Sunday, October 3, 2010

Timing is Everything (or is it?)

I have about 135 mining stocks that I follow each day.  On each chart I have pre-drawn trend lines on the True Strength Index (TSI) and Money Flow Index (MFI) indicators which are placed below the actual price movement of the stock.  The software I use is freely available at:
This weekend I identified 7 miners of the 135 that exhibit what I consider optimal buy signals; a breakout of the TSI indicator and usually above the ZERO reading, often accompanied with a breakout of the MFI indicator, and sometimes including a positive divergence between the direction of price and the TSI indicator's movement.
I got this fun idea to document how well each of these 7 stocks perform this week by comparing their results with a couple of benchmark ETFs like GDX and GDXJ (Gold Miner and Junior Gold Miner Index, respectively).
Following the close each day this week I will return to the table included in this post and update the results.  If you would like to participate as an observer you will need to find this post (as it becomes buried further and further down the page with the addition of new posts) and see for yourself exactly how this turns out.  
I guess the question I am exploring is:  Timing is everything (or is it)?  
Does using the TSI and MFI for timing buy signals give one any advantage over simply buying either GDX or GDXJ?  (Not that one little study using just 7 stocks during a single week of the year can answer that question once and for all, but hey, we have to start somewhere, right?)
TSI (7,4)
MFI (10)
Cumulative Gain/Loss
So Far This Week
Charting software:



The average loss for the 7 TSI miners on Monday was -0.68%, GDX was -1.86% and GDXJ  -2.49%.
The average gain for the 7 TSI miners on Tuesday was +2.03%, GDX was +3.08% and GDXJ +3.96%.
The average gain for the 7 TSI miners on Wednesday was +.91%, GDX was +1.50% and GDXJ +2.16%.
The average loss for the 7 TSI miners on Thursday was -1.93%, GDX was -2.65% and GDXJ -2.99%.
For the week so far the 7 TSI miners have averaged +0.08%, GDX +0.02% and GDXJ +0.16%.

Well, here is the table (above) I will return to each day to update for our amusement.
The 7 stocks and their charts are as follows:
1.  CDY - Cardero Resource Corp
2.  JAG - Jaguar Mining Inc.
3.  MQCMF - Mosquito Cons Gold M
4.  PEZGF - Pediment Gold
5.  PZG - Paramount Gold Mining Corp
6.  RIC - Richmont Mines Inc
7.  SFEG - Santa Fe Gold Corp
Click on any chart to ENLARGE


  1. Could you refresh our memory about TSI sell signals?

  2. Good idea and thanks for asking!

    I have identified 5 techniques for using the TSI for SELL signals. I have listed them roughly in their success rate or significance

    1. Trend line break of the TSI indicator line (indicator crosses down through a rising trend line of support)

    2. ZERO Crossover - indicator crosses down through the ZERO line into negative values

    3. Negative divergence of price movement with respect to indicator movement. i.e. price makes a higher high, indicator simultaneously makes a lower high

    4. Nosebleed - the TSI indicator makes a parabolic high reading that, comparing with past readings, is sky high and simply unsustainable

    5. Put a moving average (3 or 5 works well) on the TSI indicator. Sell signal would be when the indicator crosses down through the moving average signal line.

    NOTE: These 5 techniques define SELL signal techniques. Just flip each technique definition around and the BUY signals are exactly the opposite. For this reason, TSI works (or appears to me to work) equally well in both bull and bear markets, uptrends and downtrends, etc.

    A couple of general considerations that are important to keep in mind:

    A. The higher (positive) value the TSI reading, the more momentum and positive inertia exists with respect to price behavior. The means that a negative divergence or trend line break occurring well above zero will usually yield a less powerful or successful sell signal than a negative divergence or trend line break occurring just above the zero line.

    B. The longer the time frame considered, the more sustainable the sell signal in terms of time value. i.e. a sell signal on a 5 minute chart has no where near the money making value or significance of a sell signal on a daily chart.

  3. Can you please list down the parameters used for getting the graphs? I am not able to get your exact graphs?

  4. An average of your TSI stock picks would be easier to compare to GDX and GDXJ.

  5. Parameters are on the chart above: TSI (7,4) and MFI (10).

    I added a sentence below the chart to show the average TSI gain or loss, along with the same for GDX and GDXJ. Thanks for the suggestion.

  6. It might be interesting to compare your overall (not cumulative) percentage gain to simply buying and holding GLD, GDX, and GDXJ since you started your blog.

    GLD 8%
    GDX 11%
    GDXJ 22%
    TSI ?%

  7. I have taken a considerable hit with my purchases of CMIN. so my overall percentage gain has dropped since I last reported it.

    With that in mind, my account value today is 52% higher than it was when I created this blog on June 11, so I guess I have, to date anyway, outperformed GDX and GDXJ by a factor of 2:1.

  8. Thanks John...

    Just wanted to give you a /*"tip-o-the-hat"*/ for all the instructive
    backgrounders and continuing good advice...!

    I'm not a day or week trader like you...yet I admire your tenacity and
    technical approach especially with respect to the precious metals sector.

    1] Do you use an online broker for trading...?
    2] Can you recommend one...?
    3] What type of orders do you normally utilize?

    Apologies if you have a FAQ, concerning the above...I missed it.
    I have a brokerage account with Vanguard and they execute my
    transactions usually in seconds [or minutes] and normally for $7.

    Very best regards...

  9. John, have you dropped your "gmail" account?

  10. Gramps - I have not dropped my gmail account. I use Interactive Brokers and am very satisfied with their service and price. Normally I use Limit Orders. Now that I think about it, that is the only kind of order I use. Thanks for your questions!