The Plot Thickens

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This post will begin with a look at the movement of the US Dollar today, then gold, silver and the HUI mining index, and finally leave you with a laundry list of trading ideas.

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When I got up this morning and looked at the US Dollar I had good reason to believe we were in for a powerful rally. I wanted to make a chart and tell people thinking about going long the precious metals or their miners to think twice, but I simply did not have time. I have to be at work when I have to be at work and there is no negotiation on that fact allowed.
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Click on any chart to ENLARGE
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This is a one hour chart of the US Dollar Continuous Contract (DX). Three things caught my eye as I quietly said, "oh-oh", to myself.  First, the True Strength Index (TSI) indicator had made a bullish positive divergence overnight.  This occurs when price continues to make new lows but the TSI makes a higher low. It is an excellent buy signal. Second, I saw a 3 day long descending trend line on the tops of the previous TSI highs that finally torpedoed into a rising TSI, thus yielding the bullish trend line break BUY signal.  And third, the TSI was just crossing above the ZERO line - giving us a third BUY signal.
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And as you can see from the chart, the buck rallied up +0.70 in a single day, and that is a strong rally indeed. Gold and the stock market indices were off around 1%, but silver really took it hard - down 8.60% in a single day.
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Well, here is where the plot begins to thicken.

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This is a daily chart of iShares Silver Trust ETF (SLV). It turns out that today's drop came within just 58 cents of retesting SLV's recent crash low. But notice the TSI reading. It has strengthened significantly in the past 4 days.  So much that if SLV were to trade just 58 cents lower, a bullish positive divergence BUY signal would easily be generated.

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And the plot gets even more interesting when you see the status of the Amex Gold Bugs Index (HUI--X). With today's sharp selling, HUI does not need to drop any further to generate a bullish positive divergence BUY signal. That's because it is already giving that signal with today's price action.
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OK. So does a bullish positive divergence mean 100% of the time that the stock or ETF will rise the following day? No.  Does anything have a 100% guarantee in the stock market? No. But I'd say the odds are about 80% yes/20% no that miners rally tomorrow. And if that happens, it just may be enough to kick off a TSI trend line break BUY signal on things like GDX. 
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Oh, and before I forget, here is the laundry list of stocks that, like HUI, finished today's trade with bullish positive divergence BUY signals:
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ABX, AEM, AU, AXU, CENX, CGR, CLF, DNN, DROOY, EGO, GBG, GDX, GFI, GG, GMO, GRS, KBX, MGN, NG, NGD, NSU, NUGT, SA, SIL, SLW, SRCH, SSRI, SWC, UXG and VGZ.
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