Wednesday, May 4, 2011

Spending 75 Minutes with the US Dollar

Lately I have received quite a few emails expressing puzzlement about the True Strength Index (TSI) indicator when viewed at various time frames. I usually try to explain that the indicator does have different data values on different time frames, but they all speak truth - truth in the context of the time frame, that is.
Either my answer is perfectly understood or it is perfectly confusing.  I don't know which because after my answer, no one ever writes back.
So how about this?  After dinner this evening I decided to do a trade shorting the US Dollar futures contract (DX). And what I will show you is what the setup looked like on the 60, 30, 15 and 5 minute charts when I took the trade - and how the 75 minute trade turned out.
I use the ThinkorSwim software and 3 indicators: True Strength Index (7,4), TripleStochasticHL (default), and Demand Index (13).
Here is the 60 minute chart with what caught my eye.
Click on any chart to ENLARGE

Here is the 30 minute magnification and what I saw that encouraged me to short the US Dollar.

The 15 minute chart created less than a minute after the previous two charts.

And finally, the 5 minute chart which is the one I keep my eye on the most during these surgical operations.

OK, so how did my little evening entertainment trade turn out?  Well, this chart was snapped just after I decided it wasn't worth it to stay with the trade any longer.  I covered my short at 73.205.
So after 75 minutes I earned the profit from a move of 8.5 points. The bottom was 2.5 points lower than my closing trade.
I had fun practicing my skills and hopefully provided some new information that a reader or two will find helpful. Let me know?
Oh, and the money.  Yes. Well, 1 contract that moves 1 point (.01) makes $10.  I had 4 contracts, so each 1 point (.01) move I had correct was worth $40.  The entire move was 8.5 points (.085) so I made $40 X 8.5 = $340. Commission costs were $8.88 to sell 4 contracts and $8.88 to buy the 4 contracts back.  Net profit $322.24
Hey, more than I made today at school, that's for sure. And faster than writing this post, too!


  1. Hi John

    awesome post...thank you.

    i was wondering about the cycle low for the USD.

    If the dollar keeps tanking here, we might be very close to a low - which puts our whole rally for the next 6 weeks in question and we could top in like a week or two

    can you help me understand this please?

    The volume in UUP is always a tell and it's been increasing slowly

  2. Hi John hope you having fun with the trade,
    Can you take a look at SLV, SLW, near term
    Thanks again

  3. Thanks very much, John. Very informative. I print out a lot of your articles, along with enlarged versions of the chart. I've started a "TSI/John folder"!!!

  4. jhn - I am sincerely flattered. But what I really look forward to is hearing about your successes using the TSI. That is the moment, for me, that I know I have helped you as I hoped.

    Hi Norman - SLV has made it to support at its 50 dma and nearly to the lower Bollinger Band.

    SLW has, like in January, fallen through its 50 dma, is sliding down the lower Bollinger Band, but was positive yesterday. I take this to possibly mean, along with several other leaders being green yesterday, that miners are beginning to think the correction may be about over.

    TSI wise, both SLV and SLW look like they will need a couple days to give the trend line break BUY signal.

    ANON - the US Dollar seems to be hanging around to see what Friday's jobs report has to say. It made what appeared to be a cycle low on Monday, thus beginning a new daily cycle on Tuesday.

    But Wednesday and forward into today, the US Dollar has been not blasting higher as one would expect when beginning a new daily cycle. fwiw, both the stock market and gold peaked on Monday and confirmed Tuesday they had made their cycle highs.

    This all fits together nicely, as one would expect the dollar to now rally, gold and spx to drop into their cycle lows in preparation for beginning a new daily cycle.

    But the dollar isn't moving. In fact, it made a lower intraday low yesterday. In my opinion, the dollar is one sick puppy.

    The dollar could react to tomorrow's jobs report by moving higher (as it is supposed to), then roll over in a few days thereby creating a failed daily cycle and then sending gold and silver on their rocket launch.

    Or, the dollar could react tomorrow by moving lower and simply continue its precipitous waterfall crash - sending gold and silver to rocket launch immediately.

    The US Dollar consolidated sideways early last week for three days then on Wednesday took a nasty fall. I have been using its highest price last Wednesday and lowest price the next day, Thursday, as a Fibonacci retracement region. The US Dollar has, in the 5 days since, only managed to retrace up to the 38.2% level 3 different days and indeed has spent most all of the past 5 days stuck below the 23.6% retracement level.

    The upshot is that the US Dollar is extremely weak and if I had to guess I would think odds are it just continues to fall after the jobs number comes out.

    But its just a guess and I would NOT encourage anyone to put money on a guess! Soon enough, and either way, the show is about to begin.

  5. will there ever be a bottom?

    Are we sure this thing rally to new highs by june? I'm having my doubts if it can even rally 10% from here

  6. hi John,

    thanks for the post. greatly appreciated... what a blood bath in silver... the correction appears to be healthy as it went from overbought to oversold...

    also, to the readers... just as fast as silver went up 8 dollars in a few weeks and lost it, it can easily regain in... hopefully we consolidate for a bit!

  7. John,

    You had a great work earlier on how the TSI could help catch the D-wave?

    Did it miss it this time because this feels like a D-wave?


  8. John,

    Any updates please?

    i will never forget this week...can't get any give me any news

  9. Hi Patrick - the TSI did make a clear trend line break SELL signal on the daily chart of gold. In fact, it correctly nailed it on the highest day! It would be good for me to do a post about this on the weekend when I have a little more time and show this with some charts.

    Did I not notice this trend line break SELL signal at the time? Yes.

    So what happened? Honestly, I thought the TSI would then drop, price would make a higher high and a negative divergence SELL signal, and I would be sure it was time to SELL.

    I have studied all of the C-wave conclusions (gold and silver) in detail and 8/9 times they ended with a negative divergence SELL signal. Call it denial perhaps, but I did not believe the end had come. And I am still not sure that it has.

    If the US Dollar continues to rally for very many days after today, we will be sure that the top is in for both gold and silver.

    In any event, we should now get at least a counter trend rally if not the conclusion of the C-wave. It would probably be a better time for most folks to exit their long positions after the counter trend rally has brought their prices back up. That is my plan, anyway.

    The Dollar, at the moment, is falling and gold rising sharply as the evening session of trade begins in the futures markets. Fingers crossed.

  10. Thanks John. I appreciate the response. I see the break that you are referring to on the daily gold TSI - wish I was watching it more closely. Hopefully a counter trend rally appears soon so some people who got caught in this downturn can unload some positions at higher prices.

  11. Hi John, can you please reply to my message on the ERY charts that I mailed you today...


  12. John: What does TSI tell you about whether we're still in the C wave or the D wave has started? I'd be very interested to know. THANKS IN ADVANCE.

  13. Hi John,
    I was caught in the downtrend in silver and was not able to sell as you suggested. I bought physical silver at around $30. What should I do now, shall I wait or sell. If This is D wave already in progress where do you see silver price bottom from here. As per Gary the C wave is still not over yet, is it so?
    Thanks a Ton

  14. Tracy

    A reader from someplace on the other side of the world wrote me an email over night and referenced the above article in his dialog.

    It's been a month since I did that research and I had forgotten all about it, until his email.

    Excuse me, but damn it. I do all this research to try and figure things out and then forget what I figured out.

    Oh man, I cannot stop shaking my head in disappointment with my oversight.

    Anyway, I'll try to find time this weekend to give everything a good hard look and write a post about what I find out.

    My hunch at the moment is that we have, in fact, entered the D-wave. The reason I think that is likely true is that the weekly TSI on XSLV reached 0.91 last week. That alone says the parabolic party is over (see above referenced article where on April 10th I figured silver had 3-5 weeks on the shot clock).

    The weekly XGLD TSI reached 0.84 which is right up there with most of the other C-wave tops.

    Anyway, I'll study the implications for the near future. Of course, most likely we will get a nice bounce soon. Then, gold will eventually retrace 50% of the C-wave advance, taking it to somewhere around $1250 this summer. Silver has nearly retraced 50% of its move in a single week. That 50% price retracement level comes in at $32.

    More information to follow.

  15. Thanks very much, John. I'll be very interested to read your "weekend findings"!

    All the best!

  16. John -

    Your associate appears to think that nothing has changed from the last article, i.e. this is nothing but a correction on the way up:

    Of course, all the "mainstream" analysts are saying this is the end of the correction, or possibly slightly lower, but that we will be trading sideways for the time being.

    Looking forward to your thoughts.

    Thanks much!