Caution Advised - Gold, GDX, AGQ, TLO, TMV and URE

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Trying to make complete sense of what is going on in the markets right now is nearly impossible, at least for me. But I do envision 'things on the horizon' that could well become reality and I dare say they are quite contrary to what appears to be true at the moment. In two simple words, I think 'caution advised' is worth our consideration and if you read on I will show you why I think this is true.
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This post will look at gold, the miners and silver, but stray a bit and also consider the bond market/interest rates and include real estate. The conclusion of my analysis may leave the reader with the notion that a period of deflation in all asset classes is likely before us. Or certainly, that an upcoming bout with deflation is a very good possibility. I will tell you right now that this is my concern and again assert, 'caution advised'.
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Let's begin with this look at the weekly chart of the World Gold Index (XGLD). I have used the 40 weekly moving average as a proxy for the 200 dma. The calculations above price are the approximate percentage that price was able to achieve above the 200 dma since the previous C wave top of 2008.
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Click on any chart to ENLARGE
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At this time, a price of $1665 would place gold about 15% above the current 200 dma reading. This, along with gold being on Day 20 of its 20-25 day daily cycle, suggests to me that gold is due for a pull back and soon. The True Strength Index (TSI) indicator looks fine, as it is rising above ZERO. A few weeks ago it made the bullish ZERO crossover and a trend line break BUY signal followed.
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Possible conclusion: gold is due a correction based on its daily cycle and possibly a large correction due to its height above the 200 dma.

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Moving on to a daily chart of Market Vectors Gold Miners ETF (GDX) will begin the analysis that suggests much more caution. First, we note that on this past Friday the 200 dma fell for the first time in over a year, and observe that about 6 weeks ago the 50 dma bearishly crossed down through the 200 dma. Neither of these technical observations are bullish.
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Second, we note the clear trend line break SELL signal given by the TSI well over a week ago, and the following bearish negative divergence price action that yielded another SELL signal. At present, the TSI is in free fall BELOW ZERO, price has closed below the 200 dma and there are no TSI BUY signals remotely imminent or possible at this time. Add to this the fact that gold has been rising while the miners are falling, and well, something is not right.

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OK, so let's have a look at the weekly GDX chart now.
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There is no other way to characterize what I see than to refer to it as scary. Our current situation is eerily similar to that which existed in later 2008 - just before the gigantic deflationary meltdown. I have hand drawn a possible TSI future path that is identical to 2008. In my opinion, we truly are on the cusp of something big and my guess is that it is something both big and unpleasant.

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The TSI was brilliant in spotting the top of the silver parabolic last April. Too bad I did not completely believe all the SELL signals it gave me on the daily, 4 hour and 1 hour charts....but they were all there....like 5 of them!
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Well, here is a daily chart of Proshares Ultra Silver ETF (AGQ) and maybe I would do well to tell you what the TSI indicator says. It says SELL.
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I would imagine that if the markets are going to enter a deflationary episode, everything, at least initially, is sold in panic.  Stocks and miners, of course.  But also gold and silver. And even bonds. Everything gets sold in one of these deflationary melt downs.

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So let's turn to a couple of charts relating to bonds and see how they may be positioned for future movement. This first chart is a weekly of SPDR Lehman Long Term Treasury ETF (TLO).
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An investor may wish to own TLO if they think long term treasuries/bonds are going to rise in price. But that negative divergence in the TSI tells me that the next likely direction for this ETF will not be up. Rather, it will be down.

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And here is a look at an inverse ETF that goes up in value if bonds fall in price. This weekly chart is of the Direxion 30 Yr BEAR 3X (TMV).  At present the TSI is set up to behave exactly as it did last Sept/Oct.  That is, bounce off a positive divergence and make those who own it about 60% richer in 3 months.

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And finally, this look at real estate. As I wrote earlier, in a deflationary panic/melt down everything, all asset classes, get taken down and taken down hard. After you take a look at this weekly chart of Proshares Ultra Real Estate ETF (URE), could you keep a straight face trying to argue why this security should survive a stock market melt down?  I know I could not.

Home Again, Home Again Jiggety Jig

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15 days, 5,200 miles, 10 states, elk, bear, wolves, deer, bald eagles, moose, the Space Needle and San Juan Islands as memories, I'm welcomed home to 109 degree weather and a lawn in dire need of a good mowing. Anyway, I had a great time with my family with little time/opportunity to watch the markets and looking at my account value I guess I didn't miss too much.

Click on the chart to ENLARGE

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The day before I left I bought shares of Direxion Gold Miners Bear 2X ETF (DUST) at $40.30. Before the close I was ahead a few bucks but placed at stop at $40.30  (thanks Verra) so I would not worry about the trade on my vacation. Of course DUST opened down the next day with a huge gap and my stop order was not executed. I have been holding those shares for over two weeks now while being aware that gold was moving to all-time new highs.
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Rather than panic and sell at a loss I saw good reason to hold on as the momentum of GDX appeared to be faltering. This morning I reeled in my line and was pleased to see that somebody else now owns my shares at $40.30. Nothing gained, but nothing lost (except $2.00 for buy/sell commissions). I hoped that DUST would retest the price trend line that it gapped through just after my purchase - and that appears to have been a good guess.
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Gold appears to be on Day 18 of it's daily cycle. I imagine this cycle peaked yesterday and will be a few days yet before it concludes lower. This time I will be buying miners, not shorting them. It looks to me we have some very good times ahead with gold's new intermediate cycle having just gotten underway.

Click on the chart to ENLARGE

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Meanwhile, the head and shoulders possibility for the SP-500 still looks viable and I will continue to hold my slightly 'in the money' position in TZA.  This chart yields a look at the SP-500. TZA is a 3X inverse ETF that makes money if the stock market declines.
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My TSI Trading record has been updated.

Buy DUST @ $40.30 - Summer Trip

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I bought a position in Direxion Gold Miners Bear 2X ETF (DUST) at $40.30.  At the time of my purchase the daily and 4 hour True Strength Index (TSI) indicator was showing a considerable positive divergence which inspired my trade.
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Click on the chart to ENLARGE
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Tomorrow I leave for 2 weeks on a family vacation - we will be driving through many of the states in the western half of the United States, with YellowStone National Park and Seattle as the highlights.
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My TSI Trading Record has been updated.

GDX and the Trampoline

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Earlier today I was pondering what price might be a reasonable entry point for either the Market Vectors Gold Miner ETF (GDX) or just some mining stocks in general. I started staring at the daily GDX chart and immediately I started imaging I was seeing a repeating pattern.
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This is weird, but I visualize a guy on a trampoline.  I imagine his body weight descending from high above the ground, accelerating toward the trampoline mat  - as stock price accelerates towards a bottom.
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Then his feet reach the mat, his inertia pushes the mat down until finally, for a split second, his body is traveling neither down or up. Then the mat flings the guy back up into the air, propelling him with all the residual energy that is left over from the encounter. And up he goes.
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But how high up he will soar depends on the energy used to launch him in the direction opposite of gravity.
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But back to GDX. So anyway, using a Fibonacci retracement tool I confirmed that I was indeed imaging a repeating pattern. Not only imagining a repeating pattern. There really was a repeating pattern. And the repeating pattern was a 50% retracement pattern.

Click on the chart to ENLARGE

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Here is the daily chart of GDX going back about 8 months. I colored each price move with a 50% retracement differently and then numbered them. There were 8 in all.
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And by the way, I got the answer to my original musing question - what would be a reasonable price to buy GDX?
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The trampoline suggests about $54 would be a 50% retracement of the most recent rally.  I think I'll set a limit order to buy at right about that price and see what happens. :-)
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Positive and Inverse Positive Divergences

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To begin, I credit Monty's post with giving me the idea for this discussion. Thank you, Monty.
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Positive divergences and inverse positive divergences.
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We all know about positive divergences. They occur when price makes a lower low but the underlying momentum indicator, such as the True Strength Index (TSI) or Relative Strength Index (RSI) or Rate of Change (ROC) , does not agree with price movement - as it simultaneously makes a higher low.
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This disagreement of price strength and direction is usually resolved with price correcting the disagreement by moving higher.  In other words, a positive divergence is bullish and is usually successfully used as a BUY signal.
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But what if these two conditions are reversed? What if price is making a higher low while the momentum indicator is making a lower low? What in the world is that, what does it look like and how does price respond to this condition?
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Well, read on as I am about to show you.
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I call this setup the inverse positive divergence. People rarely notice it as they do not, apparently, know to look for it. I certainly have not head anyone talk about the inverse positive divergence or the inverse negative divergence, but I read about positive and negative divergences all the time!
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And yes, just as there is a negative divergence there is also an inverse negative divergence.
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Truth be told, the inverse positive divergence has the same effect on price as the positive divergence. That is, it is a bullish BUY signal.
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And, the inverse negative divergence has the same effect on price as the negative divergence. That is, it is a bearish SELL signal.
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Anyway, for this post I have made 6 charts.  I had my FreeStockCharts software set on weekly at the top of my alpabetical list of mining stocks and I went right down the list until I found 3 examples of positive divergence and 3 examples of inverse positive divergence. Then I quit making charts. But please know that I could have shown the same thing using daily charts, 4 hour charts, 1 hour charts, even 5 minute charts. When something is true..... well, it is true, of course!
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Here are the 6 charts. The first 3 illustrate positive divergence, the latter 3 illustrate the inverse positive divergence. Enjoy!
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Click on any chart to ENLARGE
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AZC
Positive Divergence
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BWLRF
Positive Divergence
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CXZ
Positive Divergence
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AGQ
Inverse Positive Divergence
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AUQ
Inverse Positive Divergence
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CPPMF
Inverse Positive Divergence
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Sold ZSL at $17.48

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OK, that was strike 3 for me. I took off my short silver helmut and trotted to the bench.
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I sold my entire position of Proshares Ultrashort Silver (ZSL) at $17.48, about an hour before the market closed today.
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In the section on silver in last evening's post I wrote this:

"Silver reminds me of a wild cat - it just does what it wants. If I had to guess I would think it makes it to $36, having begun this rally around $34, then pulls back to the midpoint consolidation area that we see at $35. But I never knew a wild cat to care about what I think, so be warned".

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At the time I wrote that, silver was trading at around $35.38.  Sure enough, 4 hours later silver reached $35.96. Then 4 hours after that silver fell to $35.06. I missed figuring the top by 4 cents and the retracement by 6 cents. Not bad. But where was I when this golden opportunity presented itself?
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You guessed it.  Asleep.  Hey, would you be awake at 6 am if you were on vacation?  lol

For some reason this entire episode reminds me of that Disney movie "That Darned Cat". I think I first saw that movie 40 or more years ago.  I never laughed so hard in all my life.
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Click on any chart to ENLARGE
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So back to silver.  I watched all day until I had seen enough, held my nose and jumped off the fence and into the barking dogs. As you can see on this 5 minute chart of the Silver Continuous Chart (/SI), silver had formed a pennant at the $36 price area.  Price began to break out to the upside and so I hit the sell button on those shares of ZSL.

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This 30 minute chart of silver (/SI) was snapped 90 or so minutes later. It's only funny because it's so sad and a reflection of my trading experiences lately.  Meow!
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Which way did silver finally break?  That's right.  Down.
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Anyway, perhaps you can see what made me hyper. Price had risen squarely from $35 to $36. It stopped to make a pennant continuation pattern, and that projected the next stop as $37. There was no way I wanted to ride ZSL with silver likely to continue up to $37.

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The trading day ended today with the iShares Silver Trust ETF (SLV) putting on quite a convincing show. All the bells and whistles were used for buy signals. ZERO crossover, trend line break, price channel breakout, blah blah.
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Gold also met my skeptical requirements today. It closed above the 50 dma, the slower trending TSI (25,13) finally turned up, TSI (7,4) made a bullish ZERO crossover.....
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So, I think the bull is back. Time to do some homework on the miners, again!

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Oh, and here is how the Standard and Poors 500 (SP-500) ended up today.  I'm still holding one position - TZA - and think I will continue to hold it until I see this thing fall.

Please don't turn out to be a .... dog (pun intended).
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My TSI Trading Record has been updated.
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Hummmm...... Strike 3, I'm Out?

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Things just keep getting curiousier and curiousier. Gold making a daily cycle of just 14 days?  Huh? I've seen *one* cycle that was 16 days, but common'. Who writes the rules for these bull markets, anyway?
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And what about that picture perfect head and shoulders on the daily chart of the SP-500?  With my good furtune, it's just a mirage.
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Yes, I've been looking to smack that fastball and park it in the bleachers, and instead the curve ball has just left me looking.  And looking pretty bad at that.
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Hey, there is no sugar coating this one. Gold, silver and the miners just picked up their secular bull market game and waved to me in their rear view mirror.  (That's the best view of Texas, too, by the way).
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Well, let's look at some charts and see what they say. Since the whole precious metal thing revolves around gold, we'll start there with three charts, then move to silver, the dollar and my TZA nemesis, the SP-500.

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The True Strength Index (TSI) indicator has done an admirable job of spotting the bottom of the past several intermediate cycle corrections in gold. This first chart is a weekly of the World Gold Index (XGLD). The slower trending TSI (25,13) has not turned up yet, but honestly it will do so a few weeks late, so no surprise there. The faster TSI (7,4) has indeed turned up and if that holds through this Friday's close, I would think this has been the bottom.
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Click on any chart to ENLARGE

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Next let's turn to a daily chart of the World Gold Index (XGLD) and see what we can figure out.
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The thing that has me shaking my head is the daily cycle that may well have completed last Friday in just 14 days. Incredible. I've studied these daily cycles in detail back about 3 years, at least.  Never seen one shorter than 16 days and the past several we had recently were closer to 30 days.
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I noted the % each intermediate weekly cycle was able to climb above the 200 dma and it appears this cycle was like the previous two - in the 14-16% range.  This fact alone makes me very suspicious that we have not seen the C-wave top. Yes, silver went parabolic, but not gold. And gold is the one that drives the train, not silver.
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Now on the daily chart of gold, the TSI (25,13) has been brutally accurate on nailing the exact bottom of gold's intermediate cycles (white circles).  It's reading both last Friday and today (Tuesday) was unchanged at -0.07. But in another day or two it may rise, and at that point I will be more confident of our future direction. There was a positive divergence on the faster TSI (7,4) as a result of Friday's sharp price drop.  I suspected that was going to be trouble and looking at what happened today, well, it was.

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Next let's take our third look at gold through the lens of the daily Gold Continuous Contract (GC). We note that the TSI is still below ZERO and that increases the threat of a final sell-off on the horizon. Without a ZERO crossover, we also note the absence of a significant trend line break or positive divergence. Again, when these signals fall into place we will be much more certain of future direction.
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This software is ThinkorSwim. Over this past long weekend a friend/partner of mine named Garry, and I wrote the computer script to create these two new indicators. The indicator on the bottom tells when each of the TSI (7,4), TSI (13,7) and TSI (25,13) are rising (green) or falling (red). Presumably, when all three TSI magnifications are rising together or falling together it should make for a good trading opportunity.
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The other indicator is what appears to be the TSI on the price chart. Indeed, that is what it is. But in this case, I made it so that all three TSI magnifications are in that single line. In a way, the single line on the price chart is what the 6 lines in the bottom panel are doing.
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Garry and I began first by getting this to work with 3 stochastic settings.  The results were very impressive. But then we morphed that work over into indicators using the TSI instead of stochastics, and well, there is no comparison. 

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Well, let's move on and have a look at the 60 minute Silver Continuous Contract Chart (SI).  We note that silver had a huge rally today and was just starting to take a breather after hours when I snapped this shot.  Silver reminds me of a wild cat - it just does what it wants. If I had to guess I would think it makes it to $36, having begun this rally around $34, then pulls back to the midpoint consolidation area that we see at $35. But I never knew a wild cat to care about what I think, so be warned. If gold proves to have bottomed I will run from this kitty kat as fast as I can.

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Now our good old July 4th patriotic friend the U.S.Dollar Continuous Contract (DX).  This daily chart shows us a text book daily cycle completion - 21 days with the top arriving on Day 16. Right translated and bullish. Price came right down to the rising uptrend line of price and bounced higher, concluding one daily cycle and beginning one anew.
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The TSI is starting out closer to ZERO than the previous 2 daily cycles, which is favorable. Everything on the chart squares and looks reasonably bullish.
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But the question nagging me is, what is going on with gold, silver, other commodities and the stock market. Have they somehow figured out that this dollar daily cycle is going to turn out to be a ruse? If the dollar dropped for a couple of days it would break through that uptrend line, turn the TSI south below ZERO, make a failed and bearish left translated daily cycle and most assuredly send the other aforement investment vehicles soaring.

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Well finally, let's take a look at the daily chart of the Standard and Poors 500 (SP-500).  Here is that head and shoulders pattern I mentioned earlier. Almost to the day it is a nearly perfect symetrical pattern. The other thing I note is that the TSI (7,4) seems to call it a day when it gets much higher that 0.60. Today's reading was 0.62.
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So once again, I want to believe what I see on the chart - but if the dollar is going to fail and soon, who knows how high this thing will go?  The pattern be damned. I sure don't know ... the crystal ball is very dark.  I do know it has not been a good time to own TZA, that is for sure.
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So, think positive.  It is going to be way easier to make money once the direction of things is cleared up.