Sunday, May 19, 2013

To Log or Not to Log. Is that the Question?


This post is going to steer clear of any heavy thinking and just focus on a few ideas and observations regarding the weekly charts of gold futures (GC), the Gold Bugs Index (HUI) and a single daily chart of silver futures (SI).

I've been curious to untangle in my own mind how the various downside price projections for gold and the mining index are being calculated by others, so I did a little investigating and will show you what I figured out so far.

To log or not to log? This does seem to be a question that explains some of the projections I have seen. I am talking about whether one charts price and its trend lines using log scale or not. The results of choosing one method or the other does provide some striking differences, as we shall see.

Let's begin with a long term weekly view of gold futures (GC) using log scale. This chart probably looks familiar to you because this is the setting I use to make my charts usually. You will note the three different colored line segments of increasing slope that define gold's parabola as it has developed. And you will observe that price currently is right on the uppermost trend line.


Click on any chart to ENLARGE
Now if we look at this NOT using log scaling, the True Strength Index (TSI) indicator will not look any different, but look what happens to the display of price and the location of the three segment trend line.



I've read that a number of analysts are calling for gold to reach $1050 but I have never been quite sure why. Probably this chart gives us a good clue in that the trend line projects to around $1050. Also coinciding at this general price level is the 2008 parabolic C-wave top and its successful retest in February 2009.

Moving on to a long term view of the weekly Gold Bugs Index (HUI) using log scale we see something rather disturbing. Price has already broken below the trend line that I would think should have been significant support.



Besides the price break below the trend line of support using log scale I notice that the 2008 low actually took out the lows of 2004, 2005, 2006 and 2007. I had never really given that much thought.

And, at present our 2013 low of this past Friday has taken out the lows of 2012, 2011, 2010 and is just $4 above the low of 2009. I assume the HUI will now take out the 2009 low which, when you think about it, is very similar to the 2008 low in that quite a number of preceding annual  lows (4) will have been taken out.

Let's see what this looks like on a chart of HUI weekly that does NOT use log scaling.



This scaling suggests the trend line is presently under this week's candle at around 217.07 so I have to wonder if, in this instance, the 'not log scale' trend line will be the one that prevails. Additionally, I have identified the 2009 low (241.78) and the 2008 low (150.27).

I also found on the weekly HUI chart a couple of decent examples of TSI compression. The reason I point this out to you is to reference what you observe on the chart above (1st massive compression marked the start of the HUI bull market in late 2000, and the 2nd massive compression marked the conclusion of the 2008 low) with what I would like to show you that exists on gold's weekly chart right now



I have been watching this massive TSI compression build up for the better part of 8 months. 

To refresh you recollection of how the TSI works, when it is below ZERO and falling (as is presently the case), price is always falling

The interesting problem I see is that the present TSI reading of -60 needs to fall and hold below -78 by the end of this week to make a lower TSI low. Price could make a lower low along the way this week but I doubt the TSI would settle with a lower low unless price falls rather considerably....like a weekly close $100 lower than last week, otherwise a positive divergence would be formed and that would likely be the end of the compression.

And finally, here is a daily chart of silver futures (/SI).



I had previously put this Fibonacci tool on my silver futures chart and not too long after the Sunday evening market reopened somebody had an itch to pick up some more silver bullion at a great price by dropping around 1500 contracts on the market within the span of about two minutes. Anyway, look where price bounced .... right off the 161.8%. 

You can't tell me these traders and their computers don't know exactly where these Fibonacci numbers and trend lines are located. But as for the question of 'To Log or Not to Log?' I'm still not sure the answer. Maybe both?

Good luck this week!

John
tsiTrader@gmail.com


16 comments:

  1. Well damn...ill just wait for the HUI to hit 217.00 and ill make my final purchases of these miner stocks and physical silver. Good luck to everyone.

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  2. John,

    maybe you should look atthe cyclical pattern of the GSR ratio since 99.. you will see, that we are do for a top in 2014.. we just broke major resistance and are on our way up.. so this bear market has another year to go.

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  3. Anon - OK, I am looking at the ratio of GC / SI (gold divided by silver).
    The ratio is currently about 64:1

    So? Honestly, I don't see the cyclical nature you refer to. Yes, of course I see the ratio create highs and lows. But seriously, so what?

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  4. here john,

    here is the GSR chart with the cyclical nature that AM posted on kitco... its compelling to say the least. not sure how you dont see this.
    https://www.kitcomm.com/showpost.php?p=1996310&postcount=28341

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  5. OK Alison - I was able to look at the chart. What I see is not
    a big deal to me, but I don't mind that it is a big deal to someone else.

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  6. Woo Hoo!!! Go John!... Am I allowed to say that or will that jinx it?

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  7. Jinx what?.... today's HUGE reversal in Gold, Silver and the miners! The barrage of negative sentiment that usually accompanies bottoms! lol

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  8. The COT commercials predicted a move like today's. Everyone and his dog is already out of gold or short, and the Commercials are long gold and short USD.
    With respect to GSR, I tend to agree that GSR will go up. I believe gold will make a much bigger gain than silver going forward.
    Clive Maund has a nice article out today that I agree with.
    http://www.clivemaund.com/gmu.php?art_id=68&date=2013-05-19

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  9. Mike - I am not particularly a fan of Mr. Maund for ethical and personal reasons, but he does do nice work.

    There wasn't much to this report that I have not already said, or at least taken the time to write here for others, but this sentence intrigued me: "Having broken down from a large Head-and-Shoulders top this (HUI)index plunged and the minimum measuring requirement for the pattern calls for a drop to the 210 area,..."

    Honestly, I had not noticed the HUI H&S I guess because I was focused on other things. But this analysis does curiously square with my 'non-Log' HUI chart that makes the case for a true bull market trend line that exists under current price at about 217.07

    What always fascinates me is how one person can look at something and come up with nearly the identical analysis for totally different reasons.

    http://www.thedailycrux.com/Post/42766/four-long-term-charts-every-gold-and-silver-bull-should-see


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    Replies
    1. John,

      Are yo kidding me, i mentioned the HUI HS pattern to you NUMEROUS TIMES, i mentioned it to eric de groot, and I also mentioned it to sinclair, ! Oh yes, I also mentioned it to that gotgoldreport guy and NO ONE Wanted to believe it... So im not sure why you say you never noticed it before.. its right infront of your eyes...

      EP

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    2. Well heck EP, I'm impressed!

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  10. John, I am not a Maund fan either. He predicted silver was about to nosedive in August 2010 right before it went ballistic. His latest article seems to be bang on.
    Next week he will most likely be saying the opposite though.
    I only paid attention to his sentiment indicators and COT analysis in his last article. I don't pay attention to charts, only COT data and sentiment indicators. It makes life easier for me since charting requires more skill than I have time to learn.

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  11. Mike - you can also learn a lot about COT from www.gotgoldreport.com by Gene Arensberg

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  12. I read gotgoldreport regularly. Gene has some good analysis.
    Check out this chart from zerohedge.
    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/05/20130522_gold_0.jpg
    Remember the commercials are on the other side of this trade.
    Something has to give soon!

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  13. When looking at the support levels from many years ago perhaps it would be more accurate to factor in the time value of money and the devaluation of the dollar during said years.

    ReplyDelete