Tuesday Buys: CDY @ $1.80 and DNN @ $3.31

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Yesterday I bought a couple of stocks to further test drive the new strategy I have been working on for a couple weeks now.  The first purchase was of Cadero Resource Corp (CDY) at $1.80.

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My other purchase was of Denison Mines Corp (DNN) at $3.31. 
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It appears that buying almost any miner yesterday was a good idea going into the kind of market we had today after Ben's signal that he is going to print, print, print.  So it was "too easy" to succeed today.  But I will be back with more attempts to test my strategy when the market conditions are not so favorable.
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Anyway, one aspect of my new TSI strategy involves the identification of positive and negative divergences, as before, but with a new twist to include the identification of what I am calling 'inverse' positive and negative divergences.  I have back tested and ironed out most of my purchase strategies, and now labor to determine the best exit strategies.  
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Soon I plan to post my stock purchases in advance, as well as provide the optimal exit strategy.  I will then not only post the trade ideas, but document how well they work as I attempt to fine tune the process.  I am aiming for a success rate exceeding 75%, perhaps higher.  Time will tell, so I hope you stay tuned.
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My TSI Trading record has been updated.

Another Spoke in the Wheel Broken - SP-500

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Today the advance decline ratio reached 89% and it was not a good day to begin a new trading strategy  :-)  The only reason my account actually showed a profit for today was due to my short the SP-500 via a futures contract (/ES) which has 50:1 leverage. I did however buy a couple of stocks and we will get to that in a minute.
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This is the daily chart of the SP-500 and with the excessive bullish sentiment carrying on yet another week, I have the feeling the upcoming correction is going to end rather badly for investors long in the market during the next few weeks.
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Also, the True Strength Index (TSI) indicator gave another trend line break sell signal with today's price action.  A third negative divergence (not highlighted on the chart) is now in the record books, as well.

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The two purchases I made today turned red with the rest of the stock market. The first was a purchase of Denison Mines (DNN) at $3.61 and its subsequent sale for a 6.6% loss at $3.37.  I still do not have the limit stop loss mechanism figured out and by the time I saw that the position's loss had exceeded my strategy, well, I just sold.

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The other 'market order on the open' buy was of Harmony Gold Mining Co (HMY) at $11.44. The white line tearing through the stock price action is a long term trend line that HMY is attempting to recapture.  Well, it didn't happen today but I am sure that eventually it will.
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My TSI Trading record has been updated.

Hard at Work on a New Strategy

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For a few days now I have been somewhat obsessed with developing a new strategy.  I've made a good amount of progress though at this point I wish there were 36 hours in a day.  Ever feel that way?
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Anyway, tomorrow I will take my first leap of faith and use some money to begin test driving my strategy.
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I have narrowed a list of 10 prospects for tomorrow's trade down to just two.  They are Denison Mines Corp (DNN) and Harmony Gold Mining Co (HMY).  I will simply place a market order to buy the opening price of each, set a limit order to sell 5% higher than my filled order, and possibly set a stop below the low price each achieved today. I will go into greater detail about my strategy when time permits.  
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The other 8 ticker symbols I did not chose were, for the most part, small capitalization plays.  If you are interested in some of these ideas, here they are in alphabetical order:
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CCJ
EGDF
MAOMF
ORVMF
RDUFF
TSRMF
URZ
VITFF
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As luck would have it, these 8 will probably do better than my purchase.  But as long as my trades succeed, I will be very pleased.

Details, Details, Details - Gold Daily Cycles

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This is going to be one of those posts that if you don't love details, you may as well find something better to read. Seriously.
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A friend from New Zealand emailed me today to ask what the daily cycles of gold were telling me now.  And as I thought his question would be interesting to think about, this post is my detailed obsessive thinking and answer to his question.
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Let me make clear that I do not pretend to be some expert on the cycles of gold.  I think I have an understanding better than the average bear (pardon the pun), but that is as far as I will take it.
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Anyway, cycles, daily or otherwise, begin at a low point, rise, peak and then begin anew when an intraday low point is established within the time frame of the average cycle length.  The next cycle then takes that low point, begins anew, rises, reaches a peak and then descends to a new intraday low point, and so on.
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Gold's daily cycle is usually between 20 and 24 days in length.  It is considered bullish when the highest price occurs later than the midpoint day of the cycle, and bearish when price peaks before the midpoint day.

XGLD
Click on the chart to ENLARGE

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All of these details, unfortunately, are important to understand when considering the chart I have made.  You will notice that we are now completing the sixth daily cycle since the Intermediate cycle began on July 28.  
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The cycles since July 28 have been between 18 and 25 days in length.  With that in mind, today (Friday) was Day 20 of the current daily cycle and that means we should now be near to the final bottom which will lead, however temporarily, to several days of higher prices before the top of the next daily cycle is reached.  
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The reason I do not believe the current daily cycle is already completed is that we have not traded lower than Day 15. (The shortest daily cycle bottom in the last two years was 16 days - 15 days is just not probable at all).  Once the current cycle bottom is accomplished next week by taking out Day 15's 1353 to the downside, I think the current cycle will be completed and a new daily cycle rally should begin.
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You will also notice that our current 6th daily cycle has traded lower than the previous 5th daily cycle low (1353/55 vs 1362). This means the current daily cycle has failed to make a higher low and this phenomenon usually foreshadows an intermediate degree correction.
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Well, I told you this would be a post with a lot of details.....glad I don't have to rewrite it from scratch, to be honest.  
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A little more down action in price that then stops should make for a bullish positive divergence, as the True Strength Index (TSI) indicator registered a -.39 five days ago on the drop to 1353 while the indicator currently reads a more favorable -.31 with price reaching 1355 today.
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OK - time to give my brain a rest.  I am looking for a rebound in gold later next week, how about that?

Sold PAL $7.20

Click on the chart to ENLARGE

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In this morning's pre-market I sold my position in North American Palladium (PAL) at $7.20.  I had a very nice gain that I chose to put in my pocket.  The negative divergence of the price action vs. True Strength Index (TSI) indicator gave me pause for concern.
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However, this is a trade and I will be back, as I have every confidence that PAL is going to go much much higher in the next couple of months.  
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My TSI Trading record has been updated.

SP-500: Doesn't Look Good -- Gold: Trend Line Breaks

Click on the chart to ENLARGE

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I have been waiting quite some time to write this particular post.  And well, I think the time has come.  
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I have been amazed by how long the stock market has been able to hold up with sentiment at an extreme. Investor's Intelligence today reported the highest bullish sentiment of the entire rally - 57.3%.  That is about as nose bleed as this reading ever gets.  Bearish sentiment, by the way, was a scant 19.1%.
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But it is not the sentiment figures that I have been waiting on.  They have been calling for a correction for 8 or more weeks.  I've been waiting for the True Strength Index (TSI) indicator to show me something truly concerning. And today I think the TSI is speaking loud and clear that the end of this stock market rally is very near.
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You may have read my post of this past weekend about the series of  three consecutive TSI negative divergences that built up in the gold market before price took a precipitous spill. The bearish situation for gold that I wrote about showed up on its 4 hour chart. 
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The same situation is finally set up on the SP-500. Of greater concern, however, is that this situation is now apparent on the SP-500's daily chart, not the 4 hour chart. It is impossible for me to know how much longer the index is going to hold up, but my guess is not long. Certainly, when the TSI first breaks the red trend line, then the ZERO line, it could be a very nasty correction.

Click on the chart to ENLARGE

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Some readers have asked to see me demonstrate in greater detail the trend line break technique of generating BUY and SELL signals using the TSI indicator.  What follows are a couple of 4 hour charts of GOLD's continuous contract.
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First the trend line breaks generating BUY signals. Rather accurate, yes?

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And now, the SELL signal trend line breaks.  
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Also incredibly accurate.  
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Isn't the True Strength Index (TSI) indicator awesome?

An Exquisite Recipe (for a Price Disaster)

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I was chatting on the phone earlier this weekend with one of my readers about the shocking drop in the price of gold earlier this past week.  We agreed that the mini-crash seemed to be the result of a well coordinated effort by some powerful bullion banks who, incidentally, are notorious for shorting gold.
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Honestly, neither of us saw the Tuesday bear raid coming and our mining positions were flooded in a sea of red for the rest of the week.  Perhaps yours were as well.
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With noticeable disdain for the alleged perpetrators, my friend commented that it is really too bad this kind of manipulation is allowed to take place in the free markets, as lots of small investors are literally blind sided and ripped off when "da boyz" decide to "take down" the market.
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And he particularly lamented that there was simply no way to know when they would strike.

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This last comment struck me as interesting as I suspected this was not necessarily true.  We decided to look at the gold continuous futures contract and see what the True Strength Index (TSI) indicator could tell us.  

First Chart - Click on to ENLARGE

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I was not too surprised with what we found but my friend was rather stunned - particularly after I explained what the chart said.
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If you would like to learn how to anticipate future bear attacks, I encourage you to continue reading as I am going to show you an exquisite recipe for preparing a price disaster. 
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Successful bear raids are no accident.  They are carefully executed when the market's underlying momentum is prepared to a degree of extreme vulnerability. I hope my effort to explain the following will shed new light for you on the True Strength Index indicator techniques available to you for the anticipation of these powerful selling phenomenon. 
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Let's begin with a quick look at this first 4 hour chart of the Gold continuous chart contract (/GC) for the action of the past week.  I have simply added my usual True Strength Index setting of (7,4) below price, and highlighted the price disaster that began on Tuesday with a red rectangle. I made this chart using the software available at ThinkorSwim.
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I have permanently placed a page on my website that details the 6 Buy/Sell techniques using the True Strength Index (TSI) indicator that you may reference whenever desired.  On the sell side, one of the techniques is the recognition of a negative divergence. 
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A negative divergence occurs when price continues to make a higher high, while momentum (TSI indicator) diverges by making a lower high.  Normally, a negative divergence will cause price to correct downward. In effect, price has moved higher without a correspondingly stronger measurement in the TSI momentum indicator, and will need to be corrected.

Second Chart - Click on to ENLARGE

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Our second chart shows that indeed price corrected immediately after the first negative divergence.  But incredibly, price then continued to make a new high and a second negative divergence.  This alone is fairly unusual - two negative divergences in a row. Price should have certainly gone into a corrective phase but instead, price went higher yet and made a third consecutive negative divergence.
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At this point, price disaster was virtually assured.  Whether "da boyz" get the credit for pushing price up like this when it should have been correcting, I have no idea.  But once the heavy selling started it was clear that there would be a vicious outcome.

Third Chart - Click on the ENLARGE

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A couple of the other Sell techniques of the TSI indicator are the trend line break (green line) and the ZERO crossover (hot pink circle).  As seen in this third chart, the TSI faithfully sounded these sirens immediately for all who knew how to listen and who were watching the chart at the right time - SELL!
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Unfortunately for me, I was not watching this chart at the right time and my positions were clobbered.

 Fourth Chart - Click on to ENLARGE

But I was keenly tuned in to see when the "all clear" siren would be sounded and though it took a few days, I knew it when I saw it.
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Early Friday morning a couple of the bullish TSI Buy signals appeared to signal the end of the bear raid.  As seen on this fourth chart, a bullish positive divergence (orange line) was created when the TSI failed to make a lower low as price made a lower low, and secondly, as price began to rise a bullish trend line break (light blue line) occurred.  And once again, the True Strength Index indicator absolutely nailed the bottom of this painful sell-off and gave the Buy signals at the most opportune time.
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To put it all together, negative divergences between rising price and the underlying TSI indicator call for a downward direction in price.  More so after two consecutive negative divergences.  And most urgently following three.  
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Trend line breaks of the TSI indicator are sell signals when the indicator is falling and buy signals when rising.  The Zero line crossover is bullish when reached from below zero and bearish when the crossed from above.
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I hope this article will help you in your future trading decisions.
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Wishing you a profitable week,
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John Townsend
tsiTrader@gmail.com

Looking for a Bounce in Miners

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Last week was brutal for mining stocks as gold plummeted some $72 before coming to rest at $1,368 and a loss of $54 for the week.  I think the bounce off Friday morning's $1,352 low should continue into the early part of this upcoming week.
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This chart, a 4 hour snap of the SPDR Gold Trust (GLD), shows us a True Strength Index (TSI) indicator reading that is severely oversold and likely to foreshadow a bounce in price. The Derivative Oscillator is shown with the actual oscillator blackened out and both a 1 and 3 period moving average of the oscillator in purple and blue. The indicator is curling upwards and suggests a bounce should be in the offing.
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This chart was made using the software freely available at FreeStockCharts.

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The second chart, a daily of the Gold Bugs Index (HUI), was made with the software available at ThinkorSwim.  
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This chart features a cool custom indicator made for me by Eric Purdy of ThinkScripter. The indicator measures the TSI of the HUI index, but additionally the TSI reading for each of the 15 individual mining stocks that comprise the HUI index.
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We can see that the TSI, for both the HUI index and the cluster of mining stocks, are more oversold than any time in the past 5 months.  
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After we get the bounce, then what?  Good question.

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As usual, the answer to that question has something to do with what the US Dollar decides to do next.  

Sold HWD $11.71 and BULM $1.18

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With today's precious metal correction I decided to take a couple of small profits and raise cash for a potential buying opportunity in the near future.
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The first daily chart is my sale of Harry Winston Diamond Corp (HWD) at $11.71.
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Click on a chart to ENLARGE

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The other position I liquidated today was Bullion Monarch Mining (BULM) at $1.18.
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My TSI Trading record has been updated.

Sold RCTFF $.115 -- Bought HMY $12.58

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Yesterday I made a single sale and a single purchase.
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Click on either chart to ENLARGE
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This first daily chart is my sale of Rochester Resources Ltd Ordina (RCTFF) at $.115 for a very small gain.  This is, yet again, an excellent example of exercising discipline while letting the secular bull correct my timing mistake.  I bought this position nearly 3 months ago and it has been under water nearly the entire time.  Call the entry for what it was, 'a timing mistake'.  But I simply held the position until I could let the bull bring price back to my entry price, rather than sell it at a loss.  

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This second daily chart is my purchase of Harmony Gold Mining Co (HMY) at $12.58.  I liked the True Strength Index (TSI) indicators bullish ZERO crossover and trend line break and particularly wanted to own this stock based on its long term price breakout, low book value ratio and comparatively high estimated earnings for 2011.
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My TSI Trading record has been updated.

Can Price Patterns Found on the Derivative Oscillator Tell Us Anything?

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Lately I've been reading the book "Martin Pring on Market Momentum", and excerpts from Constance Brown's book "Technical Analysis for the Trading Professional".  
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Mr. Pring is truly an expert on the subject of momentum indicators - all kinds of momentum indicators.  Ms. Brown is the inventor of the Derivative Oscillator, which is one of the indicators freely available for our use at FreeStockCharts.  
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One of the things Mr. Pring talks about in his book is the good fortune one experiences when standard price movement patterns are found not on the movement of price, but rather on the momentum indicator itself.  
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But he laments that even using his favorite momentum indicator, the Rate of Change (ROC), these kind of familiar patterns do not occur very often.  Indeed, their appearance is rather rare.
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Ms. Brown does an excellent job in her writing to not explain how her Derivative Oscillator indicator works.  I do know that the indicator is some kind of tripled smoothed concoction of the RSI indicator, and that's about it.  Anyway, one thing I admire about this indicator's output is the clarity and unambiguity of its signals, as well as the characteristically symmetrical output of its readings.
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Now enter yours truly (that would be me, of course), always curious, always trying to look at things with a fresh angle. And always looking for an edge!
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What if a person combined the idea of the infamous Mr. Pring, namely that patterns found on momentum indicators can be useful for trading, with the signal clarity and strongly symmetrical characteristics of Ms. Brown's mysterious momentum indicator - the Derivative Oscillator?
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Good question.  Hummmm.......  I'm sure no one has thought of this before.
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Well, how about we choose the familiar inverted head and shoulders price pattern, just for giggles.  Do you suppose we can find that pattern to occur on the Derivative Oscillator?  And if it does, is Mr. Pring correct in claiming that its occurrence should yield a valuable trading signal?
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Let's find out, shall we? LOL
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What follows are 13 daily charts with the Derivative Oscillator used in the prescribed (14,5,3,9) configuration of Ms. Brown.  Where I found indications of the bullish inverted head and shoulders pattern, it is noted with a 'ls' for left shoulder, 'h' for head and 'rs' for right shoulder.
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Additionally, I have attempted to highlight with hot pink the corresponding area of the indicated buy and sell signal (buy after the oscillator bottoms at the right shoulder and below ZERO, sell when the oscillator peaks above ZERO).
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If after examining these 13 charts you are interested in researching this indicator further with me, please send me an email at:  tsiTrader@gmail.com  
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Be sure you look at the last chart.  It's GDXJ - the Junior Gold Miners ETF. 
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Click on any chart to ENLARGE
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1.  Alexco Resources Corp

2. Crocodile Gold Corp


Click on any chart to ENLARGE

3. Inter-Citric Minerals


Still just barely on a BUY signal


Click on any chart to ENLARGE

4. Osisko Mining Corp


Click on any chart to ENLARGE

5. Shoshone Silver Mining Co


Click on any chart to ENLARGE

6. Impact Silver Corp


Click on any chart to ENLARGE

7. General Moly, Inc


Just signaled a SELL signal.


Click on any chart to ENLARGE

8. Mines Management Inc


Still just barely on a BUY signal


Click on any chart to ENLARGE

9. Paramount Gold Mining Corp


Click on any chart to ENLARGE

10. Denison Mines CP


Still active BUY signal


Click on any chart to ENLARGE

11. Mag Silver Corp


Still active BUY signal


Click on any chart to ENLARGE

12. Kirkland Lake Gold


Barely, but still active BUY signal


Click on any chart to ENLARGE

13. GDXJ - Junior Gold Miners ETF


Brand New BUY Signal!

Miners with Fuses Lit. Cover Your Ears (and BUY) -- Ps. Happy New Year!

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I thought it would be helpful to study the mining stocks that have demonstrated significant trend line breaks on their weekly price charts and highlight a few that appear ready to have their fuses lit.  
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In all, this study will show you the current weekly charts for 19 mining companies.  Each chart, in addition to identifying the price trend line break, provides the most current consensus earnings estimates of analysts (as reported by Bill Matlack and published by Kitco on December 28, 2010), as well as the current Price to Book Value ratio.
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The first 5 charts demonstrate what happens when a long term weekly chart breaks a significant trend line, as price then rockets to the upside.  These 5 miners have recently appreciated in the neighborhood of 50%, and very quickly.
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The next 9 charts will show you miners that are in the beginning stage of their rocket launch. These miners have their fuse lit and are just now beginning to blast off their launch pad.
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Finally, we look at 5 miner charts that appear ready to have their rocket launch fuses lit.  These prospects are being pulled to the launchpad by that huge tractor that features the secular bull in the driver's seat, and are preparing for their moment of glory.
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I believe we are now going to begin the final parabolic rise of gold's C wave that will take gold to $1650 sometime near the end of March 2011.  This is an excellent time for each of us to reexamine our portfolios and prepare to own the rockets that appear most motivated and prepared to take flight.  This study is by no means exhaustive of the possibilities, but I do hope it inspires investors, beginning with myself, to get ready for the awesome display that is about to happen.  Cover your ears (and buy).
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By the way, after giving each of the 19 charts a look, how many have made a perfect cup with handle pattern?  Send your answer to me at:  tsiTrader@gmail.com
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Click on any chart to ENLARGE
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1. Gold Fields Ltd (GFI) up 50% since breaking out 4 months ago.
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Estimated Earnings 
2009     --
2010    .63
2011   1.25
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2.4X Book Value
Click on the chart to ENLARGE

2. New Gold Inc (NGD) up 35% since breaking out 9 weeks ago.

Estimated Earnings 

2009    .11

2010    .24

2011     .37

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2.1X Book Value

Click on the chart to ENLARGE

3. North America Palladium (PAL) up 75% since breaking out 10 weeks ago.
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Estimated Earnings 

2009    (.29)

2010    (.19)

2011      .35

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3.9X Book Value

Click on the chart to ENLARGE
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4. Silvercorp Metals Incorporated (SVM) up 60% since breaking out 3 months ago.
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Estimated Earnings 

2009     --

2010    .35

2011    .41

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8.8X Book Value

Click on the chart to ENLARGE

5. Teck Resources Limited (TCK) up 35% since breaking out 2 months ago.

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Estimated Earnings 

2009    2.12

2010    2.85

2011    5.05

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2.6X Book Value

Click on the chart to ENLARGE

*6. Anooraq Resources Corp (ANO). Just getting started.

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Estimated Earnings 

2009   (.08)

2010     .03

2011      .07

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4.0X Book Value

Click on the chart to ENLARGE

*7. Brigus Gold Corp Ordinary Shares (BRD).  Just getting started.

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Estimated Earnings 

2009   (.88)

2010    (.01)

2011      .23

2012      .17

2013      .09

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6.2X Book Value

Click on the chart to ENLARGE

*8. Coeur D'alene Mines Corp (CDE).  Just getting started.

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Estimated Earnings 

2009    .11

2010    .26

2011   1.92

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7.7X Book Value

Click on the chart to ENLARGE

*9. Claude Resources Inc (CGR).  Just getting started.

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Estimated Earnings 

2009    (.07)

2010      .10

2011       .10

2012      .20

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2.6X Book Value

Click on the chart to ENLARGE

*10. Cliffs Natural Resources Inc (CLF).  Just getting started.

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Estimated Earnings 

2009    1.05

2010     6.83

2011      9.59

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3.5X Book Value

Click on the chart to ENLARGE

*11. Harmony Gold Mining Co (HMY). Just getting started.

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Estimated Earnings 

2009     --

2010    .02

2011    .92

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1.4X Book Value

Click on the chart to ENLARGE

*12. Minefinders Corp (MFN). Just getting started.

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Estimated Earnings 

2009    (.07)

2010      .01

2011      1.00

2012     1.13

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3.8X Book Value

Click on the chart to ENLARGE

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13. Platinum Group Metals (PLG). Just getting started.

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Estimated Earnings 

2009     --

2010    (.03)

2011     (.02)

2012      .04

2013      .17

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5.2X Book Value

Click on the chart to ENLARGE

*14. Thompson Creek Metals Company Inc (TC). Just getting started.

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Estimated Earnings 

2009    .41

2010    .96

2011   1.27

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2.2X Book Value

Click on the chart to ENLARGE

*15. DRD Gld Ltd Adr (DROOY). Fuse almost lit.

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Estimated Earnings 

2009     --

2010    .18

2011     .38

2012    .42

2012    .52

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0.8X Book Value

Click on the chart to ENLARGE

*16. Golden Star Resources (GSS). Fuse almost lit.

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Estimated Earnings 

2009    .07

2010    .04

2011     .33

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2.3X Book Value

Click on the chart to ENLARGE

17. Jaguar Mining Inc (JAG). Fuse almost lit.

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Estimated Earnings 

2009     .17

2010    (.15)

2011      .33

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1.8X Book Value

Click on the chart to ENLARGE

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18. Northgate Minerals Corp (NXG). Fuse almost lit.

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Estimated Earnings 

2009    .24

2010    .06

2011     .13

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1.6X Book Value

Click on the chart to ENLARGE

*19. Stillwater Mining Co (SWC). Fuse almost lit.

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Estimated Earnings 

2009    (.01)

2010      .57

2011     1.39

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4.3X Book Value

Click on the chart to ENLARGE