Sunday, April 10, 2011

The True Strength Index (TSI) and Gold/Silver Sell Signals

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Lately I have been intently researching how well the True Strength Index (TSI) indicator works in timing a parabolic move.  This article will present 5 charts that demonstrate my findings on both daily and weekly charts of gold and silver.
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First, let's begin with a weekly chart of the World Gold Index (XGLD) that encompasses the time frame of 2001 to present.  I have notated the C-wave tops and drawn in the appropriate trend line breaks of both the True Strength Index and Money Flow Index indicators.
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Click on any chart to ENLARGE
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The weekly TSI reading is currently .58, and by comparison to previous C-wave tops is still showing upside potential. My observation of the Money Flow Index indicator is that it either peaks at nose-bleed level at C-wave tops, or it simply stagnates sideways for a couple weeks.  Our present reading is neither nose bleed nor stagnant, so I interpret that as favorable.
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Our next chart is a weekly of the World Silver Index (XSLV) covering the same time period as our first chart. Again, I have drawn the appropriate trend line breaks on both the TSI and MFI.  The current TSI reading of .76 compares favorably with the peaks of the three previous parabolic runs - all of which were close to .90.  If this parabolic turns out to be similar to the preceding specimens, the current TSI reading suggests there are between 3 and 5 weeks left on the shot clock.
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I conclude from these two weekly charts that the TSI and MFI do a pretty good job of spotting the top and that there is excellent evidence to suggest we are not at the top yet!
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The following 3 charts are of the gold and silver parabolic of 2004, 2006 and 2008. It was interesting for me to discover that the 2004 gold and silver parabolics topped a single day apart from one another, and that the 2006 and 2008 parabolics topped on exactly the same day. It also surprised me to see that the TSI usually gave not one but two clear sell signals before it was too late.
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On each chart I have notated the date of each TSI signal and the number of trading days that it was either too early or too late. Also, I was curious to see how far gold and silver dropped after they peaked.  The doodling in black font on each chart is a note to myself about the percentage drop as measured from the highest price and the number of trading days to reach that particular reading.
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This chart considers the 2004 gold and silver parabolic. The TSI worked really well except for the fact that gold made a double top separated by nearly 3 months.  If a person had sold gold's initial sell signals they would have captured all of the gold move but left a lot of silver's move on the table.  Fortunately, the TSI gave silver a 'get back in' buy signal in early February and a person could have done just fine following that lead.
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The 2006 gold and silver parabolas are next. This time it was silver beating gold to the top and confusing things with an early sell signal.  As if to redeem itself, the TSI perfectly nailed the ultimate top of both gold and silver.
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The 2008 TSI sell signals were excellent.  Gold and silver each reached their peak at the same time and this parabolic event was, compared to the preceding two, much more straight forward.
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So I guess now you are wondering how it will turn out this time.  If it makes you feel any better, so am I.  I wish I knew.
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Everyone has a hunch so I'll tell you mine.  I think silver could end up doing a remake of 2006 where it rocketed ahead to its top, getting there before gold.  Silver would then make a precipitous drop to prior support thereby letting a bunch of folks off the boat, then continue higher along with gold to its final high.
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But who really knows, for sure?

18 comments:

  1. John - Good analysis as usual. Gold and especially are becoming all the rage. Ok. Oil too. On the charts they are stretched. Can it go on some sure. My plan is to throttle back somewhat on them and find commodities which are more sane. Copper looks good as does palladium. Also interest rates look increasingly like a good long-term wager.

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  2. good evening ... morning John,
    I just got home from work.... about 100am, and turned on the computer and HOLY SMOKE!! silver is 4l.80!! You are going to have a hard time keeping up with your blogs. I've got to study this latest one of yours more closely. Thanks for you constant efforts.

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  3. John,

    great stuff as usual.

    is there a big difference between TSI and RSI?
    the charting program i use only has RSI, could i use this one as a guide too?
    thx in advance

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  4. John - following your charts and analysis with great interest, thank you for your commentary and all you do. Excellent work.

    Slight cautionary warning from what I see.

    Using CDE primarily for my own reasons plus as a stock the daily/weekly swings are more pronounced than gold & silver giving CDE greater pattern clarity.

    CDE topped @ $76.90 17 Feb 2004.

    On 6 Jan 2004 CDE made a high of $66.30 where I think we are today relative to 2004 (do you agree?), then dropped over 18-19 trading days to $50.70 by 2 Feb 2004 wherefrom it made its final run to 17 Feb 2004. Simply pointing out the 6 Jan 2004 to 2 Feb 2004 drop was 25%, a hefty penalty.

    Comparisons to 2004 in my view are superior to 2006 & 2008.

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  5. correction ... 6 Jan 2004 daily cycle high was $68.30

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  6. Edward - I think I understand your question/observations. But not sure what to say. I can see current CDE as a bit of 2004, 2006 and 2008 CDE in different aspects.

    Guy - well, RSI and TSI are cousins in that they are both momentum indicators. This means that you can use RSI in similar ways that I use TSI. TSI has a mathematical component to smooth out the appearance of the results and is not limited by a boundary of Zero and 100.

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  7. Hi John,

    B% GDX says don't worry.
    http://tinyurl.com/5vzrkqj

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  8. Thanks Bob - it does appear from your chart there is more gas in the tank. Thank you.

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  9. Hey John,

    Just messing with the TSI and was wondering if this would be correct.

    http://img813.imageshack.us/i/tsigld.jpg/

    Am I using it correctly? Is that a trend line break and a 0 crossover possibly signaling a short term buy?

    I know we just hit a daily cycle top so I won't be taking action, I'm just playing around to see if I'd be correct or not.

    Thanks!

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  10. John,

    What is your read on gold today using the TSI?

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  11. Hi Spidey - yes, that is exactly how I do it, anyway. Your trend line break and ZERO crossover were right on the button.

    $$$ - Gold TSI made a trend line break sell signal with today's performance. Silver made the trend line break sell signal on its daily chart yesterday.

    It is Day 20 of gold's current daily cycle and I expect more down movement over the next few days as the cycle low is concluded. At this point I am going to mostly wait for the US Dollar to rally, beginning its new daily cycle...when the US Dollar begins to roll over then it should be show time. At least such are my thoughts at the moment.

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  12. love the info. silver is settling at 40 is this the precipitous drop and would you be looking to jump in at this level?

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  13. What time frame are you using to view Gold TSI signals for $$$'s question?

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  14. Thanks John,

    I guess I wanted confirmation on my read using the TSI

    BTW, Spidey thanks for posting the link to your chart.

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  15. Spidey - daily.

    Anon - no, I would not be looking to jump in at this level. It's too soon (in my opinion).

    First the US Dollar has to bottom and complete its daily cycle. It should have a few more days left before that happens.

    Then, the US Dollar will rally as it begins a new daily cycle. In the most recent cycles it has been able to rally for 4-6 days before it again rolls over and begins to collapse. Maybe this time it will take just 2 or 3 days - who knows?

    Anyway, when the US Dollar does begin that roll over process that should be the perfect time to buy....until then you are likely to just get jerked around.

    I wish you good fortune and timing!

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  16. hello john i want to see how the tsi is currently doing for silver. can you please tell me where i can access it? silver had i nice run today . your comments on tomorrow for silver?

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  17. Anon - you can access the TSI using the free charting software available at: www.FreeStockCharts.com

    The TSI (7,4) on daily silver has been rising above ZERO for the past couple of days, which is positive. However, the current reading is below that reached three days ago though silver price is higher. That is a negative divergence sell signal.

    My thought is that silver and gold will try to push higher tomorrow but at some point very soon the floor is going to fall out from under the bulls. After a multi-day correction we should be ready to the final parabolic.

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