Wednesday, January 12, 2011

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?

6 comments:

  1. When would you recommend initiating short positions (TZA, FAZ etc.)... NOW, after the red line cross or after the cross below zero?

    Thank you.

    ReplyDelete
  2. Well, I bought my position NOW, as I stated in the post.

    I guess the timing depends on how much
    confidence one has in the trade. Lots of confidence, put the trade on now. Careful to get the timing just right, when the red trend line is broken to the downside. And if you want to be absolutely certain you will make some money, you wait for the ZERO crossover.

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  3. You have something like a dozen (presumably long) positions in gold correct? Are you going to begin selling those off now?

    I've been staying out of the market this week waiting for things to settle.

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  4. Daniel K -- no, I do not 'intend' to begin selling those off now. This is a secular bull market for gold, after all. Price will come back to me if I am patient and I will not need to sell any position for a loss. I have, however, added a short sp-500 futures contract to my holdings and if silver shows signs of going into meltdown I will add a position of ZSL.

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  5. can i sell gold at this price?

    ReplyDelete