The CRB Just Formed a Final Three Year Cycle Low

[John's Note: This excellent article, written by my business partner at GoldScents and personal friend, Toby Connor, was published yesterday by the venerable Jim Sinclair at JSMineset, Bob Moriarty at 321Gold, Justin Brill at TheDailyCrux, Nadeem Walayat at The Market Oracle, and by many other fine publishers. It offers insight regarding how the precious metals complex will behave in the future and explains why we have a major bottom in place. A trial subscription is offered at the conclusion of the article.  Enjoy and breath easier - you can smile now!] 


By Toby Connor, GoldScents

I think it's clear by the action in the dollar index this morning and the response by risk assets in general, that the bottom I have been looking for is here. 

Today will be the first day in a commodity rally that should last roughly 2 years topping in mid-to-late 2014 when the dollar puts in its next three year cycle low.

The next two or three weeks should produce an exceptionally violent rally from extreme oversold conditions followed by a consolidation period as the dollar bounces weakly out of its intermediate bottom and rolls over quickly signaling that the three year cycle has topped.

The last two three year cycle lows in 2006 and 2009 generated a 20% and 32% rally during the initial move out of the final low.

This is day one of what should be roughly a two year rally into a massive parabolic spike sometime in 2014.

Let me reiterate that the initial rally out of one of these major cycle lows is always extremely aggressive. Today you have a chance to get in on the first day of this initial move. Those that wait will end up chasing into overbought conditions very quickly.

As is often the case, gold sniffed out this bottom early in May. The rally today confirms that we have a daily cycle bottom in place and a new cycle beginning that should last 15-20 days before the next short-term correction.

Miners confirmed this major bottom with a 24% initial rally on huge volume. This should be a multi-year low that will not be violated until the secular bull comes to an end.

To find out how cycles analysis enabled me to predict this major bottom I have reactivated the one week trial subscriptionto the premium newsletter.

Gold - A Pair of Puzzling Surprises

With today being the 9th day since gold began its descent from 1635.4 it would seem reasonable to assume the sky is falling and gloom is directly ahead for gold bugs. But hold that thought while I show you a couple of rather puzzling surprises about gold's recent price movement. 


First off, I offer this daily chart spanning 2007 - 2012 of the Gold Futures (/GC). I have identified the various B and D-wave bottoms and C-wave tops within this time period. The chart also features that new indicator I created recently but have not properly named - so for now it is 'NewStudy14'.


I tend to think of this indicator as measuring buying pressure. The 3 lines one sees in the indicator panel are moving averages of its data - 10, 20 and 50. Generally, when the indicator lines are above ZERO, they are colored blue and price is usually rising, and magenta/red when below ZERO and price is usually falling.

Click on any chart to ENLARGE


Now let's zoom in on the previous B-wave bottom that began in April 2009.

What I have done on this chart is simply measure the slope of price movement out of the 2009 B-wave bottom, which came out to 70 cents per day. It turns out that this very slope defined the slope of the entire 2.5 year C-wave that topped last September 2011.


I also noted that the indicator is generally above ZERO when price was rising and magenta/red when price was falling.


Reflecting back to the Joe Granville days in the late '70s we were told that volume precedes price. And to explore this alleged 'truth' I have concocted so many money flow, volume indicators in so many variations I have simply lost count of them all. But I have wanted to see if volume does indeed precede price for myself. At this point, the best I can say is 'sometimes it does, and sometimes it does not'.


So now let's look at today's gold chart and see what we can make of the pair of puzzling surprises.

Surprise number one, for me at least, is to discover that despite gold's nearly continuous fall for the past 9 trading sessions, it has only now reached a low that equates to the slope of price movement out of its April 2009 low. I definitely thought gold had dropped much below that slope and so far, anyway, it has not.

Surprise number two is to see that despite dropping in price for most of the past 9 trading sessions, all three moving averages of my little indicator are still above ZERO and color blue. Actually, this really surprises me. 

Now certainly, this can change. But when I think about it and the way the indicator is constructed, it tells me that the buying volume during these past 9 days has held up very strongly. Yes, there has been more selling volume than buying volume - but the difference is probably not that great.

Which makes me wonder about 'ol Joe Granville. I mean, this demonstrates buying volume ahead of a rise in price, at least potentially. Hummmm....... What do you think?

John

tsiTrader@gmail.com

TVIX - Class Action Lawsuit Filed

PRESS RELEASE

June 26, 2012, 12:35 p.m. EDT

Rigrodsky & Long, P.A. Announces A Securities Fraud Class Action Lawsuit Has Been Filed Against VelocityShares, LLC

WILMINGTON, Del., Jun 26, 2012 (BUSINESS WIRE) -- Rigrodsky & Long, P.A. announces that a complaint has been filed in the United States District Court for the Southern District of New York on behalf of all persons or entities that purchased VelocityShares Daily 2x Long VIX Short-Term ETNs (the "TVIX") (nyse arca:TVIX) between November 30, 2010 and March 22, 2012, inclusive (the "Class Period").

If you purchased these ETNs from VelocityShares during the Class Period, or purchased shares prior to the Class Period and still hold VelocityShares, and wish to discuss this action or have any questions concerning this notice or your rights or interests, please contact Timothy J. MacFall, Esquire or Peter Allocco of Rigrodsky & Long, P.A., 825 East Gate Boulevard, Suite 300, Garden City, NY at (888) 969-4242, by e-mail to info@rigrodskylong.com, or at: http://www.rigrodskylong.com/investigations/velocityshares-llc-tvix .

According to the Complaint, the Pricing Supplements disseminated by Credit Suisse AG contained misleading information regarding the effect of changes in the relationship between short-term measures of volatility and longer-term measures of volatility. This relationship is sometimes referred to as the "term structure" of volatility and was a crucial and undisclosed risk associated with the ETNs. Additionally, the "Hypothetical Examples" included in these Pricing Supplements were designed to conceal this risk and were not representative of randomly calculated possibilities generated by a computer. As a result of defendants' false and misleading statements in these Pricing Supplements, investors purchased these ETNs at artificially inflated prices during the Class Period.

On February 21, 2012, the ETNs increased in price when Credit Suisse announced it had "temporarily suspended further issuances of the [VelocityShares Daily] 2x Long VIX Short Term ETNs due to internal limits on the size of the ETNs." Credit Suisse added that "[t]his suspension does not affect the early redemption right of holders as described" in the Pricing Supplement. This caused an increase in the price as the ETNs became scarcer. However, once this suspension was rescinded in March 2012, the price collapsed again. Further, on March 29, 2012, it was disclosed that the Financial Industry Regulatory Authority ("FINRA") was investigating the ETNs and other exchange traded notes and that the Massachusetts securities regulator was looking into the ETNs' February through March 2012 transactions.

If you wish to serve as lead plaintiff, you must move the Court no later than July 24, 2012. A lead plaintiff is a representative party acting on behalf of other class members in directing the litigation. In order to be appointed lead plaintiff, the Court must determine that the class member's claim is typical of the claims of other class members, and that the class member will adequately represent the class. Your ability to share in any recovery is not, however, affected by the decision whether or not to serve as a lead plaintiff. Any member of the proposed class may move the court to serve as lead plaintiff through counsel of their choice, or may choose to do nothing and remain an absent class member.

While Rigrodsky & Long, P.A. did not file the Complaint in this matter, the firm, with offices in Wilmington, Delaware and Garden City, New York, regularly litigates securities class, derivative and direct actions, shareholder rights litigation and corporate governance litigation, including claims for breach of fiduciary duty and proxy violations in the Delaware Court of Chancery and in state and federal courts throughout the United States.

Attorney advertising. Prior results do not guarantee a similar outcome.

SOURCE: Rigrodsky & Long, P.A.

        
        Rigrodsky & Long, P.A. 
        Timothy J. MacFall, Esquire 
        Peter Allocco 
        888-969-4242 
        516-683-3516 
        Fax: 302-654-9430 
        info@rigrodskylong.com 
 
http://www.rigrodskylong.com            

Copyright Business Wire 2012 

BUY CGR @ $0.63 -- Miner Cost per Ounce Study

As if I do not already own enough shares of Claude Resources Inc (CGR), I bought 20,000 more at $0.63 earlier this morning. I am not one of those guys who thinks in terms of 'averaging into a position'. I bought more because I could not find anything that offered more value and potential upside.


After a couple charts of today's CGR buy I have charts of 3 other gold miners I'd like to show you for the very specific purpose of comparing share price movement with the miner's cost per ounce of gold production.


But for now, let's take a look at the first CGR chart. 

Click on any chart to ENLARGE


This 4 hour chart primarily had one thing going for it and that was the reading on 'NewStudy14' of 99.9437. Secondarily, the Demand Index fast stochastic (5,3) had bottomed and was  on the rise. 


This second chart of CGR - a 2 hour chart - is interesting in that I have detailed the numerous positive divergence True Strength Index (TSI) indicator BUY signals that have appeared over the past 6 or so weeks. 

CGR has been hovering above 62 cents for weeks now, despite the volatility we have seen in gold. I am hoping this means the stock price has reached the bottom floor and all that will be required of me is.......patience. 


As promised I'd like to show you a few mining stock charts. But first I want to remind readers that though an ounce of gold sells for a certain price on a certain day for any and all who wish to purchase it, the cost to produce that single ounce of gold varies widely throughout the mining industry. Each company has to find the gold it will sell at the lowest possible cost to be a profitable company. 


And this means that each company has a unique situation and a unique cost to produce an ounce of gold. Some companies, like the first two we will look at, have comparatively low costs. There are lots of favorable implications for the viability of such mining companies, but the primary characteristic I'd like to focus on from a potential shareholder's point of view is risk.


If gold is trading at $1900 or $1550, but the companies cost to produce an ounce of gold is, say, $500, there is a relatively small risk that the company will be able to show a profit at the next quarterly earnings report. Yes, the amount of profit per share varies with the price of gold - in this case there is a potential profit margin of $1400 per ounce of gold mined to something just over $1000 per ounce. That is a 40% difference in earnings power, but not a deal breaker for the mining company.


This is a daily chart of Barrick Gold Corp (ABX). 

Barrick's (ABX) cost to produce an ounce of gold is $500 and we see on the chart that its stock share price has had a range of 37.8% in the past year. That percentage price swing is very similar to the profit margin discussion I offered in the previous paragraph.


This is GoldCorp Inc (GG) on a daily chart. 

GoldCorp (GG) has a cost to produce an ounce of gold somewhere in the neighborhood of $534. And we note that it traded in a 42.9% range.


Let's stop for a moment and think about how these stocks are likely to be priced when gold returns to $1900.


That's right - a good guess is that they would go back to the price of their highs on these charts. And those would be great gains for any investor!


But what about the miner who cannot produce an ounce of gold for $500 and sell it for whatever the market will bear? How did they fare in gold's $350 downward range? 


Here's an example. This is Golden Star Resources (GSS). 

GSS spends $1202 to produce a single ounce of gold. When gold was selling at $1900, GSS had a gross profit of $700 per ounce. But with gold selling at $1550, the profit margin narrows to just $350 per ounce. That fluctuation in the price of gold had a huge impact on this company's bottom line. Indeed, the two extreme profit margins were 100% apart, not 40% as with the first two companies we looked at.


And GSS share price, oh my, close your eyes please..... a range spanning 71.2% to the downside. OUCH!


Last chart. I promise.

If you knew me personally very well, you knew this chart was coming last. Hey, what can I say?


You know, when I bought a slug of CGR for my retirement account last winter and payed $1.44 a share, I had not thought about this stuff - miner cost per ounce. 


But I have now. :-)


Anyway, I learned a valuable lesson and I hope my writing this article helps someone else, as well.


Whoa... CGR closed at $0.645 I see. I think it's great to be on summer vacation again.


Bye,


John
tsiTrader@gmail.com

Fibonacci Time and Megaphone Pattern Studies - GDX and Gold

This weekend I was doing a little reading about the megaphone pattern. By no means was I able to absorb everything I read, but I did learn enough to do a little investigating on my own. And another day I will return to what the learned experts have figured out and try to make a little more of their understandings my own.


One of the intriguing things I read was that there is often a Fibonacci relationship between the various high and low points as the megaphone pattern progresses. Being painfully familiar with the Market Vectors Gold Miner ETF (GDX) and its huge megaphone pattern I got to thinking I would start there and poke around a bit - see if there really were any Fibonacci relationships at play. Honestly, I was sure there would be so I threw out the idea of investigating the Fibonacci price measurements with something a little more exotic and unlikely - the Fibonacci time ratios.


After we take a quick look at what I found out, I have a 5 minute chart of the continuous Gold Futures chart (/GC) that I'd like to show you. As I watched it trade last Friday I became aware that it was forming a megaphone pattern. And naturally, if there are Fibonacci time ratios in a huge daily chart of GDX, I just had to find out if there were any Fibonacci time ratios in a little tiny 5 minute megaphone on gold's chart.


Finally, and thanks to a reader in London (hi Viktor!) I thought a weekly chart of the SPDR Gold Trust ETF (GLD) with a little True Strength Index (TSI) indicator musings for the upcoming week would round out this post quite nicely. I'll show you from a TSI perspective what I hope happens this week.


So, our first chart is the infamous GDX megaphone.

Click on any chart to ENLARGE


As you can see, I found a Fibonacci relationship for for nearly every significant high and low - including the breakdown location (10) and the May bottom (11).


Now if someone else would just make a few hundred of these for me to study, I could tell you all about this specimen. Any volunteers?


Next up is the gold futures (/GC) megaphone that began taking shape last Thursday and Friday, as seen on this 5 minute chart.

Out of curiosity I just took a peek at the /GC which has been trading for about 45 minutes already this Sunday evening. Sure enough, there are the new red 5 minute candles - one after the next and price apparently (predictably?) will retest the lower boundary of the megaphone. Looks to me that will take about 6 hours and price could be around 1552 or so. Then what happens?

And finally, a weekly chart of the SPDR Gold Trust ETF (GLD) with my directions for Santa Claus. An ideal BUY situation is to have as many TSI signals going for you as possible and preferably all simultaneously. Nothing is fool-proof, of course, but having a positive divergence and a trend line break and a ZERO crossover all rolled into a couple bars of trading activity is an unusual opportunity and one that I ALWAYS will take a chance on.

So for a mid-year Christmas present, I am asking for a sharp drop early in the week to take out the previous low on an intra-day basis and then a solid recovery by the end of this week or early in the following week. That's not asking too much, is it?

Have a great week and keep in touch,

John 

tsiTrader@gmail.com

Gold's Secular Bull: 200 dma and B-wave Bottoms

Last evening I was looking at all my various indicator concoctions and started to wonder if perhaps gold still has not made its final D-wave bottom. The indicators last evening suggested to me that, as crazy as this sounds, a D-wave bottom could still possibly be ahead of us. And after today's sky dive of $44 I kinda think maybe my idea is not so crazy after all.


Current thinking is that the D-wave bottom occurred on December 29, 2011 when gold reached an intra-day low of 1523.9. And further, that the B-wave bottom occurred on May 16, 2012 when gold reached an intra-day low of 1526.7 (we will examine this on the final chart of this presentation).


Anyway, should gold reach an intra-day price of lower than 1523.9 anytime soon, that would entirely rephase the current understanding. i.e. we would be still in the process of making a D-wave bottom with the explosive A-wave just before us. 


So I got to thinking. Maybe all B-wave bottoms had a common characteristic? And if gold does not currently possess this quality, whatever it is, perhaps we really have not seen the D-wave bottom yet. Hummmm.........


From past research on D-wave bottoms I learned that the retracement of the preceding C-wave was always 50% or greater. I also learned that each C-wave price trend line was finally broken to the downside before a D-wave bottom was finalized.


To my satisfaction I have determined (and posted) that the previous C-wave price trend line has been broken to the downside. So that took care of that oddity.


As for the Fibonacci retracement, gold has only retraced exactly 38.2% of its recent C-wave (April 2009 - September 2011). This does not fit the rest of the puzzle, but likewise, neither does the fact that gold has now produced two left translated intermediate cycles following its most recent C-wave top. All other C-wave tops were followed by a single left translated intermediate cycle.


Hummmm....... Nothing I can do about the two left translated cycles. Is there still a chance the retracement will extend past 38.2% to a 50% retracement - like all the others?


Anyway, the highest price that C-wave tops can reach is somewhat predictable based on the degree to which price has been able to climb above its 200 dma. 


But I've never seen any research on how severely gold has been submersed below its 200 dma at various times, and of special interest at this moment, how low below the 200 dma and how many trading days after gold B-wave bottoms has price remained below the 200 dma?


If the answer to these questions interest you, stick around because I am about to show you. Not only that, but I am going to leave you wondering if perhaps gold has not bottomed just yet, after all.


Throughout the following 5 daily Gold Futures charts (GC) I use the color magenta to help identify the C-wave tops, the color red to locate the D-wave bottoms and the color green to spot the B-wave bottoms. 


After each B-wave bottom, which is defined as the day with the lowest intra-day price in the vacinity, I provide a count of the number of days following that day that gold's price closes below the 200 dma. 


Let's begin our study with a daily chart detailing the 2002 C-wave parabolic top and the B-wave bottom that followed in latter 2002, and continuing into 2003 where we find first a C-wave top then a D-wave bottom, and followed by the 2003 B-wave bottom.

Click on any chart to ENLARGE


The B-wave bottoms in 2002 and 2003 were not followed by a single day where gold's price closed below the 200 dma. 


Fine, so what about the action in 2004 and thereafter? 


(But first let me remind readers that 2004 had not one but two parabolic C-wave tops. The first peaked in early April, the second in early December).

The chart above shows us that both the B-wave bottom in 2004 and the B-wave bottom in 2005 were followed by 2 days in which the price of gold (GC) closed below the 200 dma.


The following chart shows the B-wave bottom in 2006 and we note that the number of days after the B-wave bottom increases to 8 days closing below the 200 dma.

So far the count for the number of days closing under the 200 dma after an intra-day defined B-wave bottom are: 0, 0, 2, 2 and 8. The number of days seems to be increasing but then again, I get the feeling that the number of days is quite small. Good thing we have a little more data to consider.


So now, here is the next B-wave bottom. It followed the 2008 C-wave top and the horrendous 2008 D-wave bottom. If ever the number of days below the 200 dma were to continue to increase, I would bet money this was the year.

Well I'll be darned. The B-wave bottom following the horrific 2008 D-wave that practically blew miners right off the stock exchanges and corrected its C-wave some 89% had how many days below the 200 dma after its bottom? 


ZERO.


You kidding me?


Nope.


Hummmmmmm............... OK, so now the count is 0, 0 , 2, 2, 8 and 0.


I am starting to wonder if gold likes to set off its C-wave at or just below its 200 dma - kinda like a sprinter who wants to be leaning just barely ahead of the starting line in anticipation of the bang sounded by the starter's gun. It's a fair question, isn't it?


OK, whatever.


So let's now get to the last specimen - the 2012 B-wave bottom / C-wave beginning. 


The magic price here, for the B-wave intra-day low is 1526.7  This price is just barely higher than what most now consider to have been the D-wave bottom of 1523.9 on December 29, 2011. 

Now this chart (above) is curious. Most assume the B-wave bottomed on May 16, 2012 at 1526.7  And from what I know about these things, that appears true. 


But since that date, gold (GC) has been under the 200 dma for 26 days? Hummmmm....... either this is weird or something is not quite right, and I am not quite sure which it is.


Oh, and I forgot to mention this: the magenta curving line is the 200 dma. If it is rising, it is magenta. But when it has a single bar (day) that it declines, it turns kind of a light pink color. Anyway, we note that the 200 dma has been declining (pink) for the past 6 weeks or so. 


All previous B-wave bottoms rocketed up through a rather flat 200 dma - not a declining one of length and momentum. Hummmmmm....


The red wedge I had drawn on the most recent candles was just something I have been watching - and clearly, today the wedge was violated to the downside.


Also, the straight diagonal magenta line is that C-wave price trend line I identified a while back once I set my chart to log scale.


So is the B-wave in, as believed? How about the D-wave? Heck, they are a matter of just $2.90 apart. 


Current price, as I write this is $1564. Could gold possibly drop another $38 and rephase the B-wave bottom or better yet, drop another $41 and rephase the D-wave bottom?


Good questions. Write me with the answer if you know it, or otherwise any questions you may have. :)


Have a profitable Friday and a relaxing weekend,


John
tsiTrader@gmail.com

GDX and TSI Negative Divergence Signals [2007 - 2012]

One of the True Strength Index (TSI) indicator techniques I have found quite reliable for yielding profitable SELL signals is called the negative divergence. It has concerned me lately that the Market Vectors Gold Miner ETF (GDX) appears headed for generating this sell signal and in the past couple of trading sessions I have lightened up on my mining positions considerably with this very thought in mind.


Then I got to wondering, what are the true odds that a TSI negative divergence sell signal on something like GDX would actually foretell a drop in the price of the miners ETF? How often does the signal fail? When it works, how well does it work? And so on.


Before I tell you the two rules I use to define a negative divergence, I should tell you that what follows are 6 calendar year charts of GDX (2007 - 2012) with the TSI indicator. Each chart shows the price and TSI readings that triggered the trade, as well as a possible near-term closure of the trade and the outcome in terms of gain or loss.


And at the end of this article I will recap our findings which, as it turns out, may rather surprise you. 


OK - so what is a negative divergence sell signal?  I have two rules. First, on an intra-day basis, price makes a higher high and the TSI that day closes lower than the TSI reading of the previous price high. In short, price makes a higher high while comparatively, the TSI makes a lower high.


Second, a TSI trend line break BUY signal trumps the negative divergence SELL signal. In this very unusual situation, the SELL signal from any active negative divergence is closed and it is BUY time. That's it.


I enjoy doing research on stock market related stuff because it helps me be a better trader. This article, and the hundreds of articles I have written before this evening, are first of all for me, and secondly, for anyone who is interested in my research. I spend eons more hours making the charts and crunching the numbers for the readers than for myself. I usually figure out what I want to learn fairly quickly.


Anyway, I had a challenge to figure out how to present this data so that it would effectively communicate the possibilities of the TSI negative divergence SELL signal. To this end I made a couple of rules to guide myself and I would like to share them with you now.


First, the GDX price to the penny that initiates the negative divergence condition is the price I used to begin my imaginary short trade. Second, I closed each trade on the most favorable  terms possible within a reasonably short period of time.


Now if your thought is, 'wow - this isn't realistic at all', I quite agree with you. It is not realistic to think a trader could cover the position on exactly the perfect day at the absolute lowest penny of the day. I know that.


Still, I would like to have a feel for how often this trade works, does not work, the general size of the gains and losses possible, and so on. This is research, not reality, but my findings will benefit me and I hope they benefit you as well.


So let's get started with the daily chart of GDX - 2007.

Click on any chart to ENLARGE


2007 had four instances of the negative divergence sell signal. The gray shaded vertical rectangles on the price chart locate the exact bars that apply. The first trade could have been closed about a week later at roughly break even - but I documented the occasion that the trade was closed 3 weeks later for a 2.1% gain or closed 4 weeks later for a 8.4% gain.


The second trade (see second gray vertical rectangle from the left) closed within days for a 6.0% gain or the following week for a 12.1% gain.


The third trade closed 8 or so trading sessions later for a 6.7% gain and the fourth trade could have been closed in 8 days for a 3.4% gain or the following week for a 9.6% gain.


The 2008 GDX had a couple of negative divergence trades that worked out well, then at the end of the year it got rather complicated. Let's take a look at that chart now.

The first trade was worth a maximum of 5.9% and the second could have yielded 13.6% in a matter of days and with a couple weeks of patience reached a sweet 32.4% gain.


Then in the month of December, as the D-wave completed the infamous 2008 bottom and price began it's meteoric ascent, the plane hit a whole lot of volatility. Price was jumping around like a guy who just found out he has flees. Anyway, the first trade was a dud. You would have been lucky to close the trade a couple days later with a 1.6% loss. If you didn't take that out you got one last chance about four weeks later (on the next chart - 2009). This too would have resulted in a 1.6% loss if you were lucky. After that, price has never again been as low as $27.....to this very day.


The other trade was ignited on December 30 or so. On the following chart (2009) we'll see that that one was worth as much as 19.8% in a matter of a couple weeks or less.

2009 produced a lot of negative divergence signals as the miners powered out of their terribly oversold condition. By the way, a negative divergence, at least the way I think about it, is a condition where price simply gets ahead of its own momentum. It is a condition that says that price is out of whack and needs to be corrected in order for the rally to continue.


The February trade could have yielded between 12.4% and 22.0%, depending on your level of patience. The March trade was worth 10.4% in a matter of days, or as much as 19.4% if you held in there for 3 weeks. June yielded a possible 17.0% gain. Interestingly, this is the rally out of the B-wave bottom of our previous ABCD repetitive gold pattern. And July tacked on another 8.2%. 


The November time frame was tricky. It included a single trend line break and what appear to be several negative divergences. But on very close examination, using the rules I defined earlier (and always use for myself) there were no negative divergences. If you get out your microscope and think it through bar after bar, I am confident you will come to the same conclusion.


2010 sported 7 more negative divergence setups.....all potentially profitable. 8.6%, 11.0%, 10.6%, 1.8%, 3.8%, 5.1% and 7.8%. The October time frame was a mess. It was one of those 'he said, she said, he said, she said' and so on. Though price managed to inch higher within these pink shaded vertical rectangular days, I have seen this enough to somewhat instinctively know that something is very wrong here - just hang on because their is going to be a shake-out and then it will be time to go.

The 2011 GDX chart above gave us just 4 potential winners. The February/March period was messy - we saw that once earlier - and I shaded it pink to remind myself about these things. There were actually 3 negative divergences nestled in that mess.....if you played the last one you could have taken a ride from 61.25 down to 54.68 (10.7%). I did not put this one on the chart - I just looked at the mess and figured if you traded the first one and got out with lots of luck, you would have made 4.8%.


The 3 following trades were garden variety - potentially worth 11.8%, 4.0% and 3.4%.


Well, here comes the 2012 GDX chart. Of course it's just a tad shorter than 6 months to date, but only 1 single trade that was worth 10.5%.

The other thing to point out on this 2012 chart is our current situation. The previous TSI high was 63.56 and the price of GDX on that occasion, intra-day, reached a high of 48.72. Looks like I made this chart before the close today...which should read TSI 43.18 and high price for today of 47.89. In other words, if price reaches 48.72 ($1.04 higher than today's close) and the TSI on that bar does not close higher than 63.56 that will yield the second negative divergence for 2012.


By the way, the workaround is for GDX to drop just enough to cause the TSI to drop. That would create a new high in which price is not out of whack with the TSI. Then a trend line break could be drawn as price causes the TSI to rise again, and that would be a BUY signal. 


OK, let's recap what we found. We had no fewer than 24 trades. 23 of 24 could have been closed for a profit. The definite losing trade was coming out of the 2008 D-wave bottom. The loss could have been significant but there were two opportunities to escape with a loss of 1.6%.


The potential gains for all the winning trades were not ingredients of a get-rich scheme but were healthy enough to consider playing.


If you have any questions about the TSI negative divergence SELL signal technique, or something else stock related, please feel free to write me an email and I'll see what I can figure out - even better I will probably learn something from you!


Keep in touch,


John
tsiTrader@gmail.com