The TSI Trader. How to trade the stock market using the True Strength Index

Thursday, February 9, 2012

Sold LSG - $1.51

Due to my general paranoia that the stock market and gold are about to leave the party as the US Dollar makes a conclusive intermediate cycle bottom, I set a limit order sell before the market opened today to sell my shares in Lake Shore Gold (LSG) at $1.51 - 4 cents above my purchase price. I took my eye off this ball and was not aware of the favorable news that was announced after the market closed yesterday. LSG is, at this moment trading up 15% for the day at around $1.63.

My TSI Trader record has been updated.

BUY TVIX @ $14.79

Towards the end of yesterday's session I took the plunge and loaded up on VelocityShares 2X VIX ETN (TVIX) @ $14.79. As the following daily chart shows, there is a smidge of a True Strength Index (TSI) indicator trend line break BUY signal as well as a strongly favorable positive divergence BUY signal in place. On reflection last evening I am fairly confident I took this position too soon and I will show you why on the third chart below - the US Dollar Index (DX).

I will also add that the TSI is reading -0.56 and that is much less than ideal. A far more promising setup would have the TSI much closer to the ZERO crossover - say at -0.20 or higher.

One of the details I forgot to include on the chart of TVIX (above) is the daily volume, which I take as providing a bullish clue. I made the following chart to show my thinking on this issue of volume.

The 'fly in the ointment' for me is the probable behavior of the US Dollar Index (DX) in the next few days. The previous intermediate cycle conclusion in late October seems to have provided a cookie cutter pattern for our current situation. That pattern includes a sharp drop, multi- day consolidation, a single day sharp drop, 3 days sideways, then a final terrorizing drop. We appear to fit this pattern to a tee at the moment and today is day 2 of the final 3 days sideways before the concluding terrorizing drop (i.e. next Monday).

You know, I wish it were this simple to figure these things out and believe one knows the future, but we all know that is impossible. I certainly do not have a crystal ball and anything, beginning the next 5 minutes from now, is possible. But these are my thoughts and I'm going to play whatever odds I surmise are in my favor (lol). Wish us all good luck.

My TSI Trading record has been updated.

Wednesday, February 8, 2012

BUY VALV @ $1.18 - SOLD VALV @ $1.24

A reader by the name of Guy wrote a comment that I was able to read before the beginning bell this morning to ask what I thought of a stock called Shengkai Innovations Inc (VALV). It looked like a momentum play I could manage between everything thing else I do at work (yeah, right) so I bought some shares at $1.15, but most were at $1.18. Just minutes ago I sold my entire position at $1.24.

Some of the VALV's incredible 'fundamental' data that I was able to glean before attempting the flip are detailed on the chart using various colors.

I simply do not have time right now to decide just how legit this stock and its pricing, so I took a little 5% profit and politely said "thank you". And I would also like to say "thank you" to Guy.

Heck, if half of those numbers are real I should have held this thing until it reached $5.

My TSI trading record has been updated.

Tuesday, February 7, 2012

TSI Trend Line Break Mathematics - XGLD

I have updated the chart with the 20 short/SELL ticker symbols with today's closing prices. Today 13 of the 20 stocks (65%) closed lower than their close of last Friday. Also, today was a fairly positive day with only 42% of NYSE closing in the red.

Some readers have sought some clarification on how I define a trend line break and I hope this post will provide the relevant details. I will show a couple of charts - one demonstrating the trend line break BUY signal, the other demonstrating the SELL signal - then conclude with a chart that is in serious jeopardy of yielding a Negative Divergence SELL signal (XGLD).

This past fall I took quite a few weeks off from writing this blog to work intensively on my skill to program the True Strength Index (TSI) indicator BUY/SELL signals using the Think or Swim platform. One of the techniques I successfully mastered was an algorithm for having the computer accurately identify the trend line breaks of the TSI indicator.

Our first chart is Alexco Resources (AXU) and demonstrates the mathematical calculations I used to get the computer to tell me when there was a trend line break BUY signal.

The technique I used was to have the computer recognize when the TSI had made a reversal in direction that resulted in a 'high point' - such as we can observe on Days 1, 16 and 21.

The next step was to calculate how far the TSI had fallen in the interim periods then divide that calculation by the number of periods. That gave me the slope of the trend line.

Finally, the computer kept track of the TSI reading for each day and compared that with the reading expected that day if the TSI continued at or below the established slope. Once the computer got a reading (such as occurred on Day 25) that was ABOVE the expected reading, a trend line break had finally occurred.

Here is a second look at this technique - this time the SELL signal. The algorithm is the same, of course. Find at least two points that define a slope then wait until the mouse crosses down through the radar zone to generate a trend line break SELL signal.

I hope this post makes clear that I need to have at least two points to define the slope of a trend line break. It really cannot be defined without at least two points.

But I have also written earlier my belief that the trend line break trumps the divergence signal. If there are two points from which I can define a slope and the TSI moves such that the slope is violated - I recognize that as a trend line break and do not look at the situation as possibly capable of generating a divergence BUY/SELL signal.

We'll conclude this discussion with an example of a stock that - at the moment - does not have a trend line break anywhere in sight...... and therefore is likely to yield a negative divergence SELL signal very soon.

This is a daily chart of our good friend XGLD. Should price continue higher, the TSI will go higher. But I suspect that if price makes a new high the TSI will NOT make a new high.

Also, the closer the TSI gravitates towards ZERO, the more likely a SELL signal will have a powerful effect. That is because of the absolute TSI certainty that if the TSI is falling below ZERO, price is also falling. The same cannot be said when the TSI is above ZERO.

And, notice that XGLD's TSI reading is about as low to ZERO as when it's rally began over a month ago. Every hot air balloon lands sooner or later - and so will this one.

Monday, February 6, 2012

Sold CGR - $1.47 - Short List Update

This morning I became more skeptical of the rise in the S&P 500 while watching gold take a $60 nosedive, so I decided to sell my largest position - which also had a modest gain - and head towards the sidelines. This is a daily chart of Claude Resources Inc (CGR) which I sold for $1.47. I will continue to hold a substantial position of CGR in my retirement account as I am very persuaded, for now, that this company has both excellent earnings prospects and long term value.

My TSI trading record has been updated.

The list of 20 short/SELL trades, based on the True Strength Index (TSI) indicator's negative divergence SELL signal has been updated to include today's closing trade. It turns out that 57% of the NYSE stocks closed lower today, while 75% of those stocks I listed also closed lower. If you would like to review that data, click here, then scroll down the page a bit to reach the data table.

A couple of readers have written me to inquire about the possible short sale of particular stocks that seem to meet the TSI negative divergence SELL signal criteria I imposed upon myself. I would like to share those with you now and try to clarify why these two stocks were not viable candidates of the negative divergence rules I applied to my selection.

This first chart is a daily of Autodesk Inc (ADSK). This is an excellent example of the trend line break BUY signal trumping the otherwise obvious negative divergence SELL signal.

And the next chart is a daily of Salesforce.com Inc (CRM) - also an excellent example of a trend line break messing up an otherwise legitimate negative divergence.

Sunday, February 5, 2012

20 Shorts/SELLS for This Week - The TSI Negative Divergence

Just for a change, I'm writing this post about using the True Strength Index (TSI) indicator and the Negative Divergence SELL signal it generates. I'll show you 20 stock charts that say SELL loud and clear on their daily charts using the TSI Negative Divergence SELL signal. And I'm going to pretend that I sold short each of these stock symbols at the close on Friday, document the closing price of each throughout this week in the chart below, and recap the results next weekend.

My particular definition of a negative divergence is as follows: the TSI indicator has previously made a high which it has not surpassed as of last Friday. And, price on Friday was higher than the day of the previous TSI high. In simpler terms, Friday's price made a higher high while the TSI made a lower high.

The other part of my negative divergence definition is that the TSI can not have yielded a trend line break BUY signal between these two dates used for the negative divergence comparison. Another way of saying this is that the trend line break BUY signal trumps the negative divergence SELL signal.

For my 20 specimens I have selected a handful of ETFs, another handful of mining stocks and a third handful of randomly selected members of the S&P 500 index. They are presented here in alphabetical order.

Stocks go up and stocks go down. Using simple odds, about 10 of any 20 stocks would be higher a week later and the other 10 stocks lower. Considering that the market has been moving sharply and consistently higher, common sense suggests that maybe 15 stocks will be higher in a week and only 5 lower.

My expectation, however, is that the majority of these ticker symbols will indeed be lower this week. And I think there is a fairly good chance that nearly ALL of them will be lower.

It's going to be fun to see how this turns out.

OK - here is the table I will update each day. If the closing price on any day is higher than last Friday's close I will color it green. Alternatively, any day that a stock closes lower than last Friday's closing price I will color that closing price in red. My expectation is that most of the chart will be colored red.

The charts of each ticker symbol follows below so you can examine the TSI negative divergence that caught my attention.

20 Shorts/SELLS for the Week of February 6 - 10
	Ticker Symbol	Friday’s Close	Monday	Tuesday	Wednesday	Thursday	Friday	Change this Week
1.	ALL	$30.69	$30.63	$30.84	$31.00	$30.91	$30.97	0.91%
2.	AMD	$7.08	$6.92	$7.13	$7.25	$7.24	$7.05	0.42%
3.	AZO	$353.18	$350.76	$350.48	$349.15	$354.04	$354.10	0.26%
4.	BAX	$57.04	$57.11	$57.02	$57.07	$56.80	$56.84	0.35%
5.	BEN	$116.41	$116.22	$116.74	$116.70	$116.85	$116.10	0.27%
6.	BIG	$43.59	$43.48	$43.91	$43.98	$43.84	$44.00	0.94%
7.	BXP	$107.57	$107.25	$106.30	$106.00	$104.74	$103.78	3.52%
8.	COPX	$15.78	$15.59	$15.28	$15.30	$15.47	$14.98	5.01%
9.	DBC	$28.32	$28.46	$28.44	$28.57	$28.72	$28.45	0.46%
10.	DRN	$66.64	$65.89	$65.58	$65.92	$64.36	$62.48	6.24%
11.	ICF	$76.36	$76.02	$76.00	$76.05	$75.40	$74.69	2.19%
12.	INDL	$31.53	$30.59	$29.46	$29.66	$30.32	$28.61	9.26%
13.	MFN	$14.91	$14.83	$14.82	$14.71	$14.83	$14.91	0.00%
14.	NCMGY	$36.83	$36.29	$36.42	$35.80	$36.11	$35.80	2.80%
15.	PLTM	$21.33	$21.05	$20.90	$20.75	$20.67	$19.82	7.08%
16.	SEA	$17.51	$17.60	$17.64	$17.66	$17.53	$17.29	1.26%
17.	SWC	$14.37	$14.07	$13.82	$13.95	$13.95	$13.36	7.03%
18.	URE	$60.68	$60.11	$59.98	$59.95	$59.15	$58.21	3.41%
19.	XIV	$9.50	$9.61	$9.50	$9.28	$8.82	$8.08	14.95%
20.	YINN	$24.97	$25.20	$23.56	$24.80	$25.40	$23.81	8.65%
			15/20 = 75% NYSE 57%	13/20 = 65% NYSE 42%	13/20 = 65% NYSE 41%	15/20 = 75% NYSE 50%	15/20 = 75% NYSE 73%