Monday, March 18, 2013

Gold: Standing on a Very Tall Ladder

This will be a quick post that looks at the momentum situation of both the gold futures (/GC) and the US Dollar Index (/DX). We will note that gold is standing on a very tall ladder and that it will be nearly impossible for the precious metal to advance many rungs higher without some consequences. Meanwhile, the dollar rally is really running out of steam. Will this be the pause that refreshes the dollar to begin a new leg higher? Or will the dollar continue trying to walk through the quick sand?

Oh, before I forget. I have made an interesting breakthrough using the True Strength Index (TSI) indicator and both charts today will show you what it does. The breakthrough is subtle but none the less helpful.

For some time I have studied the behavior of the TSI at the turning points of its direction from up to down and from down to up. The short story is that very frequently the slope of the TSI changes on the very bar before it changes direction. That is, the mathematical slope consideration shows that slope decelerates just before the top, and accelerates just before bottoming.

Anyway, you can see how effective/ineffective this technique is. When the TSI is rising and the slope begins to decelerate I color the TSI red. And, when the TSI slope is accelerating at low turning points I color the TSI green.

Colors are otherwise used to define the four possible TSI conditions: rising above ZERO (blue), falling above ZERO (cyan), falling below ZERO (magenta) and rising below ZERO (blue).

Here is gold on a daily chart as it looked around noon today.

Click on any chart to ENLARGE
The blue trend line on the TSI presently shows the tall ladder the indicator has risen. Just to the left in the Dec - Jan time frame I have used a blue line that is the duplicate of the present line. These two lines have identical slope.

Futures are now trading and the candle not shown in this chart is for tomorrow March 19. Gold is just barely positive from today's close hours ago. But, the TSI has turned color to .... you guessed it, RED. 

Here is a chart of the US Dollar Index (/DX) as it appeared around noon today.

It is quite common for the TSI to rise above ZERO on a strong rally, then price will either hold sideways for a few days or even give up some of the gain, and the TSI will find itself right about at ZERO. When this happens it means that traders have, for the time being, neutralized the momentum in either direction. If the bulls were just playing possum, letting the price come back to them a bit, they will hit it hard and get the rally going even higher. The TSI often bounces around the ZERO reading. 

Gotta go to an evening soccer game. Keep an eye on things for me, OK?



  1. Hello John,
    What is your take on the monthly TSI making lower lows (to last summer) and being much lower than 2008 correction low this time and continuing falling lower? I mean price is below 0 and falling so it is a bear market for now. Once monthly goes back up and crosses 0 we are back in the bull. Simple. No?


  2. Vasilii - that's an interesting question. Some of what you have written does
    not make sense to me and perhaps you accidentally used the wrong word here
    and there, but that's OK!

    Here is what I see on gold's monthly chart using TSI (7,4):
    * 2008 TSI reached -27. The current TSI reading is -25.4
    * 2008 TSI gave a trend line break BUY signal just one month after the bottom
    * 2013 TSI trend line is not as steep and will not be broken until May

    The lower lows is not a concern or factor whatsoever. The TSI has behaved
    exactly as it should have - which is to accurately tell the story of price

    Lower lows says a couple of things. First, there was a period before now
    when the market had serious second thoughts about price falling further.
    This event (July, August, September) caused the TSI to rise and when price
    resumed its corrective descent, a point from which to connect the August 2011
    TSI high with the September 2012 TSI high provided our trend line.

    Your thought about the TSI rising above ZERO, when it happens, will represent
    a BULL market as opposed to the current BEAR market is OK, and indeed simple.

    I guess the thing you may want to think twice about is this:

    * 2008 low of $681 and ZERO crossover of TSI on the MONTHLY chart was two months
    after the TSI bottom. Price was then $892. Waiting for this ZERO crossover was
    prudent, to be sure, but it meant one entirely missed the initial 36.7% rise
    in gold (($892-$681) / $681). And, four months after this gold was getting some
    air let out of the tires and price was still at $900 - so buying at the ZERO
    crossover then gave you months of going practically nowhere.

  3. John,
    Understood. My platform shows both TSI(7,4) and (4,7) around ~-5-6 for 2008 and ~-24 now for monthly TSI. Summer was around -10.

    Monthly TSI cross above 0 would be a confirmation of the bull continuation but not necessarily a trade signal. So far the trend was down so proper thing was to short the rallies, when trend is back up - we buy the dips.

    Regarding missed profits - in my experience - a lot of speculators money are lost in the top 10% of the move and bottom 10% of the move, picking bottoms and tops. As long as the speculator is present in the majority of the main move itself he/she should be just fine. But we do need to confirm the trend change first.

    * After 2008 we did rally another ~1000$/Oz into 2011 so a few missed dollars at the bottom did not mean much.

    Thanks for the blog.

  4. Vasilii - you are most definitely welcomed.

    It boggles my mind that you are getting a TSI (7,4) reading on the monthly
    chart of gold at the 2008 low. I double checked and I am getting -27.02 using
    my standard EMA setting. If I switch it to SMA I get -28.8, and if I switch it
    to WMA I get -40.4

    How in the world you are getting -5 or -6 is beyond me, but I am sure there is
    an explanation - I just don't know what it is. Curiously, we get the same reading
    it appears on current TSI. Mine is -23.32

    Actually, the ZERO crossover is a BUY signal when ever and where ever it occurs.
    Does not matter what time frame one is looking at. But when using a monthly chart
    the signal will be quite delayed. For your purpose it sounds fine that it is late
    and I do indeed agree with everything you wrote in your third paragraph.

    In 2008 the WEEKLY TSI for gold gave the ZERO crossover after the bottom in price
    four weeks late....considerably sooner than four months, for sure.

    Also, the DAILY TSI for gold gave the ZERO crossover BUY signal just 16 trading
    sessions after the $681.

  5. Has the new indicator for gold turned red?
    Waiting with bated breath,

  6. Kerwin - no, it's not red. Worse, it's cyan and by the smallest
    amount it has even given a trend line break SELL signal. Given
    that the current reading is a modest +36 and given the insane
    developments in Cyprus over this weekend I would not make too
    much of it. Price does not need to make much upward movement
    at this point to then make a new trend line break BUY signal.
    Which is to say the current signal could (and I believe will)
    be replaced by a new BUY signal in a single day.

  7. Anybody know the story on JAG,what a slaughter,they must be in some kind of trouble to drop so much!

    - Mark


  9. John,
    Have you read "reminiscences of the stock operator" by any chance?

    Thanks for the blog.

  10. Anon - yes, I own the book and read it some time ago. It did not give me
    the 'ah-ha' moment that apparently so many people experience, but I did
    find it very enlightening to read all the games that were played to disguise
    who was trading what. Using multiple brokers simultaneously to enter and
    exit positions, as well as test the water for whether a competitor would
    take the bait and show his cards (intentions) by these testing moves only
    to then find themselves screwed. And mind you, this was going on a long long long
    time ago with the telephone representing 'high technology'. I cannot begin
    to imagine the games that are played, one main frame computer against another,
    in these days....but it did help me understand why price, when viewed with
    the benefit of a microscope, seems to take so many irrational turns and all
    the time. Which is to say that these kind of head fakes and slight of hand
    trading maneuvers - stuff that seems to take price irrationally out of the
    bounds of a particular moving average or fall precipitously seemingly on
    absolutely no fundamental news - then strangely reverse back into 'the trend' -
    are likely the musings of big traders testing each other. Their ploys can
    play absolute havoc with my humble technical tools and no doubt that is also
    part of the desired objectives of the game of hardball they play.

    Did you have something in particular you wished to discuss regarding the book?

  11. john
    can we see a update on the new tsi " tweek "
    jeff the flea

  12. john,

    any news on gold and the tai.. any idea when these C moves will commence.



  13. " And remember, it is the bull's market."

    i dont agree, last 6 months it was a bear market. does look a bit oversold now, so bounce would be a good sign for the bulls that still have blood circulation left.

    Im wondering why so many blogs consistently get it wrong? Shouldn't they all get super exited NOW? Where is everybody proclaiming the bottom? Instead they were all buying in November? go figure..

    Where is the bullish mood?

  14. This comment has been removed by a blog administrator.

  15. Hey John,

    I was very optimistic also, but silver looked like death today. Any thoughts on perhaps more lows to come?



  16. Anon - GDX looks to me to have corrected around 36% in the past 6 months.
    And if we use the 'higher highs and lower lows' metric for bull markets
    and the opposite for bear markets, miners fit that definition of a bear market.

    But fwiw, my statement concerns gold as I understand that ultimately the miners
    will do what gold does. And gold is clearly in an powerful bull market.

    I don't read other blogs so I wouldn't know how consistently they get it wrong.
    But I do know why I have gotten it wrong....and that is what matters to me.
    Fortunately, patience is what will pay off in the end.

  17. Alex - yeah, silver did look bad today. I'm kinda glad I am tapped out
    and resolved to sit because I would probably not do terribly well trying
    to trade what has been going on for the past many months. Which is another
    way of saying that I have no thoughts about more lows. I would be quite
    surprised if $26 could be breached for very long, should drifting lower
    continue. For me and for now, until the US Dollar tips its hand it's
    twiddle the thumbs time. I guess I would also mention that silver, like gold,
    is obviously making a long consolidation that measures impressively in
    length but curiously, does not have much depth. FWIW, I find this to be
    extremely bullish.

  18. john,

    Doesnt seem like abottom will be in any time...

  19. 4/2/13 - I guess the bankers won. When does the bleeding stop?