US Dollar, Gold and Miners - Now What?

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With Ben Bernanke's public speech from Jackson Hole last Friday somewhat behind us, perhaps this post can provide some food for thought regarding the immediate direction of the dollar, gold and the miners.
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My take on market reaction to Ben's speech was that a predictable immediate sell off would be very short term when QE3 was not announced and lead to a more significant rally. Indeed, this is exactly what happened, with gold closing higher for the day 3.16%, the HUI gold bugs miners index up 2.53% and the S&P 500 up 1.51%.
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The headlines seem to suggest that traders became relieved that QE3 - or something like it - is still on the table for the Federal Reserve's next meeting in September. And unless that perception changes for very long, my hunch is this provides the perfect 'excuse' for gold and the stock markets to rally further.

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We'll look at some charts today and begin with a long term (20 year) look at the US Dollar index with an eye to identify both gold's secular bull market C-wave tops and the 3 year cycle lows of the dollar.
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Gold's secular bull market began on April 1, 2001. The C-wave tops are identified with a green arrow and the exact date. The early 2004 C-wave was a double top, which explains why I have two green arrows at that location. The last definitive C-wave top was in 2008 on March 17.
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I have identified the 3 year cycle lows on this monthly chart of the US Dollar index with an orange arrow - just above price and in the lower True Strength Index (TSI) indicator panel. If you look carefully you will notice that not a single 3 year cycle was exactly 3 years. Indeed, a couple of the earlier cycles were just a shade short of 3 years. And, the longest cycle so far (1995 - 1998) was 42 months (3.5 years). Our current cycle, assuming it has not bottomed, is on month 41.
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The weight of this evidence suggests that our current 3 year cycle low is not likely to be much further in the future. And, this suggests that a top in both the gold and stock markets is not much further ahead, either. A period of deflation - where assets fall in value as they are sold to raise cash and pay creditors - will be the fuel that powers a rise in the dollar from its 3 year cycle low.
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The TSI indicator did an excellent job of pin pointing nearly every 3 year cycle low. The only exception was the 1995 cycle low. Here, the TSI did finally get it right when it identified the final low with a positive divergence BUY signal. Our currently anticipated cycle low will likely be identified in the same manner. Namely, a marginal new low in the short term will likely not make a lower low on the TSI reading - thus a positive divergence.
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The final takeaway from this chart is to note that C-waves top at the conclusion of a sharp fall in the US Dollar index. The exception here is the first C-wave of 2003. The idea for today is that if the dollar has not made its final low, neither has this C-wave.
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Should traders continue to find the excuse that QE3 is still on the table, the dollar may indeed continue to slip lower giving gold and the stock markets the encouragement needed to rally.

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Now let's turn our attention to a weekly look of gold, and specifically the retracement levels achieved within each intermediate cycle of this C-wave. Gold's intermediate cycles (also known as 'weekly cycles') have tended to be about 5 months in length. As you can see on the chart we are currently in the 5th intermediate cycle of this C-wave, which began in April 2009.
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I found it interesting to notice that the first and second intermediate cycle retraced exactly 50% of the distance measured from that cycle's trough (beginning) and peak (highest price). The third intermediate cycle looked like it too would retrace 50% but I guess the trick became too predictable - traders obviously starting buying en masse before price reached the 50% level and thus it never quite made it to 50%.
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The fourth intermediate cycle only retraced to the Fibonacci 61.8% level. Apparently traders decided that gold was simply too bullish to play the 50% game again, and that 61.8% was 'good enough'.
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Our current cycle is the fifth. I find it troublesome that it has already made a 50% retracement of it's high. I view this a serious breech of the pattern of gold's intermediate cycle strengthening as it has progressed. In other words, this is a parabolic wave that is no longer parabolic. Secondly, it is of little comfort that the peak and significant retracement has happened so early in the intermediate cycle - on just week 8.

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OK, let's take a look at gold from a different vantage point. We'll use the daily chart this time and throw a few of the 'mainstream' indicators on the chart, as well.
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What I see here is not too comforting either. RSI, MACD and MFI appear impossibly positioned to confirm a new high price in gold, should gold make a new high, that is.

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I'll conclude the chart show and tell with a couple of weekly peeks at the HUI - Amex Gold Miners index.
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This first chart illustrates the dual chart pattern dynamics I believe are in play. First, you have the obvious rectangular shape of the large price consolidation. And second, you have the less obvious megaphone pattern which suggests a breakout of the first pattern does not necessarily guarantee that the miners are free to fly.

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This second chart of the mining index has the megaphone outlined on price, but additionally considers the TSI status.
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I'm not from Missouri. Actually, I am from California. But I feel a little kindred with the nice people of Missouri at the moment. Their license plates read, 'The Show Me State'. And for now that sentiment is exactly what I think about the miners. Show me. Let's see the TSI breakout and the megaphone breakout first, then I will get excited.

Skating on Thin Ice - Gold

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It was on a Sunday night, if I recall correctly, that the recent Silver parabolic peaked. I awoke in the morning and was in disbelief when I looked at the real time silver futures chart and the True Strength Index (TSI) indicator readings.

For better or worse, gold looks to be skating on thin ice - and on a Sunday evening, no less. I know it's been a cat with nine lives and this could just be it's use of life number seven, but it could also be life number nine.

Here is a very recent 4 hour chart of the Gold Continuous Contract (/GC). Even as I type this the red candle is getting a little bigger and brighter as the TSI is now beginning to pierce through its trend line. Then buyers come in and just barely keep the trend line from being broken. The situation looks precarious.

Whatever happens, from my vantage point it appears as if gold is skating on thin ice.

Gold's Parabola Equation

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We all hear the talk these days about gold going 'parabolic' and that gold's secular bull market is itself making a large scale parabola. I decided to do a little investigating this weekend to see if I could prove or disprove some of these notions mathematically.

After blowing the dust off the cover of my high school algebra book, I found the equation for a parabola which is:  y = ax(squared) + bx + c.

Then it all came back to me what a hassle these kind of problems are to solve.

The x and  y variables are not so troublesome to figure out. X is the time across the bottom of the chart and y is the price of gold as it rises vertically.

But additionally solving for three variables (a, b, and c) will involve simultaneous equations. Yick! That can get really messy.

It took me a while but I finally solved the problem, then made this chart to show you.

I decided to set the first day of the secular bull market on April 1, 2001 as that was the day gold achieved its low of $256. Each year after this day is expressed in increments of 10 (i.e. 50 would be 5 years after April 1, 2001 OR April 1, 2006).

This is a daily chart of gold. The red line running along with price is the 200 dma. The blue line is defined by the parabola's equation.

The equation I came up with seems a pretty good fit considering it covers over 10 years of gold's daily price movement. There are a few tweaks I could do to the equation to have it match price movement a little more closely at specific points in time, but overall I think it shows me what I wanted to figure out.

And indeed, I think we can conclude that gold's secular bull market is making a long term parabola.

I found it interesting to visually compare the 200 dma (red) with the parabola equation (blue). They are quite similar.

Also, it appears our current high of $1881 has strayed noticeably higher from either the parabola or 200 dma than at any time in the past 10 years. But that is a visual perception error. Price, as measured by a percentage comparison, is no higher today from these bench marks than in 2008 and in fact, price would need to barely surpass $2,000 to equal 2006. And who knows - as this is the largest C-wave to date, it may break every record on the chart.

A Flash from the Past

Click on any chart to ENLARGE

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I was doing a little tinkering with gold's updated chart this evening and I noticed something that reminded me of some work I had done in the past.  I poked around a bit and found this weekly chart I posted on April 10th.  It's a chart of silver.
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I surmised in my analysis that silver had not quite peaked, based on historical readings of previous silver parabolic moves, and speculated that it had about 3-5 weeks left on the shot clock before exploding.
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I was close.
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Silver did peak 3 weeks later on April 25 and tossed and turned a few days thereafter before falling from the sky.
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My technique was simply to guess that silver would head for the showers once it reached a somewhat predictable level of momentum, and from that I estimated about how long it would take for the True Strength Index (TSI) indicator to reach that level.

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But back to gold. 

I was looking at the TSI reading on the weekly chart this evening and it sure seemed rather high. A little more investigating and I had noted all the weekly high TSI readings of every C-wave top since 2001. Then I threw in some 'above the 200 dma' calculations as something of a cross check.
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Before we get to the data and the comparisons, I was reminded to observe how each of the ABCD patterns have grown longer and more complex as they have morphed from one to the next. You will notice that the first 5 C-waves had essentially a single extreme momentum move (the C-wave parabolic top, of course).
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Beginning with the 6th C-wave (2008), I guess (duh!) because the ABCD patterns are getting larger and longer, a single extreme momentum move is not enough. The 2008 gold parabolic had a midpoint pennant consolidation that actually had substantially more momentum at this midpoint consolidation than at its peak (0.93 vs. 0.65).
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So now let's look at our current C-wave. It's interesting to see that it has not had a single momentum peak before the concluding parabolic rocket, as in 2008, but three (0.86, 0.88 and 0.84)!

Our current reading is 0.83 so being optimistic one could hope this is simply momentum peak four and the BIG finale will be coming in the fall as number five. OR being pessimistic, this current peak IS the final peak of the C-wave and a severe profit taking event will surely be next and soon. 

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Other notes on the chart: the 2006 ascended 36.2% and 2008 28.0% above the 200 dma. At present we have reached 23.2%.

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If we now climb to equal the 2008 height of 28%, gold would top at $1888. Even better, if we now climb to equal the 2006 height of 36.2%, gold would top at $2009.

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So, there you have it.
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Personally, I think gold is finished for now. That is what the daily and 4- hour TSI tells me. And in my mind, this weekly chart agrees. But who really knows.
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Oh hey, this was a first for me: Kitco's Jon Nadler referenced one of my posts in his report yesterday.   "Others were a bit more vocal and they reached for the alarm bell well before Thursday’s initial declines". 

He even says I was ahead of the crowd.  But he doesn't say if I was right. Ha Ha. 

Honestly, I can't blame him.

Good trading to all, and to all, a good-night.

Gold C-wave Tops and D-wave Retracements

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This morning I decided to do a little more work on my previous explorations of gold's C-wave tops and D-wave retracements. The question for today was two fold. First, what was the maximum Fibonacci retracement of each D-wave and second, how many trading days did it take? Once into the calculations I decided to also figure out how many trading days it took for the D-wave retracement to reach the first couple of significant Fibonacci measurements - 38.2 and 50% - of the corrective D-wave's fall to a final bottom.
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Before I show you what the data revealed, I should remind readers I believe gold trades in an ABCD wave pattern.

The A-wave is a bullish wave that often recovers more than 50% of the bearish D-wave. This wave will not surpass the height of the preceding C-wave.

The B-wave is a corrective wave that unwinds the bullish sentiment of the A-wave and prepares for the biggest wave, the C-wave. The low achieved by the B-wave will not surpass the low acheived by the preceding D-wave.

The C-wave is the longest wave in terms of time duration and characteristically concludes with a parabolic price blow off that brings us to the harshly corrective D-wave.

The D-wave, our study for today, retraces a minimum of 50% of the C-wave. It is a profit taking event that unwinds the excessive bullish sentiment achieved by the C-wave and reverts price back to, or just below, the mean (200 dma). And, the primary price trend line of the preceding C-wave will be broken to the downside by the D-wave.

Since the beginning of gold's secular bull market in 2001, gold has completed this ABCD pattern 6 times and we are currently in the 7th occurrence.  You may read additional details of my research of this pattern here and also, here.

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Let's now revisit the previous C-wave tops and examine the size of the D-wave retracements and their speed as measured in trading days.
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The first C wave top occurred in 2002. Within just 8 trading days the entire C-wave had been retraced by both 38.2% and 50%.  On Day 25, this first D-wave concluded with a retracement measuring 61.8%.
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The second C-wave topped in February of 2003. The D-wave that followed retraced 38.2% in just 5 trading days and fully 50% one day thereafter.  By the time this D-wave bottomed, the retracement amounted to a whopping 86% and needed 41 days to accomplish.
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The third C-wave added a uniquely new feature to the ABCD pattern, with the C-wave double top. From the second top the retracement to the 38.2% level was accomplished in 8 trading days, the 50% level reached in 19 days and the entire D-wave bottom concluded with a 67% retracement that took 26 days.
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The fourth C-wave top occurred later in the same year - 2004 - in early December. The 38.2% retracement was reached at shocking speed - just 3 days. This was followed by the slowest decent to the 50% retracement thus far - a modest 20 trading days. This D-wave concluded with a 74% retracement and took 44 days to reach.

The fifth C-wave parabolic top was reached in May 2006. After a couple days this D-wave made an attempt to regain the highs and closed impressively positive on the third day. But it was for naught. Like a rock climber losing his grip, price plummeted quickly and reached the 38.2% retracement on Day 21. On Day 23 price bounced off the 200 dma, completing the smallest retracement of any preceding D-wave - just 54%.
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The sixth C-wave topped in March of 2008 at a price of $1,030. A retracement of 38.2% was swiftly recorded on Day 9. Some zigging and zagging ensued but by Day 32 a full 50% retracement was in place. Over the following 3 months gold rallied very strongly and appeared to have been making a new A-wave of the familiar ABCD pattern. And it had also made an inverted head & shoulders pattern and things seemed to be looking just great.  At the time I would have been tempted to think gold was going to the moon and right away!

But nooooooo......  Gold began falling in mid-July and reached the 61.8% retracement level in a matter of 3 weeks on Day 101 of its D-wave. By latter September/October the deflationary environment began to take every asset class down and suck them all into its dark hole. Gold swiftly plummeted well over $200 and reached its final D-wave retracement bottom on Day 152 - having retraced fully 89% of its C-wave.





Before we move on, let's recap what has been observed (2002 - 2008) so far.

6 C-wave tops to date.

D-wave:
Minimum retracement was 54% (2006)
Maximum retracement was 89% (2008)
The other retracements were 61.8%, 67%, 74% and 86%

Minium trading days to reach 38.2% retracement: 3 (2004 late)  
Maximum trading days to reach 38.2% retracement: 21 (2006)
The other 38.2% retracements occurred on Day 5, 8, 8 and 10

Minium trading days to reach 50% retracement: 6 (2003)
Maximum trading days to reach 50% retracement: 32 (2008)
The other 50% retracements occurred on Day 8, 19, 20 and 23

Shortest D-wave duration: 23 trading days (2006)
Longest D-wave duration: 152 trading days (2008)
The other D-waves were of durations: 25, 26, 41 and 44


If we throw out the data that is at one extreme or another, this leaves us with the observation that a 'normal' D-wave usually retraces about 61.8% of its preceding C-wave. It reaches a 38.2% retracement in around 10 trading days, a 50% retracement in around 20 trading days and its final bottom in around 35 days.

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Finally, let's take a look at the current C-wave and see how these general observations may apply.
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The current C-wave was born on April 6, 2009 at $865.  The highest price achieved by this C-wave to date was $1,817 and reached just last week on August 11, 2011.
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Although it is too early to know 'for sure' whether this C-wave has topped and the dreaded D-wave has begun, in my mind it is a distinct possibility.
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If we have indeed just witnessed the C-wave top, then we can use our general observations to hypothesize where gold may go from here.
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It would be stastically reasonable to deduce that gold could now reach the 38.2% retracement level sometime during the 4th week in August ($1450ish) and reach the 50% retracement level in a matter of 20 total trading days which would be near Friday September 9 and at a price level around $1341.
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Further, a conclusion of the D-wave suggests a 35 trading day total that would land around Friday September 30 and render a 61.8% retracement near $1229. This price level, coincidentally, is the same as the high achieved in December 2009.
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However, the plot thickens when we add to these observations what we also have observed about D-wave retracements. Namely, that the price trend line of the C-wave must be broken if we are in a D-wave and the price level of gold's 200 dma is a very common concluding landmark of D-wave corrections.

It turns out that both the current C-wave trend line and gold's 200 dma project to about $1500 around the end of this month, August. This would amount to a scant retracement of just 33%. If $1500 holds this will strongly suggest to me that this C-wave is still alive and kicking higher.

A failure at $1500 should see price collapse next to the 50% retracement level $1341. If this turns out to be the case I would expect this D-wave to conclude (bottom) at that point. My expectation is milder than the generalized hypothesis in italics above.

The primary reason I think this is because $1341 would be more than sufficiently below the 200 dma, the 50% retracement 'prerequisite' would have been met, as in 2006, and there is every fundamental reason in the world to believe that gold is going much much higher.

The only catch in my mind is whether deflation gets a grip on the world, ala 2008. If so, all bets are off. Let's all hope that does not happen.

Anyway, for now we will have to wait to find out whether gold's C-wave has peaked, or not.

Game, Set & Match for Gold

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I have been waiting for confirmation on the daily chart of Gold from the True Strength Index (TSI) indicator and minutes ago I got it.

If gold should bounce back up to new highs, which is always a possibility, it will likely give a additional negative divergence SELL signal. But more likely, once the parabola pops, it pops.

Anyway, gold today was on Day 28 of it's daily cycle and overdue for a top. The usual daily cycle, from trough to trough, generally is in the range of 20 - 24 days. I have yet to see a single parabola that did not at least retrace the parabolic phase rather quickly. If that turns out to be the case here, gold could find itself at $1665 or lower rather quickly. After that, I guess a new daily cycle will begin and if this was the top of the C-wave, gold will not rally for long before turning south once again.  Time will tell.

It's Really Easy to Trade Gold (in Hindsight)

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Just doodling around with this current 4 Hour Chart of the Gold Continuous Contract (/GC), I convinced myself just how easy it is to use the True Strength Index (TSI) indicator to nail every top and bottom in the movement of this gold pararabolic.
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Heck, it's easy to trade just about anything well using the True Strength Index indicator.
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In hindsight, anyway. (lol)

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For my good friend Ron in Arizona - these two charts.  First, the gold parabolic of 1977 - 1980. And second, this look at gold from 2000 - present.
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It looks to me that once gold reached the mania phase in late 1979, its parabolic phase lasted all of about 6 weeks. In that time frame gold roughly doubled in value ($450 - $950). 30 months later gold lost all of the parabolic move and then some - finally reaching $300.  Enjoy!

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Stocks 38.2% Retrace, Go Gold and Sentiment Disappointment

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I have readers inquiring how long I will hold my deep under water TNA position. So I hope this post explains my reasoning somewhat. Gold is walking up a steep plank and we'll take a look at that. Finally, people just aren't scared enough (I'm afraid) - some new data out from Investor's Intelligence.
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School starts next week and I am getting nothing accomplished with that responsibility as I spend too much time on this computer. Hopefully I'll give the blog a rest and get something done that I can actually do something about.

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This first chart is of the S&P 500 as it began the first leg of the secular bear market in 2007. What captures my attention is the degree to which the 38.2% Fibonacci retracement level acted as a support zone for several months. In fact, a vicious bear market rally began several weeks after this price area was reached.

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This second chart, also of the S&P 500, shows us that we have begun the second leg of this secular bear market. Price has reached the same 38.2% Fibonacci retracement level. For now, the jury is out. Will this hold? I hope so, but don't know that it will.

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Here is today's look at GOLD on the same 4 hour chart we used yesterday. Gold is doing great - jumping like a frog higher for the third day in a row. The daily TSI (7,4) looks good. This chart (4 hour) shows that the TSI is in negative divergence with the previous high reading.  That is, price has made a higher high, but the TSI, as yet, is still lower than its previous high. We note the steep catwalk that gold has challenged itself to maintain. I won't say another word.

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And finally, some disappointing news from Investor's Intelligence today.  Well, disappointing if you are long the market.  If short the stock market, it could be great news!
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It seems that our waterfall sell off has done literally nothing to scare people. In fact, the % of bulls increased! And the % of bears decreased!  Huh?

I admire people with ice water in their veins but at this moment we have way too many of these folks holding stock. The bottom line is that we need more people to be scared and selling frantically so that a bottom can be in place. This data from Investor's Intelligence suggests we are not there yet.

It's All About......the Dollar

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This will be a brief post about what appears to me to be the issue of the day - the US Dollar. I snapped this chart of the US Dollar about an hour ago, noticing it appeared poised to break out.  Since this chart was made, the US Dollar has broken reather decisively through the overhead downtrend line on price and trying very hard to get up through the 200 period moving average on this 4 hour chart.

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Meanwhile, a rising dollar is not good for the stock market, as this 4 hour chart of the Standard and Poors 500 Continuous Contract shows us.  It appears that if a retest of the lows is going to happen, the True Strength Index (TSI) indicator will make a positive divergence with respect to price and I hope that means the downdrafts are done for a while.

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And finally, this look at a 4 hour chart of GOLD, which has succeeded in making a new high today. The indicators are in negative divergence, as I presumed yesterday they would be. I will be the first to admit that in very strong momentum moves these kind of negative divergences can just get run over..... ie price ignores them and continues higher. In these cases, and I have seen it happen many times, the TSI will continue to rise but only until it just about reaches its previous high. Then price collapses. I don't know exactly why this is, but I do believe my observations to be true.

I believe that Bernacke's position seems to favor gold. He basically said that interest rates will be below inflation for an extended period of time. That is incredibly bullish for gold.

My concern about gold, however, is that it has entered an unmistakable parabolic phase. These things never last long (I looked back at all previous C-wave tops and 4 days was commonly the limit - today is Day 3). My other concern is that gold is incredibly overbought while the stock market is incredibly oversold. I think big money would infinitely prefer to pile into an oversold market than an overbought market.

At any rate, my 2X short gold ETF (DZZ) I will just hold through whatever gold does next.

Does this Look Familiar? Silver and Gold Tops

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The True Strength Index (TSI) indicator has now given us a sell signal for GOLD on every timeframe but the daily and weekly. And until it does I am not confident, yet, in calling a top in GOLD's price (though I did buy DZZ today because I believe the top, if not here, is very close).

This first chart takes a look at the 4 hour time frame of Silver's recent parabolic top. We note that price bounced around violently within a band of about 10% below the parabolic top. Meanwhile, the TSI and VolumeFlowIndicator (below price) continued to agonizingly fade lower and lower - making a noticable negative divergence.

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This second chart is also a 4 hour time frame look, but this time at Gold. I have identified the SELL signal using a red line and arrow. We can see that gold has already made one attempt to make a new high which failed by $1.60. No doubt traders will keep trying to surpass $1782.50. They may even make it, but I bet the negative divergence with the indicators below will say they tried in vain.

Sold GBG - $1.84 BUY DZZ - $4.96 -- Golds D Wave Retracements

I decided to sell my position in Great Basin Gold (GBG) at $1.84 and recognize an ouchy 13.2% loss. With the same money, I purchased a long position DB Gold Double Short ETN (DZZ) at $4.96. In effect, I traded one position for another.
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Click on any chart to ENLARGE
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I will continue to hold my losing position in TNA in hopes we get at least a decent retracement in the near future.
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Gold is presently trading at around $1750. It clearly seems to have entered into a parabolic phase which I am presuming means it is about to top. In any event, if we get a parabolic conclusion then the D wave will begin.

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Here is a look at the first 4 C-wave tops of gold's secular bull market with an eye to identify Fibonacci retracement levels accomplished during the ensuing D-waves.

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And here is a look at the 2006, 2008 and potentially 2011 C-wave tops with Fibonacci retracement levels.































































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DZZ currently trades a short ways under $5. At the beginning of the current C-wave (April 2009) DZZ traded at $25. I imagine that whenever this C-wave does top, DZZ will retrace some territory back in the direction of $25 and I expect it to outperform GBG in the long run, which is why I traded those positions today.

My TSI Trading record has been updated.

Silver Parabolic Bounces and SP-500 Standard Deviation Extremes

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I do not have any positions related to silver, but for the heck of it I decided to explore what happens after a silver parabolic explodes. Certainly, when a parabolic move peaks, price drops like a rock from the sky. Then, at some point, it stops falling and price begins to rebound - heading higher in the direction of the parabolic top. The question I asked myself was, how high will silver rebound before getting knocked to the ground again?
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I decided to use the Fibonacci retracement tool to do my analysis. What follows are my findings using the silver parabolics of 2004, 2006, 2008 and 2011 as my data.
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Following this look at silver I will treat the reader to something new from www.indexindicators.com  I have visited this site many times for many years but not written about it until today.

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The 2004 silver parabolic retraced to the Fibonacci 50% level then fell to well below the 23.6% measurement.
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Click on any chart to ENLARGE
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The 2006 silver parabolic retraced to the Fibonacci 61.8% level then fell to well below the 23.6% measurement.

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The 2008 silver parabolic retraced to the Fibonacci 61.8% level then fell to the 0% level and kept going towards the dark side of the universe. This is what happens in a deflationary period - all assets lose value (even silver and gold).

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The 2011 silver parabolic retraced to the Fibonacci 61.8% level and so far has fallen to close at the 38.2% measurement.
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Using the three previous silver parabolics as our guide I would guess that silver, as it has not made it below the 23.6% yet, is going to do so soon. And if we get into a deflationary spiral (as I personally am nearly certain we will later this fall) silver could, like 2008, reach the 0% level and just keep going south.










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www.indexindicators.com  Great site.

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This first chart looks at the average RSI (5) of the 500 stocks comprising the S&P 500 and calculates, with respect to the same daily data of the past 3 years, the standard deviation level of the current reading.  Translation: how unusually extreme is the current RSI (5)?
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If the standard deviation reading is 0, then the current reading is not extreme at all.  Indeed, the RSI (5) would be considered very average. However, we see that the standard deviation is -3 (green squiggly line). In simple terms, a reading of -3 is way way extreme. Also, notice what seems to happen to price (black squiggly line) when the standard deviation number reaches such an extreme.

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This second chart from www.indexindicators.com is a 2 year look at the percentage of S&P 500 stocks that are below their 200 dma.
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Again we statistically know that we are not only in an unusual market, but also one that is not at all likely to continue as is. Another -3 standard deviation reading here is literally off the chart.

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And finally, this third chart covering the past 2 years considers how far the current S&P price is from its 5 dma and assigns a standard deviation calculation.
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This time the reading is -4 standard deviation below "normal". And again, examine how price responds to these extreme and rare readings.



Gold: Forgot to mention this. The last time gold went up 6 weeks in a row was fall 2007. In the past 4 years the most consecutive weeks gold has been positive is 5.

Last week was week 5. Odds do not favor a week 6, though it could happen, of course.

Historic Sell Off - Historic Indicator Readings



Click on the chart to ENLARGE

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As discouraging as the current market is for those long stocks, including myself, I think a look back at history should bring some comfort when all appears hopeless.
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The current reading of the True Strength Index (TSI) indicator on the daily chart of the Standard and Poors 500 (SP-500) is -0.84. I have looked back at the TSI readings for each day beginning Jan 1, 1990. There were, in those 21 years, only 3 days that the TSI reading was as bad or worse - April 4, `94 (-0.91), September 21, `01 (-0.90) and last summer July 2, `10 (-0.83).
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And for what it's worth, in each of these three cases, those days were the low SP-500 price for many months that followed. Which is to say, there was a significant window of time to sell at a higher price.
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I often use the MoneyFlowIndex (MFI) indicator in conjuction with the TSI (7,4) indicator. For this I prefer the MFI (10) setting.
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The MFI indicator measures volume flow and compares it with the change in price. Normally, when money flow peaks, stock price peaks - and when money flow bottoms, stock price bottoms. I will tell you that this indicator does not work perfectly - but it does give one a very good rough estimate of what is going on.
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The MFI (10) reading for the SP-500 daily chart is now ZERO (0). Again, I went back and looked at each and every day beginning in 1990.
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Guess what?
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The MFI (10) has NEVER closed at ZERO. It has had a closing reading or 5 or 6 several times, but never 0.
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So, make of this information what you will. For myself, I will hang on to my long positions because I think the evidence is that this situation has reached an extreme that will be inevitably reversed.

Fibonacci Madness - TNA - Sell @ $72.50(?)

Click on the chart to ENLARGE

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A friend/reader wrote me today to ask how high I hoped my positions in Direxion Small Cap Bull 3X ETF (TNA) would be able to climb from here. Hummm... good question, so I decided to investigate.
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For starters I decided to look at Fibonacci retracements. My goodness. That was a landmine. The chart is full of Fibonacci relationships, to my amazement.
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As we now seem to be in a bear stock market, I think it unlikely TNA (or the SPX, for that matter) will be able to rebound such that it regains the 200 dma on its first attempt. That would make for a nice sell target.
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It looks to me that the TNA 200 dma will be about $72.50 in a couple days. This price level also conveniently resides at the 38.2% retracement of the downleg begun on July 7. I think a 38.2% retracement is not an unreasonable expectation, all things considered. And, that would represent a 10% gain from today's closing price.
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I have my GTC (Good til Cancelled) sell order now set at $72.50. Wish me luck!

BUY TNA - $64.95 (pre-market) ... More TNA - $63.80

Click on the chart to ENLARGE

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Following up on my post last evening of the relative 'oversold' True Strength Index (TSI) indicator reading of yesterday's close, I made this purchase of Direxion Small Cap Bull 3X (TNA) at $64.95.

I will be the first to admit that an incredibly oversold TSI reading does not necessarily identify the absolute bottom of price movement. Often, it does nail the bottom. But when it does not, price will have bounced thereby causing the reading to rebound - then a swift drop in price ensues which makes a lower low that is not confirmed by a lower low TSI reading, thus creating the familiar 'positive divergence' BUY signal.
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My TSI Trading record has been updated.

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Well, the TSI dropped even further (to -0.81) after the market opened. So I bought more TNA at $63.80.

True Strength Index (TSI) perspective on the SP-500

Click on the chart to ENLARGE

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On one side of the technical analysis coin, we see that the SP-500 has made an impressive head and shoulders patterns with price closing just below the neckline of the pattern.
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But there is another side of the technical analysis coin. It says things are not as likely to go to hell in a hand basket as it appears (well, at least not indefinitely).
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It turns out that today's price performance pushed the red panic button with the best of them - for the past 10 years - accomplishing an incredible -0.72 reading on the True Strength Index (TSI) (7,4) indicator setting.
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Have a look at this chart and you'll probably agree it is likely the low is either NOW in, or going to be in the next week or two.  After that, well, odds favor that price goes higher again, of course.
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If only this were an easy business to figure out.
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God help us all.

Buy GBG $2.12 -- Head & Shoulders SP-500, HUI & Gold

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I decided to take what I hope will be a low risk mining position with this purchase of Great Basin Gold (GBG) at $2.12. Honestly, I am not holding my breath on how long this rally in miners will last, but I presume the stock market will bounce soon and that may help, however briefly.
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Click on any chart to ENLARGE

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This chart of the SP-500 was made before the end of today's trading session.....and price continued to fall right through the neck line of the head and shoulders pattern. If this pattern continues to play out, price projects to a continued minimum price decline 110 points or the 1150 area.
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This chart of the Amex Gold Bugs Index (HUI) shows the nearly perfect symmetry of a head and shoulders pattern. If price should continue to rally this week and surpass 587, the symmetry would be perfect.

Today gold managed to reach that $1665 price I referred to in Saturday's post.  Well, it was 50 cents short of $1665, but that is close enough.  Anyway, gold is now 15% above its 200 dma and my expectation is that its daily cycle correction phase should now begin. See Saturday's chart for details.
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My TSI trading record has been updated.

Sold TZA $39.05

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I have owned a position in Direxion Small Cap Bear 3X ETF (TZA) for a little over a month now and figured today was a fine time to take some profit and get ready for whatever is to come next. This daily chart shows that the True Strength Index (TSI) indicator had reached the lofty level of 0.65 which I consider a sell signal. 
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The other issue motivating my sale was the inverse negative divergence that was fairly predictable. Price yesterday made a higher intraday high than today while today's TSI reading was higher than yesterday's.
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Click on the chart to ENLARGE
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My TSI Trading record has been updated.