Sold NUGT @ $30.27

I do not have but glimpse opportunities to check on real-time movement of stocks during the trading session, but it appeared to me that Direxion Gold Miner Bull 2X (NUGT) was running out of steam - so I sold my position for a modest 3.7% gain.

My TSI trading record has been updated.

BUY NUGT at $29.20

The positive divergence on this 4 hour chart of Direxion Gold Miner Bull 2X (NUGT) gave me hope for another successful short term trade.

My TSI trading record has been updated.

SOLD NUGT - $33.62 (pre-market)

In this morning's pre-market I sold my entire position in Direxion Gold Miners Bull 2X (NUGT) for $33.62. I am determined to be very wary of holding positions too long, as that style of trading have never been particularily my strong suit. So, it's back to my more comfortable 'hit and run' trading - and so far, so good.

My TSI trading record has been updated.

Bought more NUGT - $30.00

I bought an additional position in Direxion Gold Miners Bull 2X ETF (NUGT) today at $30.00. I continue to believe there will be a modest rebound in these shares.

My TSI trading record has been updated.

US Dollar, Gold, Silver and Violent HUI Price Swings

This weekend I have been primarily working on getting a grip on the big picture for gold, silver and the miners going forward. A couple of charts I made in the past have been revisited and updated. And I wanted to do some new study on the price movement of the miners (HUI index).

Click on any chart to ENLARGE

I guess we need to start with the heart beat of the patients - and that would be the US Dollar Index. This is a chart that I originally posted on August 28, 2011. It is now presented without the historic data preceding 2003 and has been updated to this past week's action.

The most critical thing I am focused on is the US Dollar Index 3+ year cycle, it's effect on gold once it has completed that cycle low point, the timeframe that it tends to rally strongly after achieving that low, and any True Strength Index (TSI) indicator signals that could serve as affirmation of what the thing is going to do next.

At this point I am convinced that the most recent 3 year cycle low was achieved on May 4th, 2011. Following that date the dollar essentially consolidated sideways for 4 months and then began its rocket launch. The first strong day after concluding the consolidation phase capped the price of gold once and for all (September 6, 2011).

The evidence on the chart suggests that the rally in the US Dollar Index is hardly over and has a long ways to go. Conversely, I believe now that gold also has a long way to go - in the other direction, that is.

Now let's take a quick look at a monthly chart of Gold and see if it appears reasonable to conclude that the D-wave has begun.

C-waves typically conclude with a parabolic finish that propels gold high and far above its mean which is the 200 dma. We note that gold recently reached 29.8% above the 200 dma, respectably similar to 2006's 36.2% and 2008's 28.0% performances.

This was the longest C-wave to date and the TSI analysis is therefore more challenging and somewhat ambiguous. The TSI peak reached in December 2010 was the actual momentum highpoint, and the two peaks reached after that time were negative divergences.

Also, a trend line break sell signal is drawn and encompasses the entire length of the C-wave.


Some readers have been asking me about silver, so let's take a look at that now.

I wrote about what happens to silver after it's parabolic pops on August 6th, 2011. At that time I showed the silver parabolics of 2004, 2006, 2008 and 2011.

This chart is the one I used to show what happened after the 2008 silver parabolic popped. The words I used to accompany this chart were as follows:

"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)".

I used this next chart to explain what I thought silver was likely to do next (after August 6th, 2011) and wrote:

"The 2011 silver parabolic retraced to the Fibonacci 61.8% level and so far has fallen to close at the 38.2% measurement.
*
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".

So what does silver's chart look like today?

Well, it ain't pretty.

And yes, it has crossed below the 0% level ($32.50) and kept going south.

If this thing does make it to $20 it will be the buy of a lifetime.

BTW, the 2008 silver actually corrected even lower than the equivalent $20 mark I am showing on this chart as a projection. So if you think what I am suggesting is not possible, please think again.

And finally. let's have a look at those miners- the Amex Gold Bugs Index (HUI).

For the most part I was trying to get a sense of the potential volatility that may lie ahead of us this Fall.

Using my Excel spreadsheet I asked the computer to tell me the % gain or loss each day that was the result of 5 trading days.

In other words, each and every day I calculated the % gain or loss had one owned HUI that day, and bought it beginning 4 days earlier.

It was kinda interesting because for years the HUI would never show much volatility in it's quiet march up the hill from 2001. But when it got to a C-wave top, OK, then we always got some volatile action.

This weekly chart spans the timeframe beginning just before the 2006 C-wave top.

Based on the data I see here I don't think I can say with any evidence, much less certainty, that the HUI in 2011 is going to be a replay of 2008.  (However, I do think my previous discussion about the US Dollar, Gold and Silver do provide clues that suggest something similar to 2008 is entirely possible).

Anyway, the chart does not show a hint of a current BUY sign on the TSI indicator. This is a weekly chart and it appears to me it will be weeks before a credible BUY signal is in place.

The 2008 period was absolutely violent. I had no idea just how violent until I made this chart. 5 day swings of more than 15% were almost insanely 'normal'. And look at those swings of 20, 30 and even 45% - IN 5 TRADING DAYS! 

The TSI indicator did an admirable job, as usual, of identifying the significant buy and sell points. There are other signals in there but I thought the chart had enough 'stuff' on it already.

The immediate concern on this weekly chart is that the TSI reading has now slipped below ZERO to -0.04.  That is not good. The longer the indicator remains below ZERO, the longer the HUI will fall.

I wish you good trading this week. If you would like learn more about using the TSI indicator or I can be of asistance to you in any way, just send me an email, OK?

John
tsiTrader@gmail.com

Bought NUGT - $31.20

I took another shot at a short term trade today. This time I bought the Direxion Gold Miners Bull 2X (NUGT) a couple of times for an average price of $31.20.  I thought my purchases were close to the bottom but as the hours unfolded thereafter I learned that I missed the bottom by about $2.00. Yeah, that keeps me humble. I got it in my head that the US Dollar was going to turn lower and, well, it did, but not for long.

Above is the closing chart for today of NUGT. At last the trend line break BUY signal came after a rebound off a low of $28.88. The True Strength Index (TSI) indicator is nearing a ZERO crossover, which is favorable. The Money Flow Index (MFI) indicator is nearing a trend line break, as well.

My expectation is that price will now try to retest the consolidation area around $35 and amount to a 38.2% retracement of the past 3 days action, at the minimum.

My TSI trading record has been updated.

Buy/Sell EDC - $13.15/$13.55

This afternoon I decided to try my hand at a brief day trade and see if I could work on getting my chip shots to land on the green, as in days of old.

This 15 minute chart of Direxion Emerging Market Bull 3X (EDC) seemed to have some of the True Strength Index (TSI) indicator ingredients in place for a favorable short term trade. Namely, a positive divergence and a trend line break BUY signal. My purchase was at $13.15 and a short while ago I sold the position for $13.55 in the after market.  A modest 3% gain and a nice first outing.

My TSI trading record has been updated.

Sold DZZ @ $4.41

I am not at all sure how tomorrow will play out with the Fed meeting. My hunch is that one side is going to be rather happy and the other side very disappointed. Personally, as I don't feel that I want to be on either side this trend line break on the daily TSI (7,4) DB Gold Double Short ETN (DZZ) was just enough encouragement for me to sell my position and sit on the sidelines for the moment.

My TSI trading record has been updated.

Sold TNA $45.00

I finally got worn out and sold my positions in Direxion Small Cap Bull 3X (TNA) at $45.00. This is a 4 hour chart of TNA that I snapped just after executing the sale yesterday late afternoon.

The True Strength Index (TSI) indicator is very high and threatening to, once again, roll over. Also, price appears to be completing the right shoulder of a head & shoulders pattern.

It is, of course, possible that I exited too soon. Heck, anything is possible, right? Ben could announce something this upcoming week and send stocks and gold screaming higher. But the liklihood of that is just another coin flip. I'll regroup and try to reuse my funds in opportunities that have odds a little more in my favor.

My TSI trading record has been updated.

True Strength Index (TSI) and Gold

A reader was interested in seeing how the True Strength Index (TSI) indicator behaved during the time period of the great 1980 gold parabola and this post will provide some charts with that answer. I also am posting a chart I made a couple days ago which includes, in clear detail, how the US Dollar behaved just preceding the final leg of the great gold parabola in '79/'80.

This first chart presents the '79/80 chart with the TSI indicator in the lower panel. I have drawn in the TSI buy and sell signals and identified the dates that correspond to our present 2011 daily cycle.

This second chart presents our current 2011 price performance of gold. I have drawn in the TSI buy and sell signals and identified the dates which correspond to the critical daily cycle in 1979. Of course, our current daily cycle is still in progress and expected to conlude in 6 - 10+ trading days.

This third chart is a collage showing the 1979 US Dollar, 1979 Gold and 2011 Gold.

Note the numerous bull flags that developed as the US Dollar worked its way higher over a period of 5-6 weeks.

The 2011 Gold chart, while blue, is the actual data as of a couple days ago. The purple line is a future projection based on exactly replicating the '79/`80 parabolic. I did this by aligning the two charts (as above) then adding to the 2011 chart the same percent gain/loss achieved in '79/`80 on a day to day basis.

I have also done the same study with silver and using the same technique of projecting future price. Just for giggles, here is what that looks like.

Gold's 1980 Parabola in Greater Detail

On August 28th I posted a chart showing the tendency  gold's parabolic peaks (aka C-wave tops) to coincide with the 3 year cycle low of the US Dollar Index. As you will see from our first chart, the 1980 Gold parabola did not peak anywhere near a 3 year cycle low in the US Dollar Index.

Indeed, the pink rectangle targets the drop in the US Dollar index as the location of the parabolic rise, but looking at the chart from across the room one would not notice anything significant about this little bump in the road.

At present, the US Dollar index has rallied very sharply higher beginning 12 or so days ago. The immediate question is - will it roll over soon and send gold higher?


The second question is - why is gold the same price today as 12 or so days ago?


(The 1980 scenario was identical in that a very sharp rally in the dollar did not seem to faze the price of gold - other than to put it in a temporary sideways consolidation pattern).


So let's have a look at the daily cycles that led up to the conclusion of the 1980 parabola.

I have identified each daily cycle bottom beginning with July 1979, provided a count of the number of days in each cycle and hand drawn the general location of each cycle with an arc shape. The cycle that is identical to the current one we have in now (Sept 2011) is also identified with a rectangular box. You should observe that the period from October to December was a price consolidation of considerable duration and occurred as the US Dollar was sharply rising.


Now we will zero in on that particular daily cycle for a closer look at what was going on.

 

I find this daily cycle really fascinating. It began on October 8th. Within just two days price raced higher making what some probably thought was a double top. Day 14 came within just $2 of producing a cycle that was left translated and much more serious, a failed daily cycle. At this point I am certain traders were convinced gold was a gonner. The price on our current daily cycle that equates to our current 2011 daily cycle is $1705.40.

But incredibly, gold began to rise. And it continued to rise for 8 days. And on the 8th day it traded just 50 cents higher than Day 2 of the cycle - making what appeared to be an obviously bearish left translated cycle on the verge of failure into an extremely bullish right translated cycle! That was Day 22 of the cycle. The price on our current daily cycle that equates to our current 2011 daily cycle is $1923.70.

Last chart - our current daily chart of gold.

Today is Day 14. The peak of the cycle so far was on Day 7. If price trades below $1705.40 this will amount to a failed left translated daily cycle and be bearish. If price trades above $1923.70 this cycle will be right translated (midpoint day to the right of the center midoint day) and bullish.

I do not have a crystal ball and I do not know how this will turn out.

But some of the clues have me wondering. The gold parabolas of 1980, 1983, 2003, 2006 and 2008 each concluded on the exact same day as their silver counterpart peaked. Will it be different this time?

The powerful rise in the dollar for the past couple weeks has not put a dent on gold. What will happen if the dollar now begins to fall?

Sept 15 additional thoughts:

I have yet to see a single gold parabola that concluded at the beginning of the seasonally favorable period of September. All C-waves have concluded in the December - May time frame.

I have yet to see a single gold parabola that concluded with a consolidation as opposed to a spike. Every previous parabola retested its C-wave 38.2% retracement level within a matter of days. To date, the current gold situation has only barely corrected to the 23.6% ($1705).

1980 Gold Parabola, BGMI, HUI and Some Small Miners with Big Earnings

I've spent the past couple of weeks learning a new skill - making charts using Microsoft Excel. This article will use my new skills to compare gold's current C-wave development with gold's great parabola that concluded on January 21, 1980, as well as examine the historic relationship of gold with gold mining stocks using both the BGMI (Barron's Gold Mining Index) and HUI (Amex Gold Bugs Index). Then we will conclude with some charts of miners that appear to have not only explosive future earnings, but also explosive future price appreciation.

The upper portion of this chart is the great 1977-1980 gold parabola that blew up on January 21, 1980.

The lower portion of the chart uses the Excel spreadsheet to recreate this parabola (in blue). The red line is the price of gold from the beginning of the current C-wave (April 16, 2009). The green line is essentially a duplication of the conclusion of the great 1980 parabola 'glued' onto the current gold price.

I am showing you this in the context of historical perspective and not in the context of price prediction.

Honestly, I shudder to think what it what take for gold to now double it's current price of $1857 to over $3700 in the next 10 weeks. But I do recognize that it is possible - particularly because, as we observed in 1980, it has happened before.

I can indeed think of several realistic mechanisms to make this happen as 'historically contemplated' on this chart (think Bernake and QE 3, Europe and sovereign defaults, Comex futures short squeeze of exciting proportion, and other possibilities including war and so on).

The mining indices we are familiar with, such as the HUI (Amex Gold Bugs Index) and XAU (Philadelphia Gold/Silver Sector Index), believe it or not, have not existed for all that long. The HUI dates back to mid-1997 and the XAU only to mid-1995.

Fortunately, there is an index of precious metal mining stocks that predates both the HUI and XAU - and it is the BGMI (Barron's Gold Miners Index). Data and charting of this historical index is available online (BGMI link HERE) and dates back to 1939.

This next chart shows you both the BGMI price action to the present day, as well as a log-scaled chart that suggests the relationship between this index of gold miners to the ever changing price of gold.

The lower portion of the chart suggests that a BGMI/Gold ratio at or below 1:1 has been consistent with the beginning of huge gold miner stock rallies, particularly since 1978. Unfortunately, I did not design both of these charts ('glued' one atop the other) with the identical time frame - which means that 1.0 readings on the lower chart do not line up precisely with the rally origins in the upper chart.

But hey, I warned you I am just learning how to do this stuff.

At any rate, using this metric it appears the gold miners are seriously oversold and likely to  rally hard. The current reading is well below 1:1.

If you would like to study the BGMI in greater detail, Mark Lundeen has authored a number of outstanding analyses which include: 1, 2 and 3.

Let's turn now to the HUI index and see if it too is suggesting a bullish future for the miners.

The HUI index consists of 16 miners that are not equally weighted within the index. I have noted these miner's ticker symbols in the upper left corner of the chart.

The immediately striking observation one makes is that gold tends to be priced at 2 times that of this index. (ie. if gold is $1000, the HUI would be close to $500).

Then we notice that at the beginning of gold's secular bull market in 2001, the miners were way out of whack - with gold comparatively selling at a 4-5X premium to the gold bugs index. This led to a miners rally that nearly tripled their value in less than 16 months.

The HUI miners bottomed ahead of gold, reaching a closing price of just $35.99 on November 14, 2000. As of this date September 11, 2011, the HUI index has gained 17 times it's value in November, 2000 ($628.34 vs. $35.99).

By the way, gold bottomed on April 5, 2001, 5 months following the miner's low, with a closing price of $255.45. As of this past week, gold has appreciated over 7 times it's value since making it's secular market low in April 2001 ($1857 vs. $255).

The other thing we notice about this chart is that since 2008 the mining index has not been able to get back to it's more 'balanced' 2X relationship with gold. At present gold is selling for about 3 times the price of the index. Will the HUI index now rally more fervently than gold to close this oversold difference? I don't know.

I can observe that while miners rallied strongly higher during the final 3 months of gold's 1980 parabola (gaining 50+%), they were no match for the rocket launch of the precious metal itself, as gold literally more than doubled in this time period. However, once gold and the miners peaked and then spent 3 months working off a severely overbought status with a sharp 25-35% correction,  the miners proceeded to literally double in the following 6 months as gold made a failed attempt to reach the parabolic high.

Finally, let's take a look at the daily/weekly charts of three miners with big earnings.

I am particularly indebted to the outstanding resource produced by Bill Matlack of Scarsdale Equities and published this past Friday at www.Kitco.com

I studied about 200 miner charts to select these three to show you. There are more than three that interest me, of course, but I will need to get to them another time.

This is Claude Resources Inc. (CGR). The earnings data, past and estimated, is noted on the weekly chart. The right side of the chart is the daily view of CGR.

Next up is Great Panther Silver (GPL).  The earnings data is on the weekly side of the chart as well as the daily side.

And finally, my personal favorite, Minefinders Corp (MFN). The float is small at 84Million shares, gold and silver mines producing in 'safe' Mexico, and the projected earnings are simply breathtaking. Any stock that can go from .09 per share to $1.76 in just three years deserves a good hard look. (!)

And which of these stocks do I own?

Not one. But that may change this week.

Good trading to you.

John Townsend
tsiTrader@gmail.com