BUY NUGT $20.25 - Gold Has Bottomed (?)

It has been the 'week before school lets out for the holidays' that is always filled with more things to do than one can keep up with. But for the 30th year, I managed to survive. 


I did finally do a trade, taking a hefty position in Direxion Gold Miners Bull 3X ETF (NUGT) at $20.25 on Thursday, and am just getting around to documenting it with this post.

This chart of NUGT was snapped somewhat near the conclusion of trading on Friday, the day following my purchase. The True Strength Index (TSI) indicator in the lower panel details the BUY signals I relied on for my trading decision. The green dot is a trend line break and the cyan colored arrow is a positive divergence. The blue arrow locates the four hour bar that was the cycle bottom.


Also, the scripts running in the price chart and on the TSI below have been tweaked to display properly with stocks and ETFs.  My original scripts were designed to run on /GC - gold futures. Once I started putting GDX and other such 'stock market' ticker symbols on the screen a number of my dot trading signals and arrow cycle markers disappeared. 


I figured out the problem - gold futures trade 24 hours per day and yield 6 four hour bars each day. Stocks do not trade 24 hours per day so the 2000 and 0000 (8 pm and midnight) four hour bars in the futures data do not appear in the stock data - because there is no data for these four hour bars. The fix was simple though tedious (as all this programming stuff seems to be). I rewired the programming to simply advance the dots and arrows from the four hour bar it first appears in the gold futures data to the next available bar in the stock data. 


So now I have two scripts - one for futures and the other for stocks.


The random looking line in the TSI indicator panel (above) is a second TSI indicator set to a longer magnification. I think in this chart it is set to TSI (25,25), or something like that. This is just an experiment to see if/how useful it is to use a slower TSI for confirming reversals in trend direction . It seems to work pretty well.


The other feature I have included in my TSI indicators is the use of 4 colors. Readers who have visited my writing for some time know that the TSI gives us different information depending on the following four conditions: the TSI is rising above ZERO, the TSI is falling above ZERO, the TSI is falling below ZERO and the TSI is rising above ZERO.  In this instance I am using blue, cyan, red and green, respectively.


Btw, all colors, dots and arrows are completely and easily customizable by the user - requiring no programming skills or hassles whatsoever. A click here and a click there and the colors, shapes and sizes of these items can be whatever you want.


Moving on, the next chart presents an overview of gold's past two weekly (intermediate) cycles. Assuming I have called this correctly, the final four hour cycle was quite short at just 28 bars. If I am incorrect and gold bottoms around bar 40 (as seems to be approximately its 'normal' cycle length) then early Monday trade beginning with the overnight Asian markets would be the expected time for that to occur. Curious perhaps, but most four hour cycles bottom at 0800 - just before the NYSE begins trade for the day. Hummmmm..........

The weekly cycles (yellow arrows) appear quite symmetrical and the current daily cycle calculation of 18.2 days seems reasonable within the context of past daily cycles.


And finally, let's take a closer look with the TSI indicator active below gold futures price.

If you look carefully you will notice that most four hour cycles (blue arrows) bottom and then are followed by the TSI yielding a trend line break BUY signal (green dot). This should prove to be a remarkably helpful confirmation that a cycle has indeed bottomed - particularly when these trend line break BUY signals occur very close to the expected bar count for the four hour cycle or roughly 40.


Shortly after 12/5  (Dec. 5) you will observe a positive divergence (cyan arrow) and trend line break (green dot) BUY signal in the TSI. I am aware there were many who took a long trade on GDX at this time. I did not because I was skeptical those signals were valid - they occurred way too soon to be near a four hour cycle bottom.  And honestly, it would be impossible for a person to know this unless they had an eye on these four hour cycles. 


(And if you are wondering, the plum colored dots are the trend line break SELL signals. The pink dots at the top spot the negative divergence SELL signals. The red dot signifies the nose bleed SELL signal when the TSI exceeds a reading of 0.80).


It turns out that GDX trade was indeed a dud. GDX never closed a penny higher after that day.....basically it was all down hill from there. Those who took the trade wisely retreated with as minimal a loss as possible.


Anyway, it looks like I am onto something very promising - for futures traders and stock traders of precious metal related securities. Let us all hope so.


My TSI Trading Record has been updated.