Tuesday, July 23, 2013

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,



  1. John,
    Kudos, on behalf of your audience here!

    This is an amazing insight, and I know we all look forward to seeing your further developments and--as always--energetic and diligent--backtests.

  2. Nice job John... You are the master at research!

  3. What's dumber than a perma bull stock trader? A perma bull gold bug!

  4. It's about time! I've been waiting for this breakout for 10 years now, just counting the days, and it finally looks like my investments in high quality gold and silver mining stocks is about to pay off!

  5. What are you current thoughts on CGR? Buy? Sell? Hold?

  6. John, It would make sense to test the model on a market that was not in a major bull move but rather side ways or half bull half bear market within test time frame.

    How do you calculate the angle of the vector and its duration?

    Thank you.

  7. Getting beaten to a bloody pulp again. I don't know how much more of this I can stand.

  8. Would you post the TOS program?
    I don't understand:
    1. the angle of the blue vectors;
    2. when they start or stop; and,
    3. how they relate to your buy or sell signals.

    Would you explain this a bit more?