Tuesday, July 5, 2011

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.

10 comments:

  1. John, don't beat yourself up too bad, you do great work. Never have I been so insighted by trading since following your efforts. Sometimes I think your enthusiasm jades your decisions. No matter, you're doing better then me. Bought SPY puts today, ???????????????????

    Really confused with the xgld amd xslv not making that upward hook on the TSI while so many of the others have broken some indicators up.

    Good luck, and absolutely love your work.

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  2. What abouy the possibility that the July 1st low on gold was the intermediate low, three weeks early and this squeezed the daily cycle down to 14 days?

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  3. I was short all last week and I am still short. If S$P goes much higher from here the shoulder will be broken but I am betting (praying) for a correction from here that would indeed give us a head and shoulders. the dollar is due to come back. better than expected jobs on friday could kill us. much enjoy and appreciate your site, John!

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  4. John ,

    any advise what is going to happen

    regard

    Gilbert

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  5. As soon as you sell, it will reverse and go the other way.

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  6. John, did u happen to see if the smart money has stopped selling ?

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  7. John,

    Nice work on the new indicator! Are you going to update your trading techniques to consider all 3 of those TSI signals?

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  8. John,
    I have learned a great deal from your site. I have been observing for a while and felt it was time to write and Thank you!

    I use the TSI strategies as part of my tool belt in evaluating a trade. I think it is a powerful indicator in my quiver.

    As a matter of fact it help me score a 2000% gain (and not over yet) on a recent options trade of Renn based on the over stretched TSI rebound effect. When I purchased I think it had just bounced of -75 on a hourly chart.

    As far as the S&P movement maybe this chart will help shed some light.

    http://advisorperspectives.com/dshort/guest/Chris-Kimble-110706-SPX-Sign-to-Respect.php

    I also know you follow Gary's column and you stuck your neck out a bit according to what he was saying regarding shorting the market right now. However, watching your trades I know you follow your own beat and I respect that. Just like I didn't feel it was the right time yet to buy TZA according to MY research.

    The point is I strongly urge all your readers to take what you or any other person says and use it as a point of reference for THEIR own research and not just rely on what someone else says otherwise you have nobody to blame except yourself.

    Thanks for being a sharing person in a world of avarice. Your work is truly appreciated!

    Sign of respect from your fellow trader,

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  9. Yes, agree - total whipsaws from the gold price. First it breaks out of the triangle consolidation to the upside, then immediately reverses down again, thereafter breaks the triangle to the downside. Wherupon it reverses up into the consolidation again!

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  10. "Dollar speaks, all the others listen." But the whole market is not listening now. Market continues to conflict with dollar today. Since dollar did not drop today, I believe market consensus is that dollar would not break through the resistence in this cycle. If that's true, dollar really does no have too much room in upper side. That makes dollar irrelavent. Dollar will rally, but at least we need to wait until next daily cycle. It is not showing enough strength at this moment.

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