Gold: A Good Time for Bears to Back Off

I have studied gold's bull market in detail.....for more hours than I hope most good folks have time to spare. The daily and weekly cycles I tediously documented with the assistance of my ability to write ThinkScript code using the Think or Swim platform. If you are interested is seeing the details, here is a post that will show you the details.

Something went awry in December of 2012. The daily and intermediate cycles that worked like clockwork from 2001 suddenly were screwed up. Who gets the credit for this I can only speculate. It doesn't matter though - knowing who and why will not change the past.

But there is one thing about gold's daily cycles that has NOT changed, even once. And that is the fact that each and every gold daily cycle breaks its price trend line before beginning a new daily cycle.

We have not yet broken the current intermediate cycle trend line - but for now anyway, that consistent truth remains in tact, as well.

The point of this post is to alert those interested in gold's price behavior to the fact that the trend line of the current daily cycle begun on June 28 has been broken. If gold's low of earlier this morning turns out to be the end of the daily cycle (Day 23 - which is entirely average for gold's daily cycles) then I think all bears should be warned to get out of our way - because the bull is coming.

The thing I did not draw on this chart is the pennant pattern that gold has formed. Usually, the pennant pattern is a continuation pattern that marks the half way point of an extended rally. If that develops this time (as I strongly suspect will be the case), the move up from $1180 to the center of the pennant at $1325 is $145. This projects price up to at least ($1325 + $145) $1470 and odds are good it will occur in the time frame of just 4 weeks (or slightly less).

If I were a gold bear, I'd really have to think long and hard about doing anything at this point except running.

HUI Index and True Strength Index (TSI) Vector Analysis

Fibonacci, that incredibly insightful mathematician of the 13th century who mysteriously whispered his secret to those of us who reverently pondered my previous post of June 30th, has proven (as usual) to have correctly called the exact bottom in the Amex Gold Bugs Index (HUI) quite literally to the exact day (Thursday June 26). 

Confirmation of this fact came yesterday with the gap opening of the HUI index, as price landed squarely on 'the other side' of the 43 week price down trend line and today included more upside follow through, just for good measure. The weekly chart of the HUI index is giving us the requisite Fourth of July show, as the True Strength Index (TSI) indicator has put together first a positive divergence BUY signal, followed by a trend line break BUY signal, and with the TSI (7,4) reading presently just at ZERO, it appears the third bullish BUY signal (ZERO crossover) will be attained, perhaps as soon as tomorrow. 

Now for a look at the HUI daily chart which offers a couple of unusual and bullish thoughts to contemplate.

It's very unusual to see a TSI trend line break BUY signal that takes out 9 months of downward price movement - but that's what we have today. Also, the 'island reversal' pattern on the closeup portion of the chart is now well-defined and easy to visualize. 

Believe me, the items I have identified on both charts have every short running for a sink, preferably with a door they can close behind them. Cover your ears and plug your nose. They had their turn, and now it's OURS!

Right now - TODAY - is the time that those individuals with incredible savvy can put themselves in a position to make, I kid you not, thousands of percent returns over the next few years. If you have not had an opportunity to peruse my article regarding my personal experience with the gold miner's 2008 bear market, I encourage you to give it a look. I think it will help you understand why gains of thousands of percent are available for those who buy ASAP.

For the past 8 or 9 years I have studied the True Strength Index (TSI) indicator quite literally night and day. In more recent years I have written endless variations and extensions of the indicator using my self-taught computer programming skills with the Think or Swim platform. I have back tested the daylights out of my musings and at this point it is very rare that I manage to learn something new, unfortunately.

Lately I seem to have made one of those rare new advances. It involves the use of vectors with the TSI. Rather than continue to hit my head into the bricks trying to draw trend line breaks on the TSI, I got the idea to draw vectors - straight lines that originate at ZERO when the indicator itself crosses from negative to positive. As the slope of these 'vector'  lines could be infinitely variable and easy to back test, I began to wonder if perhaps certain sloped vectors consistently used throughout a stock chart could identify optimal entry and exit points for trades.

Hummmm...... I thought. 

I could not find anything written about the concept on the Internet and surely one can not just try this at StockCharts or FreeStockCharts. Heck, I have probably pondered hundreds of custom indicators - many hundreds - and never seen anything like this...... an indicator that uses vectors to generate buy and sell signals. They may be out there, but I have never seen one, you can be sure of that.

Anyway, I worked on it for a while and got the vector visually working as I imagined. Then I put the TSI with vector indicator to the real test - the back test - to see what it would tell me, if anything. 

And Oh My Gosh! 

I could barely believe my eyes.

Here is a daily chart running the TSI with vector, which is the blue diagonal line, taken from a 10 year back test of the HUI index.

As you can see, this single vector returned $82,205.79 over 10 years of daily trade (LONG only) using 100 shares on each of 59 trades. 15 trades were losers, 44 were winners for a winning percentage of 74.57%. 

If one had bought 100 shares of HUI exactly 10 years ago and sold them today they would have made about $11,000. Need I say more?

My immediate plans are to publish on the website detailed back test results with the corresponding equity curves for a variety of stocks and ETFs. Additionally, I plan to provide a spread sheet that lists each stock/ETF with its current BUY/SELL signal. This published document will be used to record how well this system does going forward in real time. 

So don't be a stranger. Come back once in a while and see how things are going, OK?

For those of you who like looking at charts I ran some quick tests this morning - I did not change the indicator's settings one iota - and will show you what I got. 

Obviously there is a lot of work to be done either optimizing variables or tweaking the strategy so that we end up with something that works well on lots of stocks/ETFs - including from different sectors, not just mining.

Enjoy the rest of your week,

John
tsiTrader@gmail.com