Thursday, June 27, 2013
Mirror, Mirror on the Wall .... Do Tell Us What Will Happen Next
Today I was tinkering around with some of the hundreds of indicators I have built using the ThinkorSwim platform, and I came across this one using the Money Flow Index (MFI) as its primary engine. What caught my eye was one of the experiments I coded that plotted the MFI(10) divided by price.
I have long believed that money flow into a security often precedes or 'foretells' a change in price trend direction. Having done more experiments than I care to admit, this premise is, at best, often absolutely true. But the more typical case is that money flow and price direction are aligned at the hip. That is, price and money flow move like mirror images of one another.
In any case, what I'd like to show you today using 6 charts are curious observations - tending to make the argument that miners are about to rebound skyward and the stock market is nearing failure.
The charts we will look at are weekly chart of the S&P 500 ETF (SPY), the Gold ETF (GLD), the Gold Miners ETF (GDX), then conclude with 3 specific miners - El Dorado Gold Corp (EGO), IAMGOLD Corp (IAG) and Royal Gold Inc (RGLD).
Here is the weekly S&P 500 ETF (SPY):
At present the True Strength Index (TSI) indicator is reading just below ZERO at -6.89. That is bearish, generally. But more interesting is the Money Flow Index indicator (divided by price each bar) which has made a series of lower highs as price has made a series of higher highs. It too has a negative reading of approximately -.05. My hunch is that despite price rising, fewer and fewer investors are believing the rally.....yet the big money is quietly sitting still and not selling - until someone yells FIRE! in the crowded room. Then there will be a massive run to get out and it won't be pretty.
Let's next look at the Gold ETF (GLD).
It appears to be the case that when Money Flow is headed downwards towards ZERO, then submersed for a while, price is somewhere between flat and corrective. That Money Flow has now worked its way back up to ZERO is favorable for a rally, but no guarantee.
So how about we now look at the Gold Miners ETF (GDX).
Does the chart look about as you expected? It definitely surprised me. Again, as with my earlier post using the OnBalanceVolume (OBV) indicator, something stealth seems to be going on here in a bullish fashion.
Finally, here are the 3 mining stock charts I promised. Any observation I could make is already on the chart for you to consider.
El Dorado Gold Corporation (EGO):
IAMGOLD Corporation (IAG):
And, Royal Gold Inc (RGLD):