Wednesday, January 18, 2012

ES, GC + SI - Riding the TSI Teeter-Totter

You can probably remember those good old days when you and your friends would head down to the local park and play on the teeter-totter. I sure do. And my memories of watching my children discover the joy of riding a teeter-totter, remembering their laughter and their screaming back and forth at one another is very precious to me as well.

The topping process in the stock market is much like the teeter-totter, it seems to me. Using the True Strength Index (TSI) indicator to observe the up and down swings of momentum as price begins a new rally, continues to rally then reaches an expiration or temporary peak, can be seen as an easily understood and familiar teeter-totter ride.

This post will look at three of our favorites - S&P 500 Emini Futures Index (ES), gold futures (GC) and silver futures (SI) - and use the TSI to examine the teeter-totter experience of a rally that, as always, needs to take a break before beginning anew.

Let's begin with this 4 hour chart of ES. Notice the up and down swings of the TSI - much like a teeter-totter - as this current rally has unfolded.

The teeter-totter is great fun but also requires lots of energy to be expended. The TSI indicator shows us that at some point - like the point where we are right now, as a matter of fact - fatigue begins to set in. The highs in the TSI indicator begin to not reach as high and the indicator drifts lower and lower, like a hot air balloon running out of umph, towards the ground. The ground, in this case, is the trend line break (green line) and the ZERO crossover (red line).

Another observation of this teeter-totter characteristic can be seen in this 4 hour chart of GC. Here we observe that as this rally has continued, the length (measured in terms of time) of each upswing shortens. It is indeed like watching children play on a teeter-totter. The initial burst of excitement yields a lengthy and robust time of play, but as time goes on fatigue begins to set in and each following burst of enjoyment becomes shorter and shorter - until the kids just get off the thing and take a rest.

And how about a third and final look with a 4 hour chart of SI?

I hope you enjoyed your time at the park today!


  1. John,
    I have really enjoyed enjoyed you last few blogs. You write very well. Informative and entertaining. And the divergeance on the ES is very pronounced. Seems like things should break down immediately. Keep up the good work. I put you back on my list of favorites. M-

  2. Thanks Monty. Things will break down immediately, by the end of the week.

  3. John, I do not post much, but think you have a terrific site and very comprehensive analysis. Thanks for sharing you TSI experience and knowledge with us all. Do you think the possibility of QE could effect the TSI accuracy? I am short SPX too. Michael

  4. New Post:

  5. Michael - thank you for taking the time to write me.
    No, QE cannot effect the accuracy of the TSI.
    The TSI measures the momentum of price movement over time.
    Works on hog futures, stocks, commodities - even currencies -
    all the same and all as effectively.