Tuesday, April 30, 2013

Gold: Struttin' with ATTITUDE

There goes gold again, doing something today it has only been able to do 8 other times in its entire bull market beginning in 2001. Details with charts in a second.

And what is with this specific angle of trajectory that the True Strength Index (TSI) indicator's trend line break technique continues to use to call SELL signals? I'm talking about 7 times in the past year or two. Very curious. We'll get to these details with charts in just a second, too.

But first, let's listen in on gold talkin' to da boyz in the locker room. I need you to hear this for yourself before we proceed, lest you have any doubt about gold's present frame of mind.

"Bro, y'all need to git dem smellin' boo-tays of yurs outta my way cuz now I ain't taken no mo of y'alls homie BS. UH...ha. (Jive strut or two). Uh...ha. (Spit that barely misses the dog, but doesn't miss somebody's shiny black shoe). Outta my way fore I stick this here knife thru the bottom of yur cock roach infested moolah bag over dat fire and make y'alls (Comex) papers turn bright red and orange".

Oh boy - now that was INTENSE. 

Serious attitude. Uh...huh.

Knives, fires and boo-tays. Very serious stuff.

Well, now that you have heard it for yourself ... I hope you will be motivated to keep reading. I am going to show you why gold is struttin' with attitude. I promise my tale will give you a couple of new things to ponder and maybe even render some advice to keep you out of gold's way.

S0 let's begin with today's ongoing action in the US Dollar Cash Index ($DXY). First we'll take a look with the TSI (7,4) in the lower indicator panel, then take a second peek to include the TSI (25,13).

Click on any chart to ENLARGE
Hey, no wonder gold is getting cocky - the dollar sports 2 daily cycle failures and could well begin a free fall. On top of that, the True Strength Index (TSI) indicator shows that the angle of the trend line (red) and the current location of the TSI have provided a Grand Canyon of bad times ahead for the dollar (blue green scribbles). It looks like weeks, at least, before the dollar will be able to convince the TSI to break out upside through its trend line.

OK, now the $DXY with TSI (25,13) - which measures momentum in more of a trending manner than the sports car TSI (7,4).

On Wednesday April 17th I penned this article proclaiming US Dollar Index - Good Odds for a Meltdown and used the /DX daily chart with TSI (25,13). What I really didn't explain adequately (my apology) was more about why a likely subsequent rally in the dollar (which we have briefly had since that post two weeks ago) had high odds for failure. 

The reason I felt strongly about this was because I could see that the dollar was in an absolutely impossible position with respect to the TSI. 

That is, the previous dollar rally took the TSI up to +40. But as the hot air balloon was now taking the tops of trees off with a reading of just +3 when a new rally might begin, there was no way - even if price made a higher high - that the TSI was going to make a higher high. The TSI (25,13) just does not move that fast. 

It appeared to me inevitable that a negative divergence of magnitude would cause the referee to blow the whistle, throw the flag and call negative divergence - you lose, and now it's time for price to crash. That is the penalty price must pay when the TSI begins to cross from positive to negative readings. As of today, what I thought was inevitable is happening.

Getting down to the specifics of gold's price action today, I created another (simple) indicator to locate for me all the times that the TSI (7,4) was positive 10, 11 and 12 days in a row. 

As of today, and providing /GC closes somewhere around $1470 or better, it is the 11th consecutive day in a row that the TSI indicator has risen. I thought this might be unusual, and it is. Let's see when it has happened in the past beginning with 2001 - 2007.

Looks like the TSI rose 10 consecutive trading sessions 3-4 months before the late 2004 parabolic C-wave top, and 12 consecutive days 8 or so months before the 2006 parabolic C-wave top.

Here is 2007 - 2012.

In this time frame we find 5 more instances ranging from 10 - 12 consecutive days. And as in the earlier chart, these strong and extremely unusual momentum moves do not seem to necessarily spot the tops of price movement. Indeed, they usually seem to precede a HUGE move even higher.

OK, here is 2012 - present.

And we have two more of these things, including one presently. The other one (on the left) is kinda odd. That sure did not precede a big follow through higher like all the others. That's kinda strange, don't you think?

Well hold on, I'll explain what actually happened very shortly.

But for now, let's get to that incredible TSI trend line angle of trajectory that has nailed 7 SELL signals in the past year or a little more. 

I make these charts using the ThinkorSwim platform and it has a little utility that, as one clicks on a point then drags the trend line to where you wish to click again and have it remain on the screen, it also shows very precise angle measurements. 

You know, I have been drawing these darned trend line breaks on the TSI for years and years.... and I got to looking at a few of these on GC and wondered to myself if they were the exact same angle. Then I remembered I had a way to find out the answer to my own question.

And look at that. The trajectory of those blue trend lines above are nearly identical - just a shade more than 40 degrees.

So then I decided to keep doing some more TSI trend lines and here came 4 more - all right about 38 degrees. 

Well I'll be darned. Probably just coincidence (wink!).

Finally, I promised to get back to you on that one recent TSI run of 10 positive and consecutive days that instead of preceding a strong leg higher, actually preceded a strong leg lower. We took a look at that 3 charts earlier.

Here is what happened. 

The TSI rose for 10 consecutive days. The most days it has ever risen consecutively is 12. Once you get to 10, 11 or 12 days, it is time for a breather. Happens every time, as you noticed. Price can just fumble around for a couple days, causing the TSI 'winning' streak to falter, then price rockets higher OR price can actually go into a fairly brief and stronger down draft - THEN resume higher. 

And guess what? That is precisely what I saw setting up right before my very eyes. 

Price quickly corrected downwards sharply for 3 days then came right back and heading upwards. The TSI (7,4) was actually nudged right up against the underside of the orange trend line I drew. The TSI was perfectly positioned for a trend line break BUY signal, right below ZERO and ready to break out upside.

Then Samson's look alike showed up. Hour after hour I watched as he held the massive iron rod in his mighty hands, straining and gasping for air as he slowing caused the iron to begin to bend. It was incredible. The TSI that was nudged right up against the orange trend line began to whither .... slowly ...... whither. Further and further it withdrew from the orange trend line. Like watching a candle melt slowly for hours. I could not take my eyes off what I was seeing.

Then an order to sell 400 tons of paper gold hit the market. Price plummeted. The TSI plummeted. There would be no bullish trend line break BUY signal that day. 

But Samson's look alike put so much into bending the iron bar that a couple of days later he collapsed. His mighty strength was gone. After that, he passed away and is no longer with us. May he rest in peace and prepare for receiving his friends soon, in the place where those who destroy the fortunes of honest hard working citizens for sport belong. Amen.

Ah, shhhh... I hear gold talking to someone. He still has his attitude, I can hear that. And over and over again, I can just barely hear his cry at this distance ....



  1. So John, you didn't finish the story here... looks like Gold is about to correct after 12 days up and the TSI looks like a 45 deg angle as well... Is Gold going to collapse here or just take a breather before resuming up. Has the C leg begun? April 16th the bottom?

  2. Anon - yeah, I didn't finish the story, but somewhat on purpose.
    I was hoping the facts would be evaluated through the lens of
    perspective each brings to reading my words and evaluating my
    charts, and that is good enough for me. In other words, we all
    share the same information but naturally will see it differently.

    But if you are asking what sense I make of this, personally, I
    will tell you.

    First, the nice folks who dumped 400 tons of gold onto the futures
    market seem desperate. It was, at the time, so obvious to me that
    gold was ready to launch and apparently they thought so too.

    When one is desperate one is capable of doing desperate things I
    suppose. For those not bright enough to cover their shorts when
    they had the chance, and there are surprisingly many, I do not pity
    them one bit.

    Second, these nice folks impress me as cowards who produce absolutely
    nothing for this world but have no problem taking whatever they can
    get from everybody else. I have no doubt they will regroup and try to
    get their game face back on. But it may well be too late. It would not
    surprise me if the commercials, seeing more monkeys hanging from the
    end of the long willowy branches, decide to call their bluff. They could
    easily call their bluff, get their saws out and start removing limbs.

    There is this brethren of technical analysts who are all calling for a
    double bottom (retest) in gold. Miners sat paralyzed much of the day
    wondering this very thing I imagine and tried to not get too excited
    by gold's relentless drive higher. That will, of course change.

    Third, my impression of what I uncovered regarding consecutive TSI
    advances puts the odds squarely in favor of hesitation in price and
    then an advance. Forget the double bottom. It ain't gonna happen.

    Yes, our friends will regroup and perhaps they can manufacture something.
    Hey, the 400 ton sale impressed me, for sure. They may need something
    like this to get the dumber monkies off the branches. But I'm not so sure
    the smarter guys are going to let them. My work suggest this has certainly
    'happened before'. That is, price hesitates and then all hell breaks loose
    upside. That would burn every monkey on the tree.

    My personal hunch is that we get a very modest take back and charge higher.
    But we also have the purple dashed line I drew on the price lows that indicate
    the daily cycle trend line that will inevitably be broken before a new daily
    cycle can begin. Nothing goes straight up forever, of course.

  3. John, thank you for the detailed reply... and thanks for not hedging your replies as it seems almost all do. I've asked the same type of question posed to you and almost always got a reply speaking out of both sides of the mouth (like a politician). Right or wrong, thanks for calling it like you see it. Most appreciated.

  4. So far gold did its usual plunge before the Fed announcement and then rallied a nice .618 off that 1440 low on the change in Fed language of the possibility of buying more bonds. And we still have the BLS jobs report on Friday that could be a further catalyst for gold to rally off its lows. ADP was another disappointment today and perhaps a precurser of what to expect on Friday. Perhaps, the shorts will finally get squeezed!

    I sure hope $1321 was the low!

  5. John, I enjoyed reading your reply to Anon. I hope the guys with the chainsaws soon find themselves out on a limb cutting the wrong side!


  6. Dollar bears RIP.

    USDX is about to put on another magnificent rally. Good luck to all dollar shorts. 2013 jan was important low for the dollar.

    Got dollars?

  7. The dollar looks ready to put in a low.... it has had 5 waves down so far... not sure why John thinks its going to crater... heard this before and seen it as well on smartmoneytracker and its been dead wrong.

  8. Gold will test $1000. and silver under $20. according to Larry Edelson who correctly called this PMs crash over a year ago. Then comes parabolic launch.

    1. You can wait, play the timing game....hmmmm good luck with that.
      Me I buy the dips, any move towards 1000 will be screaming loud and clear BUY ME.

  9. I do not understand why dollar should crash all of the sudden just because it breaks some trendline, why can it not be a simple overbought correction on the way up?

    Looking at the COT on the dollar futures we could easily continue dollar rally from here. We are nowhere near extremes of any kind for dollar to crash. lol.

    Besides, it is well known that gold can move up or down regardless of what dollar does.

    John, pull up monthly dollar chart (UUP) and look at your TSI. Does it say "dollar is going to crash" anywhere? no. Look at the nose bleed levels in 2008 and 2010, we are nowhere near those numbers on the TSI.

    Dollar is not going to crash. Simple.

  10. Anon - OK, I looked at the dollar chart on the monthly time frame.
    Yes, I see the nose bleed levels in 2008 and 2010. Use the TSI highs
    in 2010, 2012 and 2013 to draw your descending trend line. Then use
    the TSI lows of 2008, 2011 and 2013 to draw your ascending trend line.
    For the monthly chart of the dollar, this picture will frame the situation
    properly - it is a wedge that is narrowing and it shows a TSI that has
    bumped against the top line and now beginning to head in the direction
    of the lower line. I am using TSI (7,4) btw.

    Reset the chart to weekly. Connect the September and January lows (TSI t,4)
    and draw your ascending trend line. What do you see there? a trend line break
    SELL signal. TSI reading 6.18 and heading for the ZERO crossover in freefall.

    Reset the chart to daily. Connect the Feb 25 TSI (7,4) high with its high
    on April 24. Draw your descending trend line. Notice the current TSI reading
    is negative. Around -18 and bending because the upward acceleration is about shot.
    Do you see any chance the current TSI is going to cross up through ZERO, or better
    yet, the trend line you drew?

  11. John,
    That seems really interesting. Any chance of charting and posting a link here ? Thanks.

    1. Liquid Motion - write me: tsiTrader@gmail
      and I will be happy to make you a few charts.