Friday, December 16, 2011

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.


  1. Thanks for your analysis. We are on the same page on the NUGT trade. I got in at 20.27 Thursday. Keep us updated!

  2. Thanks for sharing your hard work John. Very appreciated.


  3. How do I access the current chart service that you are using? Is it free similar to the FreeStockCharts?

  4. The charting service I am using is indeed free. The website is:

    This service is owned by the brokerage firm TDAmeritrade. If you happen to have an account there you simply log on and download the software.

    Recently I moved my account from Interactive Brokers (IB) because their software stopped working for me and I, even with their help, could not access my account. My account is now with TDAmeritrade.

    But for a long long time before recently, I accessed this charting service via directly. Funding or even opening an account was NOT required. So yes, access was completely FREE.

    To download the ThinkorSwim (TOS) software via, one jumps through a few hoops that 'feel' as though you are applying for a new account. However, very early in that process you are asked to dream up your user name and password. Once you do that the system acknowledges/accepts them.

    At this point one closes the active process/connection by closing the tab on their browser. You then are no longer at the TOS website. But, now you have an accepted username and password. (!)

    Now open a new tab and direct it to At this point you can chose to 'log on' using your new username and password. From there you will be able to download the software and begin using it immediately.

    This is the process I used for about the past 2 years. I never had a single problem nor did I ever receive a single solicitation to fund an account or anything like that. The software has been rock solid and I really appreciate that, too.

  5. Welcome back Mr Townsend. It is a pleasure to read your thoughts, analysis and comments. I would be grateful if you could spare some time and analyse silver and advise your opinion and comments on same. Thank you in advance for your time, analysis and comments.
    best regards

  6. Hi Ally - thanks for expressing your appreciation of my work.

    Today I am working on this cycles stuff some more but fwiw I took a large position in NUGT last Thursday and plan to use the rest of my loot to buy AGQ tomorrow. So if you are wondering what I think of silver right now, well, now you know!

  7. thank you Mr Townsend for your insights and kind opinion of direction of silver.
    best regards and sincere appreciation

  8. Mr Townsend
    Did you buy AGQ as your trading record has not been updated?

  9. John,

    Congrats on your successful trade!

    Question about your TSI on the GC chart: The chart shows 6 numbers for the TSI. I'm using TOS and I can set only 3 numbers: Long Length, Short Length, and Signal Length. Do you have TWO TSI indicators plotted, one with params of 7,4,5, and the other with params of 25, 25, 5?

    Do you use different settings on the TSI for different times of the bars on your charts? For example, do you have a different setting for a chart with daily bars than the settings for a chart with 4 hour bars?


  10. hi John, how long do you plan to keep this trade?

  11. John,

    Once you have opened a trade, do you use the TSI to determine when to exit?

    From the sound of your comment regarding opening a position in AGQ, I'm guessing you're expecting PM's to rally here for at least a few days, right?

    My concern is the possibility that this big move down in gold is not done, that we're seeing a bounce here to 1620 - 1650, and that lower prices will follow, eventually taking gold into the 1400's, so I want to protect against that kind of downside.

  12. Ally - yes I bought all the AGQ I had money for without going on margin at yesterday's opening price. It think it was $46.79. I will post it to my trading record - hopefully later today.

  13. pimaCanyon - correct, that is two TSI indicators within one panel with the settings as you noted.

    I use TSI (7,4) for all time frames from one minute to weekly. The TSI (25,25) is just an experiment. I notice that a slower TSI magnification often provides a decent indicator of trend direction change....and as I have the four conditions colored in my TSI indicators, basically when it changes color that suggests a change in trend direction.

  14. pimaCanyon - the TSI gives me the sell signals for when to exit. As I am now combining these signals with the daily and four hour cycles of gold I imagine I will be inclined to hold trades a bit longer than before.

    I'm planning to write a somewhat exhaustive article about gold's secular bull ABCD pattern and cycles in the next day or two. I hope the article will provide useful perspective for the current gold situation....and help you assess the likelihood of gold returning to 1400.

    Yes, I do expect miners to rally for at least a few days. Longer, in fact.

  15. Hello John
    Thanks for the advice, Yesterday I'm buy SLV too ,
    Please advice when to exit,
    PS. can you take a look KGC for next few weeks.
    Happy Trading

  16. It is not easy to get via AmeraTrade without opening an account.

  17. Anon - Thanks for that update.

    I just went over to and was surprised to see they wanted a lot more information than I remember giving them 18 months ago when I originally received a username and password. Perhaps the noose has been tightened with the recent 'acquisition' of TDAmeritrade. Darn it.

    I know of a number of readers who, like myself, got the software directly from ThinkorSwim and, like myself, do not have a funded account with them.

    As I wrote earlier, I have recently funded an account with TDAmeritrade (for other reasons) and now have TWO working accounts to use the ThinkorSwim software. Darn it twice.

    Anybody out there know of a work around?

  18. Maybe this link is the one you went to?

  19. "Curious perhaps, but most four hour cycles bottom at 0800 - just before the NYSE begins trade for the day. Hummmmm.........."
    That's interesting. SI tends to move big around 8 a.m. too -- it was pointed out to me by a friend who trades a lot of SI. I'd like to know why that is.
    I'm enjoying your blog. TSI is a very good indicator, especially in conjunction with stochastics and the J line of the KDJ.
    Are you going to update the status of your recent PM trades? For me, stops are the hardest part of trading :-)

  20. Yanqui - there are a couple of newer posts that may answer your questions.