a girl's frizzy hair that has not been brushed for a week. Yowzer!

But seriously, the Triple TSI does a good job for the guy with a fast finger on the trigger. There were somewhat sustained periods where the TSI was above ZERO (red horizontal line). At these times a guy would BUY when the indicator began to rise and SELL when it peaked. And there were other somewhat sustained periods where the TSI was below ZERO. The strategy in this case was to short (or BUY DUST) as the indicator fell and cover the trade when the indicator began to rebound.

So there you have it. Another of my many TSI Trader programming concoctions in the never ending pursuit of making sense of the senseless and irrational price movement of stocks. I hope you enjoyed reading this post as much as I enjoyed writing it.

And good luck trading this week!

Sold DUST @ $37.76 - Gold Leaves a New Clue

noreply@blogger.com (John Townsend, The TSI Trader) — Fri, 06 Jan 2012 23:45:00 +0000

Click on any chart to ENLARGE
With just minutes left on today's week concluding session I took a look at my position in Direxion Gold Miners Bear 3X ETF (DUST) and hit the sell button. Nothing in particular was wrong with the chart technically, I just felt like taking my marbles and going home for the weekend.

While studying the weekly charts of the World Gold Index (XGLD) and looking at the placement of each ABCD wave, I began to notice something I had not seen before. Ever.

I'll show you what caught my eye with the following three charts of the Gold Index. My training/tinkering with gold's cycles, whether they be the four hour, daily or weekly (intermediate) variety, has included an appreciation for the violation of a cycle's price trend line before its conclusion. This trend line break is not a certainty I guess, but a virtual certainty.

So I got to wondering if the ABCD pattern of gold's secular bull market also exhibited this characteristic. That is, has price in every instance broken the trend line of the ABCD pattern before beginning a new ABCD pattern?

Our first weekly chart is the Gold Index from 2002 - 2005. As you can see, there were three complete ABCD patterns in this time frame and indeed, the trend line of each was broken by price before beginning a new ABCD pattern.

The 2003 pattern saw price come down and touch the trend line during the D-wave. But as we will see in other examples, apparently just touching the trend line is not the characteristic of a completed ABCD pattern.

Our second chart looks at the late 2004 C-wave top and continues with the 2006 and 2008 specimens. The introductory price movement of the 2006 example was so flat there was virtually no trend line. That is, the A-wave bottom ($410.10) and C-wave bottom ($413.50) were unable to give an accounting of the ABCD pattern's price trend.

An up sloping price trend line did finally emerge and surprise, surprise ..... it was finally violated by the 2006 D-wave the very week that defined the beginning of the 2008 ABCD pattern.

Also, the late 2004 example, like the 2003 ABCD, found price reach the up ward trend line, but it was not until this trend line was breached a couple of weeks later that the D-wave concluded and an A-wave begun anew.

Finally, let's have a look at the most recent ABCD activities.

On the far left of the chart is the conclusion of the 2008 example - and again note that price tagged the trend line near the conclusion of the D-wave, but it was not until the trend line was clearly penetrated that this D-wave came, mercifully, to a final conclusion.

And on the far right of the chart is the parabolic top of 2011 and we note that the trend line of this ABCD pattern has already been touched by price - but not penetrated.....yet.

My TSI Trading Record has been updated.

BUY DUST @ $36.35

noreply@blogger.com (John Townsend, The TSI Trader) — Wed, 04 Jan 2012 15:45:00 +0000

I set a limit order to buy Direxion Gold Miner Bear 3X ETF (DUST) and headed off to work. OK - that was a mistake. My order was hit and price continued to fall. So I bought more. lol

This is a four hour chart of DUST.

My TSI Trading Record has been updated.

Ah heck - I decided to go ahead and make a proper one hour chart of DUST.

Sold AGQ - $47.50 Sold NUGT - $21.55 Gold Update

noreply@blogger.com (John Townsend, The TSI Trader) — Tue, 03 Jan 2012 19:48:00 +0000

Well, call me paranoid about this gold rally if you wish, but I have banked modest gains on both of my trading positions and 2012 is off to a fine start!

I continue to believe the likelihood of gold making a final plunge towards $1400 is high so I am satisfied to sit in cash as I watch things develop.

This first chart is of Proshares Ultra Silver 2X ETF (AGQ) which I sold for $47.50. This is a 15 minute chart which is usually not the best time frame for making decisions about trends (to say the least). But I think I got most of the easy money off the table and that is all I really care about.

This second chart is my sale of Direxion Gold Miners Bull 3X ETF (NUGT) at $21.55. This chart uses the 30 minute time frame. The chart shows us that in just 2.5 trading sessions price has travelled from a low of $17.09 to a high of $21.83. That amounts to a nearly 28% move from low to high. It seems to me the old addage "what goes up must come down" . We shall see if this time is the exception (but not with my money - lol).

This third chart is a quick look the one hour chart of the gold futures (/GC). Again, nothing goes straight up forever.

Fourth up is a four hour chart with the gold futures cycles included. We are currently on bar 15 of what seems to be a 40ish bar cycle. And, we are beginning a new daily cycle as well.

In the past 9 months, all of the first four hour cycles nested within the daily cycles were right translated, except one. So odds favor this current rally will not top until tomorrow or later.

And finally, this beautiful chart of Gold Futures was sent to me earlier today by the inventor of a new momentum indicator for the Think or Swim platform called the TrendXplorer, by JW of http://indexswingtrader.blogspot.com. I'm curious to learn more about the signals it renders and think the use of color is exceptionally effective.

My TSI Trading Record has been updated.

CDY, GDX with BPGDM, GDXJ, NUGT Analysis

noreply@blogger.com (John Townsend, The TSI Trader) — Mon, 02 Jan 2012 01:28:00 +0000

With trading about to begin for the New Year 2012, how about we take a look at the gold miners and see where they are positioned. We will begin with a couple of charts of the stock I wrote about a week ago, Cardero Resources Corp (CDY) , then examine the status of Market Vectors Gold Miner ETF (GDX) with the Bullish Percent Gold Miners indicator ($BPGDM) from StockCharts and conclude with a look at both the Market Vectors Junior Gold Miners ETF (GDXJ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).

I wrote about the bargain price of Cardero Resources Corp (CDY) about a week ago. At that time the stock traded for $0.95 per share and at a Book Value of just 57 cents on the dollar. Since that day CDY was made a little improvement in its price, closing last Friday at $1.02.

So did I buy CDY at $0.95? Nope. But I have heard from readers who did buy CDY at something close to $0.95 and I am very happy for them! I placed a Good til Cancelled (GTC) order to buy CDY at 90 cents - which has not been filled. Most likely I will raise my offer this week and make sure I get some shares.

Let's begin with a look at the weekly chart of Cardero Resources Corp (CDY).

The most interesting point of this chart is the 6 year long resistance line that currently is at about $1.86 overhead. I am using a moving average of 40 on this weekly chart that roughly equates to the 200 dma. We note that a couple weeks ago CDY made its first (failed) attempt to reach and get through this 200 day moving average equivalent.

This second chart is a daily of CDY. The moving average of 40 is still used (unfortunately) but the 200 dma currently comes in at about $1.28. A shorter term overhead resistance line is identified and is also at about $1.28. The longer term resistance line identified in the weekly chart (above) is still seen as $1.86 and likely to be at $1.80 by early March.

Moving on to GDX, let's first take a look at its infamous 2008 low with the $BPGDM indicator from StockCharts. This particular indicator measures the percentage of gold miner stocks in the HUI index (15 mining stocks) that currently have a BUY signal on their point and figure charts. I have programmed the ThinkorSwim platform to render the $BPGDM indicator while showing the price movement of GDX in the background.

Usually the $BPGDM indicator does a very good job of spotting lows and highs in the GDX/HUI mining index. My sense is that it does that within the context of a trending higher or lower environment. However, at turning points in major trend direction, $BPGDM gives a better interpretation if one considers its divergences with price movement.

I know this sounds a bit confusing, but let me attempt to explain.

This indicator is the percentage of mining stocks in the $HUI index (15) that are yielding a BUY signal on their point and figure charts. My take on point and figure charts is that they do not accurately trigger BUY signals without a considerable delay at turning points. In other words, whereas the True Strength Index (TSI) indicator is a leading indicator, the $BPGDM is a lagging indicator in turning point situations.

Why? Well, when the GDX/$HUI is on a SELL signal with the $BPGDM indicator, the $BPGDM does not issue a BUY signal at a trend reversal without a considerable lag. My explanation for this is that not all stocks within the mining index conclude their bottoming process at the same time. A few inevitably bottom after the majority - and before the majority achieve a buy signal per the definition given by the point and figure charts indicator. In other words, there are a few stocks that reach the SELL definition before several others reach the point and figure BUY definition - thus driving the indicator lower towards ZERO (when in fact the majority of mining stocks are rising).

Anyway, my analysis is that we are close to a D-wave bottom in gold and that the miners may have already put in their bottom, though I think it highly likely at some point in the next week or two miners will again fall towards a retest of their low.

Above is the current daily chart of GDX. The highlights of this chart are the bullish bounce off the lower trend line of the 14 month megaphone pattern. Other things to keep in mind include the TSI below ZERO, the positive divergence already in place, the trend line break that appears imminent, and the ZERO crossover of the TSI that will inevitably occur.

The current daily chart of GDXJ is essentially more of the same, like GDX. Most likely the absolute bottom is in, but it would not surprise me to see a final shake out.

Our final daily chart is of Direxion Gold Miners Bull 3X ETF (NUGT). As readers may recall, I own (what is for me) a substantial position in NUGT, acquired at $20.25. When I added the megaphone resistance lines to the dates that were defined on both GDX and GDXJ, I began to chuckle. I am aware that this ETF went from being a 2X to a 3X sometime in the recent past and that perhaps that is the accurate explanation for this chart. Beats me and who cares? But what I find amusing is the complete breech of the lower resistance line of the megaphone pattern.

The breech of the lower resistance trend line is remarkable. Whatever the explanation, the purchase of NUGT below that line is a gimme, at least in my opinion.

However this plays out in the short term, I am convinced that one can and will make substantial gains with the purchase of miners, right now, in the next few months.

And you know what? I have not written these words for many months.

Good luck riding the Gold Bull. Sometimes, like now, the best thing is to just believe in the bull's intentions to continue much much higher - and not get thrown off when there is a downdraft - as I expect there may be in the relatively near future.

John
tsiTrader@gmail.com

Gold: Look Out Below The D-wave Continues

noreply@blogger.com (John Townsend, The TSI Trader) — Fri, 30 Dec 2011 06:50:00 +0000

Today, something significant happened in the gold market.... and it's not good news for the bulls, at least short term.

The current weekly (intermediate) cycle began on September 26th with a low price of $1535 became a left translated weekly cycle on December 22 when the count of days within the weekly cycle reached 63. The cycle's high of November 8th (Day 31) then became left of the cycle's center.

But as I recently pointed out in Gold's Secular Bull Cycles and Its ABCD Pattern, each and every C-wave top has been followed by a left translated weekly cycle except the 2002 C-wave. The odds therefore were very high that our current weekly cycle, which has followed the $1923.7 C-wave top of September 6th, would also be left translated.

However, the left translated cycles that have followed all but one C-wave, curiously, were not failed cycles - except for the early 2004 and 2008 C-waves. A failed weekly cycle is one in which the cycle bottoms lower than the price where it began.

Here is a daily chart of the 2003 - 2006 cycle data for gold.

The early 2004 C-wave was followed by a weekly cycle that was a failed weekly cycle. When a cycle fails price will continue to fall sharply and when it finally bottoms, the A-wave begins with a very powerful rally.

Here, let's take a closer look at the early 2004 example to see the failed weekly cycle in more detail.

In this case, the weekly cycle bottomed 7 or 8 days after the failure.

In 2008, gold investors were not so fortunate to simply endure a week or two for things to start getting better.

In this case, price sliced right through the failure line and kept going, only to decide to retest that price level (unsuccessfully) and then take everyone on a fantastic ride into outer space..... crashing for one week and soaring for the next..... seemingly over and over again.

Last summer I wrote about a post titled, Gold C-wave Tops and D-wave Retracements. My research detailed each of the 6 historic examples with measurements of D-wave price retracement of the C-wave that preceded it, trading day tally for each D-wave, and the relative speed in terms of trading days that each D-wave plummeted to reach key Fibonacci levels.

With today's breach of the current weekly cycle perhaps this would be an opportune time to refresh our memories on the kind of damage D-waves do to the price of gold.

The following chart shows the entire 2009 - 2011 C-wave that concluded September 6th and applies some Fibonacci measurements to this C-wave's $1058.7 rise above its $865 beginning.

It is a bit scary to see the historic retracements of the previous 6 D-waves and apply them to today's situation. We have a retracement to date of 38%. I would put the odds that gold has finished falling at about ZERO. And I would put the odds that gold reaches $1400 at 80 - 95%.

Some readers have been writing to inquire about my work on the four hour cycle of gold - and what it is telling us now, if anything. The following chart jumps us in a new direction with an overview of the past 180 trading days that www.thinkorswim.com platform makes available for the 4 hour time setting.

For starters, the blue counts are the bar lengths of each four hour cycle. These measurements have ranged from 57, 55 and 50 on the long side to 28, 31 and 36 on the short side.

The purple counts are a calculation of the number of trading days in each daily cycle at its concludion. These daily cycles have ranged from 14 to 28 days. My own research on the entire lot of daily cycles from 2001 to present is that daily cycles average 24 days.

The next chart zooms down the time frame to just the current weekly cycle.

Some quick things to note. There have been 3 completed daily cycles in this weekly cycle (18.8, 23 and 27.3 days each). Within each daily cycle we find the nested four hour cycles. The first two daily cycles had three nested four hour cycles. The third daily cycle had four. We have just begun a new daily cycle - literally at 8:00 am cst this morning. And that means we will have more nested four hour cycles before the conclusion of this daily and weekly cycle.

If you would like to study the number of four hour cycles that are nested within each daily cycle just look at the chart that preceded this one!

Well, getting down to the nitty-gritty now. Here is a chart of the four hour cycles up close with the TSI BUY/SELL signals below price.

We see that price has bounced after crashing through the failed cycle level of $1535 (as in the 2004 example), the slower trending TSI (25,25) has turned from red to green, indicating a likely change in trend direction, and the TSI (7,4) has signaled a trend line break BUY (green dot).

BTW, the small red/green dots above price locate the four hour cycle high - red is for left translated, green for right translated.

OK - so where do we go from here?

Lower, obviously. But maybe enough of a bounce in the very short term that I can keep a sale of my NUGT and AGQ positions from being too embarrassing. (lol)

If that does not work out for me I will stand aside and look the other way for awhile. It's a bull market, after all! Those of you who can wait - you are about the get the buy of a lifetime. Let's all keep an eye on it together, OK?

John
tsiTrader@gmail.com

Cardero Resources (CDY): Bargain

noreply@blogger.com (John Townsend, The TSI Trader) — Mon, 26 Dec 2011 14:55:00 +0000

I keep forgetting to update my purchase of AGQ (Silver Bull 2X ETF) on the open this past Monday morning at $46.72. Sorry about that.

My TSI Trading Record has been updated.

I anticipate purchasing shares of Cardero Resources (CDY) when post-Christmas NYSE trade resumes on Tuesday.

Mining stocks, as you are well aware, are very out of favor right now. Indeed, the $BPGDM (Bullish Percent Gold Miners Index) that is available for examination at www.stockcharts.com is at lows that should be close to a bottom. At present it is reading just 13.79 - which is the percentage of mining stocks in the index with BUY signals on their point and figure charts.

Unfortunately, it's entirely possible that miners have not finished their wash out process - particularly as gold itself may have a final leg down to conclude this weekly cycle.

So, with a bit of caution in mind I decided to look at miners that looked as though they were not likely to have much, if any, downside left. While looking at over 200 charts I rediscovered an old friend - a company I have followed for a couple years now, know something about and have traded very successfully in the past. And that company is Cardero Resources (CDY).

Cardero trades on the AMEX exchange. Of all the charts I looked at, Cardero is currently priced closer its 2008 low than any other mining company one could take seriously. Additionally, of all the mining stocks on the AMEX, CDY trades at the lowest price to book value ratio of any - an incredible 57% of book value. Now that is a discount if I ever saw one.

CDY has a small float of just 91M shares outstanding - this figure includes a recently closed private placement of $7.6M. And, the company has ZERO debt.

I'll offer some thoughts on 'why' Cardero is currently mispriced, but how about we take a look at some charts.

From a technical perspective CDY seems to have a few things going for it. First, what appears to be an inverted head & shoulders pattern on the daily chart suggests a minimum price move of 57% could be in the offing. Additionally, the TSI would not need much encouragement to render a Trend Line Break BUY signal with an additional ZERO crossover BUY signal presumably not too far away.

This is a longer term look at CDY and its weekly chart.

We can see that the 2008 bargain basement low was $0.73 and recently CDY traded as low as $0.74. However, when investors have turned their back on this stock for too long, sharp rallies can quickly carry the stock up to $2, $3 and even $5. That is explosive.

Last chart - a daily of the Market Vector Coal ETF (KOL).

Here the inverted head & shoulders pattern is a little clearer to see than in the CDY specimen. Curiously enough, it also projects a minimum price gain in excess of 50%.

Is there something wrong with the Cardero company, some bad news, to explain its current bargain price? NOPE.

There is a lot of background information that I am going to omit - I'm just not interested in spending 3 more hours reciting it all. If this stock interests you then by all means read all the SEC filings, commentary on Yahoo and Fool and tear through the company website (www.cardero.com).

Having done that for myself I conclude that the stock price is suppressed as it is in an extremely out of favor industry group - miners. On top of that, Cardero does not have a project that is already producing revenue. Further, the company, while having a major position in a coal mining operation, has it's financial resources spread out over several other smaller mining operations that include coal, but also iron, titanium, gold, silver, zinc. If that were not enough for analysts/investors to keep up with, CDY also owns stock in a couple of other mining companies (investments) that amounts to about 30% of their net worth. Add to that December tax loss selling and the plate is full of (temporary) negatives.

I believe that the investment community goes through periods where this company does not fit into some nice box and is periodically removed from their radar screens...... I believe that to be the case at the present time.

A couple of final observations. First, it is important to appreciate how Cardero got to where it is today. Seven years ago the company purchased the Pampa de Pongo iron ore deposit in Peru for $1M.

Six years later they sold it for $100M.

And secondly, their coal mine operation just released a preliminary economic assessment. The project contemplates a net after tax and expenses profit of $115M per year after mining begins.

Remember, CDY has ZERO debt, only 91M shares and sells at .57 Book Value.

Gold's Secular Bull Cycles and its ABCD Pattern

noreply@blogger.com (John Townsend, The TSI Trader) — Thu, 22 Dec 2011 01:36:00 +0000

I have recently spent a number of weeks writing a computer script that runs on the Think or Swim platform. The script's output details the 119 daily and 30 weekly cycles of gold from its February 16, 2001 secular bull genesis to the present. Also, as gold has traded in a continuous repetitive ABCD pattern and is presently completing its 8th iteration of the pattern, the details of this pattern will be included in the three charts that follow.

Before we roll up our sleeves and start looking at the charts I'd like to give you a brief preparatory review of what you will be looking at, then we will be off to the daily gold futures charts and the colorful signals I have ascribed to the cycles analysis.

The primary structural component of gold's secular bull price movement is the weekly cycle (also known as the intermediate cycle). As we will examine in the charts, this cycle provides the pivot points of the ABCD waves and will be easy for you to observe.

The average length of gold's weekly cycle is 94 trading days or approximately 4.5 months. Nested within each weekly cycle are shorter cycles known as the daily cycles. Daily cycles average 24 trading days. And interestingly, I have recently discovered a four hour cycle that is nested within each of gold's daily cycles but I will write more about that another time.

A cycle is measured from its initial low to a subsequent low that is usually near the expected average cycle length. This measurement is divided in half to determine whether the highest price achieved within the duration of the cycle occurred before or after this midpoint calculation. If the cycle's high occurred after its midpoint measurement, the cycle is referred to as right translated. And if the cycle's high occurred before its midpoint measurement, the cycle is referred to as left translated.

It turns out that this translation issue is a critical piece to understanding gold's cycles and can be very helpful when anticipating the direction of future price movement. This is because cycles that are right translated usually make a higher low when they bottom and begin anew whereas cycles that are left translated usually make a lower low. Also, when a cycle begins at a certain price and concludes at a lower price, the cycle is referred to as 'failed'. This is very common for left translated cycles and not so for right translated cycles.

In gold's secular bull there have been 119 completed daily cycles of which 39 were left translated and 80 right translated. One could generalize that 33% of the time gold's daily cycles are left translated and 67% of the time right translated. But there is a little more to the story.

The interspersion of this ratio is not particularly random, fortunately. Indeed, the general tendency is for a weekly cycle to begin and continue with a series of right translated cycles, then conclude with one, perhaps two left translated cycles. For example:

27 of gold's 30 weekly cycles began with a daily cycle that was right translated. Obviously, buying at the beginning a new weekly cycle has high odds for success.

On the other hand, 25 of gold's 30 weekly cycles concluded with a daily cycle that was left translated. 27 of the 30 weekly cycles concluded with a daily cycle that was failed and 29 of the 30 weekly cycles concluded with either a left translated daily cycle, a failed daily cycle, or both. Obviously, buying toward the end of a weekly cycle is a good way to take a position that goes under water quickly and does not recover for some time.

The ABCD wave pattern is quite straight forward. The A-wave is usually a sharp rally that follows the severe drop in price that occurs during the profit taking D-wave. The A-wave has been just one or two daily cycles in length, with the exception of the A-wave that followed the severe D-wave in 2008. That A-wave was 3.5 daily cycles. The B-wave is a corrective move to the explosive A-wave and has occurred in the form of either one, two or three daily cycles. The C-wave is the longest wave in terms of time duration and concludes with a parabolic finale.

OK - let's get a chart up and see what all this really looks like. First we will begin with a look at the earliest years of gold's secular bull, 2001 - 2005.

The building blocks of gold's repetitive ABCD, the weekly cycles, are located by large upward pointing orange arrows under each weekly cycle low. I chose to place the abcd identifiers at the beginning of their respective wave. Indeed, C-waves conclude with a parabolic top, but d-waves also begin at a parabolic top, as well. In any event, I have sequentially numbered each C-wave event with a large hot pink numeral.

The downward pointing large arrows are either dark red (left translated weekly cycle) or dark green (right translated weekly cycle). The red and light green dots spot the precise location and translation of each daily cycle.

I have used a rectangular box to highlight the weekly cycle following each C-wave top. Remember my noting that there were 30 weekly cycles? Well, what I did not tell you was that of these, only 7 were left translated. AND, these 7/30 left translated weekly cycles ALL occurred in the weekly cycle following a C-wave top.

Does that sound random to you? It does not sound random to me. In fact it sounds rather predictable.

Before we move on to the second chart I would like to call your attention to the 2002 C-wave top that was followed by a right translated weekly cycle. That is a bit novel. And also notice that the early 2004 C-wave top was followed by a failed intermediate cycle. Truth be told, when a cycle that is left translated does not fail - that is bullish. The other rectangles on this chart all dodged the bullet and managed to bottom higher than their beginning.

This second chart shows gold futures price activity from 2005 - 2009. Note that the 5th C-wave parabolic is shown at the conclusion of the first chart and here at the beginning of this second chart. Please also note that the 2006 and 2008 C-wave parabolas were followed by weekly cycles that were left translated, and that the 2008 specimen, like the early 2004 example, was not only left translated but also a failed cycle.

Which brings us to this final third chart. C-wave top #7 (2008) appears on this chart, as it did in the previous chart.

What I find curious is our current situation, identified by the dark green rectangle. I have temporarily identified the bottom achieved last week as the conclusion of the weekly cycle following our recent C-wave top with the large orange upward pointing arrow. But here is the quandary - it is a right translated weekly cycle (dark green, not dark red). If the final daily cycle had persisted for another week or so, then the weekly cycle would have been dark red and left translated. But the recent sell off was so severe it apparently shortened the most recent daily cycle.

If you recall the first chart, the 2002 C-wave was followed by a right translated (dark green rectangle/arrow) weekly cycle. But that is the only time this has happened. Each and every other example following a C-wave top included a left translated (dark red rectangle/arrow) weekly cycle.

Is it possible our current weekly cycle really has not yet bottomed? And that the current daily cycle is going to not only be left translated, but also fail and trade lower than its $1562 beginning? For myself, if gold does trade below $1562 I will sell sell sell because without a doubt in mind we will be heading even lower. An even more bearish scenario would be for gold to trade a penny below $1535 as that would be the very definition of a failed weekly cycle. Our two previous examples of that (2004 and 2008) should be warning enough.

I'll be watching my four hour cycles software with a keen eye in the near future as I suspect it will tip me off should this situation begin to turn on my long positions. I'll keep you posted.

Good luck and when you figure out how this is going to turn out before I do, please let me know.

John
tsiTrader@gmail.com

BUY NUGT $20.25 - Gold Has Bottomed (?)

noreply@blogger.com (John Townsend, The TSI Trader) — Fri, 16 Dec 2011 19:21:00 +0000

It has been the 'week before school lets out for the holidays' that is always filled with more things to do than one can keep up with. But for the 30th year, I managed to survive.

I did finally do a trade, taking a hefty position in Direxion Gold Miners Bull 3X ETF (NUGT) at $20.25 on Thursday, and am just getting around to documenting it with this post.

This chart of NUGT was snapped somewhat near the conclusion of trading on Friday, the day following my purchase. The True Strength Index (TSI) indicator in the lower panel details the BUY signals I relied on for my trading decision. The green dot is a trend line break and the cyan colored arrow is a positive divergence. The blue arrow locates the four hour bar that was the cycle bottom.

Also, the scripts running in the price chart and on the TSI below have been tweaked to display properly with stocks and ETFs. My original scripts were designed to run on /GC - gold futures. Once I started putting GDX and other such 'stock market' ticker symbols on the screen a number of my dot trading signals and arrow cycle markers disappeared.

I figured out the problem - gold futures trade 24 hours per day and yield 6 four hour bars each day. Stocks do not trade 24 hours per day so the 2000 and 0000 (8 pm and midnight) four hour bars in the futures data do not appear in the stock data - because there is no data for these four hour bars. The fix was simple though tedious (as all this programming stuff seems to be). I rewired the programming to simply advance the dots and arrows from the four hour bar it first appears in the gold futures data to the next available bar in the stock data.

So now I have two scripts - one for futures and the other for stocks.

The random looking line in the TSI indicator panel (above) is a second TSI indicator set to a longer magnification. I think in this chart it is set to TSI (25,25), or something like that. This is just an experiment to see if/how useful it is to use a slower TSI for confirming reversals in trend direction . It seems to work pretty well.

The other feature I have included in my TSI indicators is the use of 4 colors. Readers who have visited my writing for some time know that the TSI gives us different information depending on the following four conditions: the TSI is rising above ZERO, the TSI is falling above ZERO, the TSI is falling below ZERO and the TSI is rising above ZERO. In this instance I am using blue, cyan, red and green, respectively.

Btw, all colors, dots and arrows are completely and easily customizable by the user - requiring no programming skills or hassles whatsoever. A click here and a click there and the colors, shapes and sizes of these items can be whatever you want.

Moving on, the next chart presents an overview of gold's past two weekly (intermediate) cycles. Assuming I have called this correctly, the final four hour cycle was quite short at just 28 bars. If I am incorrect and gold bottoms around bar 40 (as seems to be approximately its 'normal' cycle length) then early Monday trade beginning with the overnight Asian markets would be the expected time for that to occur. Curious perhaps, but most four hour cycles bottom at 0800 - just before the NYSE begins trade for the day. Hummmmm..........

The weekly cycles (yellow arrows) appear quite symmetrical and the current daily cycle calculation of 18.2 days seems reasonable within the context of past daily cycles.

And finally, let's take a closer look with the TSI indicator active below gold futures price.

If you look carefully you will notice that most four hour cycles (blue arrows) bottom and then are followed by the TSI yielding a trend line break BUY signal (green dot). This should prove to be a remarkably helpful confirmation that a cycle has indeed bottomed - particularly when these trend line break BUY signals occur very close to the expected bar count for the four hour cycle or roughly 40.

Shortly after 12/5 (Dec. 5) you will observe a positive divergence (cyan arrow) and trend line break (green dot) BUY signal in the TSI. I am aware there were many who took a long trade on GDX at this time. I did not because I was skeptical those signals were valid - they occurred way too soon to be near a four hour cycle bottom. And honestly, it would be impossible for a person to know this unless they had an eye on these four hour cycles.

(And if you are wondering, the plum colored dots are the trend line break SELL signals. The pink dots at the top spot the negative divergence SELL signals. The red dot signifies the nose bleed SELL signal when the TSI exceeds a reading of 0.80).

It turns out that GDX trade was indeed a dud. GDX never closed a penny higher after that day.....basically it was all down hill from there. Those who took the trade wisely retreated with as minimal a loss as possible.

Anyway, it looks like I am onto something very promising - for futures traders and stock traders of precious metal related securities. Let us all hope so.

My TSI Trading Record has been updated.

Gold - Has It Bottomed?

noreply@blogger.com (John Townsend, The TSI Trader) — Wed, 14 Dec 2011 23:34:00 +0000

Like everyone else I am hoping to time the bottom of this vicious drop in the price of gold with a long trade - however short lived - in a miner ETF. Today was day 17 of a daily cycle that usually ranges from 20-28 days. Using the 'normal' daily cycle metric would suggest we are getting close to a bottom. And if the cycle is short this time, perhaps we are already there. Indeed, it is true that daily cycles that include precipitous falls are often shortened - explained perhaps by human nature's inability to stand pain as long as it tolerates incredible gains.

In any event, the current situation is a test of faith for me. That is, the four hour cycle is presently on bar 24 and the data suggests that this little cycle - painful as it is - should endure to bar 40 or thereabouts. If true, then gold has not bottomed just yet. It appears that Friday would be a reasonable time for gold to bottom - somewhere around bars 34 - 37 - shortened from the expected 40 bars due to the extreme decline we have had in price of late.

Anyway, I am going to try to buy on Friday. If I miss the bottom then shucks. And if I catch it about right then I will have a little more confidence in this four hour cycle. Stay tuned.