Monday, January 7, 2013

US Dollar - We've Seen This Before

This post will be brief as I haven't time this morning to write much.

The US Dollar (/DX) is most likely playing a familar game with investor's psyche at the moment. Here is a chart of the buck from 2010 to present. 

Click on any chart to ENLARGE
A close look at the action in January 2011 shows us a hair raising nail biting encounter with the dark force that lasted all of 3-4 days.

And so, here we go again - but perhaps things will settle down sooner than 'last time'.

The bull will win any battle he choses to get involved with, but on his own timetable. And remember, it is the bull's market.


  1. What about the ones in the middle where it breaks out but TSI is overbought:

  2. Unknown - yeah, those were kinda interesting - good catch.

    Well, the first rule (truth) about the TSI that applies here is that
    whenever the TSI is rising above ZERO, price is *always rising*.

    Your third example (far right) is where I began investigating and
    mind you, I have the benefit of looking at these examples much closer
    up and in detail than one has looking at that huge chart.

    As expected, when the TSI was rising above ZERO price was rising. When
    the TSI hit a single red candle I could hear the 'ka-chink' of a bullet
    ricocheting off the heavy armor of a tank. That is, the red candle was just
    enough to cause the TSI to pause its perfectly upward ascent. The pause
    causes the TSI to fall a little bit.

    As price continues higher the following bar, so does the TSI. Until the tank
    takes another rifle shot (red candle). And, each time the TSI gets his with a
    red candle, not only does it fall a little, it also forms a positive divergence.

    Price may continue to make a higher high but the TSI does NOT make a higher high.

    Your first example (far left) shows this clearly. The TSI forms what looks like
    a guy with a few teeth missing or maybe a bear's claw pring. The jagged up and down
    are created when price continues higher after taking a red candle or two.

    The other rule (truth) about the TSI is that when it is falling below ZERO, price
    is *always falling*. Your second (middle) example is helpful because it shows what happens
    when the TSI is above, but very near the ZERO. That represents a comparitively
    low-momentum situation and indeed, the middle example price is not any where near as
    impressive (explosive) as the outer two examples.

    Did you notice the TSI highs of May, June, July and August 2012? They are successively
    lower, right? And what about the price above? successively higher.

    What is going on here, over the course of 4 months, is the TSI is warning that the momentum
    of the continuing rise in price is exhausting. And just as price peaks once and for all
    in mid-July, where is the TSI and what is it doing?

    Right - it's falling below ZERO!

    Last word. It took me quite a while to understand this, but when the TSI rises very sharply
    and quickly attains a considerable distance above ZERO, it represents a tremendous amount of
    momentum. So much momentum, in fact, that a single bullet or two is not going to hurt it too
    much. That is, remember, because price is only absolutely certainly falling when the TSI is
    below ZERO. As long as it remains above ZERO, price is still rising or able to rise at the
    blink of an eye.

  3. John, your USD drop prediction works out as expected, but not the gold rockets higher.

    It seems THEY are implementing "Gold Standard", make sure gold is NOT any better than USD. How long can this manipulation last? A life time, sigh...

  4. hello John,
    Can you please take a loot at BAC and let me know which chart to use (4 hour or daily or weekly ?) to assess its TSI ? I am a little confused by looking at all these but not able to make a judgment. In one chart it looks as falling and in another as raising. Please share. Thanks

  5. BAC - well, let's have a look.

    Weekly - if that upward rising TSI (7,4) trend line is broken, look out below.

    Daily - would not be a good sign if price were to close below the middle Bollinger Band
    line (aka 20 dma). TSI not looking great, but could be a whole lot worse. Also, daily was
    showing three consecutively lower TSI highs (December and early January) which very much
    warned that upside momentum was getting exhausted.

    4 hour - this is interesting. If price could trade below 11.33 and soon, that would yield
    a positive divergence BUY signal.

    1 hour - Monday and Thursday's TSI high make a nice trend line. If the TSI could now break
    up through that you would have a legit BUY signal with additional ZERO crossover. However,
    and downturn in the hourly TSI now will yield a trend line break SELL signal.

    Take your pick. It all depends on the time frame you wish to trade BAC.

  6. John, take a look at the large dollar cycle, pull up weekly chart, see major lows appearing with regularity? we are due for another dollar low according to that cycle. Also, take a look at how big traders are positioned on the dollar index since these are the folks who are driving the prices. TSI is great but only as a complimentary tool.

  7. Gold manipulation: I never have bought into that rhetoric, but recognize it is popular to do so. My viewpoint is that all the money in the world is trying to find a way to earn a favorable return.

    Some of this money is in the pockets of JohnQPublic, some in the pockets of all kinds of funds, some is in the pockets of municipalities (governments, like ours) and some is in the pockets of banks.

    I have never quite understood the argument of manipulation. I guess it depends on how that word is defined.

    For example, if a hedge fund massively shorts a stock which causes it to fall in price, is that manipulation? And suppose the true intent of this hedge fund is to be *long* this particular security - but they have figured out that with enough of their funds applied towards shorting this stock they can cause all the weak share holders to give up their shares cheaply if price were to, however temporarily, plummet.

    Is this manipulation?

    The way I define that word, I could call it manipulation or I could call it just plain smart trading, and I tend towards the latter definition.

    In general, all market participants from any of the above categories, assume risk when they put their money into any financial market. It is often a game of chicken - that is, who will blink first. Will the weak shareholders get scared by the huge drop in price and sell their shares back to the party shorting, or will they endure the risk that staying long, in the face of seemingly impossible odds, will be the better choice?

    And the folks "manipulating" the stock's market price by shorting also face a risk. That is, a bigger fish than they may step in and buy so many of the shorted shares that price rockets higher....leaving their clever 'manipulative' position on the frying pan.

    Now the wildcard that most definitely is manipulative, as far as I am concerned, concerns a government's participation in the 'free market'. We tend to love it when they sing the song "you can get something for nothing". This happens when they print money out of thin air, something absolutely no one else can do, in order to 'manipulate' the price of various assets.

    And indirectly, I suppose it a debatable argument that when the government is singing this song but mostly in the ears of some important banking entities that it wants to selectively support, then this too is manipulation.

    If the government selectively favors certain banking entities, that is absolutely corrupt. That is not just manipulative, it is cheating and immoral as far as I am concerned.

  8. AM re: Dollar Index

    The pattern of lows I see most easily is what I suppose one would call the yearly cycle lows.
    And indeed, the last 'low' on the /DX monthly chart was in February 2012 - some 11 months ago.

    By big traders of the Dollar Index are you referring to the COT data, or something else?

  9. yes John,

    approx dollar index lows - april 2008 -->(550 days) october 2009 --> (550 days) april 2011 --> projected(550 days) oct 2012 --> projected (550 days) april 2014.

    yes COT data on the dollar index, massive short positions were covered around the recent lows.

  10. Hi AM - I don't follow the COT data but your dates for approx dollar index lows
    looked fine. However, I guess I'm kinda dense because I'm not exactly sure what
    your point is. On one hand you cite oct 2012 correctly as a major dollar index low
    (actually it was Sept. 14, 2012) and suggest the next major low is april 2014.

    But you confuse me with the comment about massive short positions being recently
    covered and commented in your original post that we are due for another dollar index

    What is your specific concern, if I may ask?

    1. My concern is that dollar still has a rally in store.

  11. AM - OK, I get it now. Well, the dollar index finds itself nearing
    the conclusion of a narrowing 6-12 month long triangle. For that
    matter, gold has something similar going on.

    I haven't been writing about this but my quiet view is that gold
    and the miners are not quite set up correctly for another strong
    up leg - TSI wise - and one more downdraft in their price behavior
    would do wonders for their situation. So personally, I am cheering
    for the dollar to 'try it again' for a short spell. Following this,
    should it happen and I think it will, the dollar will get its teeth
    kicked in and that will send gold and miners into break out mode.
    I'm guessing this will take several days or a week but really haven't
    given it that much thought. I'm holding for the prize and the wiggles
    and squiggles are amusing, but not very important. Thanks for writing.

  12. well John give us a print on what you are seeing. Dieing to know what you think. Lets not hold out, lay it out. =)

  13. Any updates would be appreciated John... great work!

    Is the US Dollar Index performing as expected? Gold has had a nice .382 rally off the Jan 4th low... time for a short consolidation/correction before a resumption of the uptrend breaking above the 1700 level?



  14. will you hold ur NUGT til breakeven or better? I have a similar entry cost. Thanks!!

  15. Ha ha - I didn't know that I owned some NUGT but now that I look at my
    trading record I see that I do. I guess that should answer my concern
    about holding it at this point (I'm not concerned whatsoever).

    The 'bigger picture' of the gold bull market is well in tact - and I am
    not on margin nor otherwise leveraged with expiring positions (save for
    a small handful of GDXJ call options) - so I can and will be patient.
    Draw downs are not fun, no doubt about it. But I have been there, done that
    many times before and the decision I have resolutely made to hold is the
    culmination of all my previous experiences. I know what I am doing, I know
    why I am doing it and I know, as best as possible, how this will work out
    if I am patient - and that works *for me*.

    The Dollar is doing about what I expected. On its weekly chart it made a modest
    TSI(7,4) trend line break BUT signal which could have amounted to something this
    week, but instead is showing a red candle for this week and a modest trend line
    break SELL signal. Its 4 hour chart is showing one of those wedge compression
    patterns - decision time, in other words - and for what it's worth - it is FAILING
    the compression test at the moment. It's daily cycle has topped on Day 4 and that
    is not conclusive given it is only Day 9 today, but bearish until proven otherwise.

    My hunch is that gold is in the process of retesting the down trend line it got up
    through on 1/15 and that will allow it to reach the 61.8% retracement of the current
    daily cycle. Should that happen early next week and be the end of it the daily cycle
    will be happily right translated and ready to begin the next cycle.

    I hope my thoughts are helpful.

  16. Thanks so much for your reply, much appreciated!

  17. John, CGR seems on daily sell signal. If your prior us silver experience plays out again then CGR would drop to 5 cents then rocket to 2.5:+)

  18. Thank you for your reply John... excellent analysis!


  19. John,
    NUGT is leveraged. Are you not concerned with time erosion? Looks like Miners will be a long time hold given the action in the past 12 months.
    Thanks in advance for your answer.

  20. Anon re:NUGT

    I am not concerned with time erosion though I suppose some would find that a
    valid factor to consider.

    My circumstance with NUGT may well be quite different than yours or someone else's.
    For my situation, NUGT is not a large enough position to change my life one way or
    the other.....even if it goes to ZERO. For another person, their allocation may be
    more concerning.

    I don't think most people really understand what is going on with gold and miners
    right now....and thus their anxiety level is reaching the boiling point..... or reached
    the boiling point long ago.

    I traded into some positions - most of my positions in fact - without seriously using
    my skills to analyze gold's cycles. So I blame no one but myself for that. Indeed, I
    don't really even blame myself as I understand both the reason why this happened and the
    solution that is now required of me.

    The 2006 parabolic C-wave top took 15 months to consolidate before a break to new highs.
    The 2008 parabolic C-wave top took 18 months to consolidate before a break to new highs.

    The 'evil forces' regarding gold's manipulation were not able to prevent either C-wave top
    from being surpassed in due time. As the 2011 parabolic C-wave top has been consolidating
    for some 17 months now, I would imagine we are, historically speaking, getting near to the
    time frame of gold's ascent to new highs....but recognize that this consolidation is with
    respect to an 80% gain from the 2008 C-wave top to the 2011 C-wave top. The 2008 consolidation
    dealt with the smaller gain of 40% between 2006 and 2008.

    What I am trying to say is that until the current consolidation is completed, the nervous
    nellies are the voices one hears nearly everywhere. They are losing faith in the bigger picture
    or have already lost their faith. Maybe they have never been through the experience I had in
    2008/2009 and for which I wrote about a few posts ago. Beats me, but I really don't care as I regard these voices as noise.

    I'll say it again. This is a bull market. It is not over yet with currency debasement everywhere,
    nearly total sovereign indebtedness in the United States, Europe and well beyond. This is the
    consolidation phase where people forget the forest for the trees or visa versa.

    I am not selling. My entries may have not been well considered, but my exits will be. And as far as I am concerned this is the absolutely worst time to sell.

    I hope my thoughts help you.

    1. Hi John,
      I wonder what your thoughts are on today's action in terms of daily cycle and translation? I'm sure tomorrow will be usual hard drop and reversal back up into the NFP report :)

  21. Hi Ross,

    I have been keeping track of what gold does each day for the past 6
    weeks and have chosen to be a quiet side line observer. I have no interest in selling
    any position I own so what gold does from day to day really does not
    matter to me.

    But fwiw, I am a bit embarrassed to admit that my crystal ball has been working very
    well since paying attention. I have been able to quite accurately guesstimate gold's
    movement for upcoming multi-day time periods and I am sure that as soon as I have
    written this the crystal ball will darken just to get even with me.

    Anyway, I consider price in relation to the daily cycle count and in relation to a couple
    of indicators. The first is the TSI (7,4) and the second is a new invention I am
    experimenting with. This latter indicator is a line created by subtracting the
    difference of the high and low price of each bar from the high price of each bar and then
    smoothing it with an exponential average of (3). To this indicator line I simply add another
    line that is the exponential average of (5) of the primary indicator.

    Backing up to late December I posted my concern that the IC trend line break had not yet
    been broken and said we needed to trade below 1635. Days later we got the 1626 low. Then
    I figured a new IC and DC had begun but as it progressed upward 9 of its first 12 days,
    the top was on Day 9 and the gain a very modest 2.48%. My research showed me that this
    kind of small DC gain has only occurred during D-waves.... So puzzling as that was to me,
    and seeing the TSI create a nearly continuous trend line at a 45 degree angle by day 12
    (I could not find a single example of this looking back 10+ years with /GC) I concluded
    we were going to have a short cycle that would top on Day 9 and was ready to drop. And drop
    it did the next day. I wrote another reader after it dropped sharply for four days that I
    thought that would be the bottom and daily cycle 2 would start....rise sharply for a couple
    to few days then somewhat retest the Day 1 price. This is what has happened as of today.
    I expect gold, either tomorrow (Friday) or Monday to start a rally sharply higher towards 1700.

    Of course, if my crystal ball is now broken because I wrote this, well, .... please don't
    listen to any of this.

  22. Thank you as always for your insight John. The last DC would have been 16 days in that case with a top on day 9 making it right-translated, and which is extremely short!? If we got the usual drop today before the NFP it could easily beat the low of 4 days ago, so would that change the daily cycle to a longer left-translated one and therefore more bearish than bullish!? Or am I on the wrong track?

  23. Ross - you understand perfectly. Read my final paragraph of the
    Jan 25 comment above. I was expecting this to turn out as a short
    DC topping on Day 9.

    Gold's price action yesterday was really helpful....I was kinda
    chuckling as I watched it because price dropped way too much. If
    it had dropped much more yesterday or today it would have created
    a screaming TSI (7,4) positive divergence BUY signal on the daily
    chart and I really didn't think that was called for. Anyway, as it
    turned out, yesterday set up a powerful bullish situation for today,
    just the same. We now have an opportunity to combine two BUY signals
    today with a trend line break (1/22 and 1/30 TSI high points) with
    a bullish ZERO crossover. My hunch is that this will execute today
    and this daily cycle will get the show on the road (up).

  24. John-WOW! Take care of that crystal ball and keep posting! Please!! So,this new DC should be right translated and form a higher high above 1697!! Perhaps I will be able to sleep better for a while...Thank you John.

  25. Hi John, you were certainly right about it not needing to drop for the NFP which is more common than the spike and reverse we saw today, and keeping its right translation:) It was great getting your thoughts on what might happen and learning more about using the TSI in real-time. Strange for gold to settle so low at the end of the day.

  26. Hi Ross - the 'strange' close of gold so late in the day was entirely predictable,
    at least from a certain distance away. One only needed to keep an eye on the TSI (7,4)
    on the 60 minute chart to know what was going to happen before it happened. Specifically,
    the TSI (7,4) had risen from, call it -65 to +65, in a matter of a single day. This set
    up the inevitable trend line break SELL signal. Add to that an observation using the
    standard Bollinger Bands setting on the 60 minute chart and that increased the odds of
    a pull back into the final hours of trade. That is, price had immediately violated the
    upper band once the tightened bands were expanded to reveal the break out direction.
    This (extreme) violation of the upper band was not given any follow through and undoubtedly
    fast thinking traders took this as their cue to take their money and run. They were correct.
    Price was then unable to sustain the upward momentum - thus the fall into the close.

    But fwiw, the daily TSI concluded the day with the trend line break BUY signal I was looking
    for and at -6, the ZERO crossover is a reasonable expectation in the very near future.

  27. john , any update on the miners.. they seem to be ready to take a fall to 150 if the HUI breaks its major HS pattern.

  28. Hi John - it'll certainly be interesting to see the outcome next week given the bearish daily candlestick Friday versus the trend-line break, etc. I've signed up for a Think or Swim account to get some real-time TSI charts! Thank you as always for sharing your thoughts and knowledge. I second the other person who would like you to post as often as you're happy to:)

    As a by the way, did you notice that Euro Gold has broken down out of its annual up-channel in recent weeks? I hope this doesn't happen USD gold although COT reports and oversold indicators suggest it shouldn't I think.

  29. Hi EP thanks for your comment.

    No offense intended, but I think nearly everything I read (which I admit is not much because I don't particularly care what other people think at this point) is totally misguided. Baloney, in other words. Futile attempts to explain the bigger picture which they cannot see with both eyes open.

    The HS pattern is one such example. That pattern is invalid. The right shoulder is 9 months or thereabouts too early. Maybe after HUI rallies back up to 500 in the June 2013 time frame you will have something to talk about.

    But whatever. Patterns are not nearly as important in the bigger picture as a historical understanding of how a financial instrument behaves, such as HUI index.

    So let's look at that.

    The initial HUI low of Nov 2000 rallied until June of 2002 then retraced 50%.

    The next big move began in July 2002 and peaked in December 2003. What followed was close to 18 agonizing months in which the HUI tested the 50% retracement level not once or twice....but three times.

    The next big HUI move began in May of 2005. It topped in May of 2006 and then spent 15 months testing the 50% retracement not once or twice....but three times.

    This brings us to the next big rally going into the fateful 2008 calendar year. The August 2007 low catapulted a rally that was sustained until March of 2008. HUI price then tested the 50% retracement not once or twice...but three times. But the third test in early August 2008 failed and down down down we went until bottoming in October.

    Perhaps one may wish to argue this scenario similar to our current situation. I don't think we are entering a massively deflationary environment with the unlimited devaluation of the world's currencies taking place.

    Moving on, the October 2008 bottom led to a massive rally that did not peak until September 2011. Since that time the HUI index has tested the 50% retracement not once, not twice..... hey, look at that.....we are now testing it for the third time RIGHT NOW!

    So my point of view is this: despite reading all the clever bearish rhetoric and analysis being offered I am unimpressed and not interested in engaging in the nonsense. The HUI's bull market history shows that every major rally will be tested 3 times. If the environment calls for the 8 year cycle low in gold and massive deflation, the third test will fail. Otherwise, don't get excited and be patient. That's it.

  30. thank you john for your analysis.... it seems that most subscriptions are out there to scare people into signing up.. fearbased subscribers sounds lucrative.

  31. EP - well, you get what you pay for here at TheTSItrader....... :)

    1. John, you got both ball and wisdom, please keep healthy and write often.