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

The HUI Miners Index: Fibonacci Tells of Fortune

I don't know about you, but the Fibonacci mathematical series has always fascinated me. Who would ever have thought that adding 1+1 then 2+1 then 3+2 then 5+3 then 8+5, and so on would generate such a profound explanation of balance and symmetry in nature? I have found so many Fibonacci relationships while studying the price movement of gold over the years that I could not begin to count them all. 

Today I decided to apply my passionate appreciation and respect for Fibonacci by asking him to tell me what is going on with the Gold Bugs Mining Index (HUI). And by golly, he told me! 

Now you have to realize that Fibonacci speaks using words deeply shrouded  in mystery. As long as you understand this you will hear him talk to you. But if you need to have all your i's dotted and t's crossed so that even a 5 year old could understand what is written, don't expect to hear Fibonacci tell his secrets. He gets easily offended as he knows his mathematical series has explained many of the world's most treasured phenomenon (and he knows you have explained none of them).

Teasing aside, I have prepared 11 charts of the HUI to share with you. First we'll look at a weekly chart with nothing on it except "The Trend Line" (blue). Then we will consider 5 charts of HUI measuring price movement in terms of Fibonacci relationships followed by 5 more charts that look at the movement of time in Fibonacci relationships. 

So let's get started with this simple weekly chart dating from 1997 - 2013.

Here is the first chart measuring price movement:

Here we are using the HUI genesis at $35.31 and the 2008 high of $519.68. The 2011 high of $638.59 came in at the 123.6% measurement. The 2008 high at 100% was ever so slightly take out in 2012, as the 2008 low trend line was ever so slightly taken out just days ago. It is very common for large traders to push the crowd just past their nicely drawn trend lines, pick their pockets, then help things get reversed.

This next chart uses the 2002 high (which coincidentally is the 2008 low) as 0% and we measure up to the 2006 high to reach our 100%.

The things that show up on this chart are both interesting and surprising. The 2008 high (nearly) reached the 150% level, as did the 2012 high while the 2011 high (nearly) reached the 200% level. 

The following chart is similar in that it uses the same base point of the 2002 high / 2008 low but for the 100% measurement we travel up to the 2011 all-time high.

The next couple of charts will zoom in on the more recent action and see what is going on. First, this daily chart beginning in early 2011.

If we use the low price reached by HUI last week as our base (0%) and measure up to the all-time high attained in September of 2011 at $638.59 we find that the May 2012 low (which many including myself believe was the beginning of the C-wave save for the weird things that started happening in early December 2012) was a perfect 38.2% of the entire price distance.

And for the final Fibonacci price retracement chart, this uses the same May 2012 low as the basis for 100% and the recent low of last week as 0%.

It kinda goes to show you that even if the Fed, or whoever, manipulates the market, my friend Fibonacci always gets the last word.  :-)

Now let's look at some HUI charts where the Fibonacci relationships of time will be our focus.

Our first chart looks at the origin of the HUI bull and measures time out to the 2008 bottom.

Of particular note is the 38.2% 2003 high, the 50% 2004 high, the (nearly) 138.2% 2011 high and the 150% 2012 high.

Our second time chart considers the 2008 low as 0%, and uses the all-time high of 2011 as the 100% measurement. 

Of particular note here is the 38.2% nails the 2009 high and the 161.8% nails our current low.

I asked Fibonacci if he would mind showing off a little for the onlookers. He said that since they were still paying attention and being reverent he would show off, but just a little. I thanked him graciously and asked what he had in mind. So he told me to try this:

OK. Now that was definitely showing off.

Here is another:

By the way, if you think for one second I am making this stuff up you are dead wrong. I meticulously place these measurements on precisely the ultimate day or price point. What happens after that I get no credit for, believe me.

OK - one last chart:

Well, that's it. I asked Fibonacci if we have seen the bottom in the HUI miners index. I knew he wouldn't tell me flat out, but there was a twinkle in his eye that gave me the answer. There should be a twinkle in your eye, too!

Have a great week,

John
tsiTrader@gmail.com

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):

Final Results: 4 Week Daily Study Using the True Strength Index (TSI) Indicator

I have completed my analysis of the 10 ticker symbols traded during my 4 week long daily 'real-time' study using the True Strength Index (TSI) indicator along with a self-customized 200 ema indicator. 

This study concluded a couple of days ago at the open of trade - Friday June 21, 2013. The Trade Score Card is a spreadsheet detailing each trade and was used to update traders of trade changes to be executed on following morning's open. 

I will show you the trading skills I personally can improve on using charts detailing my 'real-time' trades and reveal my retrospectively observed errors in judgement. It is my hope that readers who invest the time to carefully consider the thoughts offered on each chart will benefit from the sharpening of their thinking process and trading skills. 

The 10 ticker symbols I attempted to trade in 'real-time' using imaginary money and the handicap of calling the trades based on my end of day analysis for entry/exit at the following morning's open included:

1. Boeing (BA)
2. Crude Oil ETN (OIL)
3. US Dollar Index ETF (UUP)
4. S&P 500 ETF (SPY) 
5. Gold bullion ETF (GLD)
6. Gold Miners ETF (GDX)
7. Goldman Sachs (GS)
8. Home Depot (HD)
9. Microsoft (MSFT)
10. Long Term Treasury ETF (TLO)

The link provided for each of the above ticker symbols will take you to a page that shows you (for each symbol individually) what I was looking at each day in 'real-time', what my thoughts and concerns were each day and what my trading decision was for that ticker symbol on the open of trade the following morning.

Before we look at the charts, here is an overview of how well I did (and did NOT do) in 'real-time'. The column titled 'John's Real-Time' shows the outcome of the trades I made. The column 'Possible' details the ideal trade outcome with the benefit of hindsight - as you will be shown with explanation in the charts that follow.

	Company, ETF  or ETN	Ticker	John's Real-Time	Possible
1.	Boeing	BA	-0.80%	-2.47%
2.	Crude Oil ETN	OIL	+0.57%	+6.18%
3.	US Dollar Index ETF	UUP	+0.62%	+2.22%
4.	S&P 500 ETF	SPY	+0.50%	+3.48%
5.	Gold ETF	GLD	-1.78%	+6.11%
	Subtotal (1-5)		-0.89%	+15.11%
6.	Gold Miners ETF	GDX	+3.33%	+13.86%
7.	Goldman Sachs	GS	+2.82%	+2.82%
8.	Home Depot	HD	0.00	+5.29%
9.	Microsoft	MSFT	+3.61%	+3.61%
10.	Long Term Treasury	TLO	0.00	+4.48%
	Subtotal (6-10)		+9.76%	+30.06% +20.29%
	Grand Total		+8.87%	+45.17% +35.40%

There were two of the ten symbols I did not trade (HD and TLO). If I throw out the 'possible' gains attributed to these two ticker symbols, the apples to apples possible score becomes +35.40% and most definitely humbles my +8.87% effort.

Briefly, there were two interesting things I (re)learned. 

First, the TSI and rules work exceptionally well. As you will see below in the charts, nearly all of the possible gains were given by following the TSI and its rules. 

And second, if there was a single error in my judgement that seemed to pop up repeatedly, it was my not trusting that when the TSI is below ZERO, the odds favor continued lower price. 

Anyway, here are the 10 ticker symbols as traded by me in 'real-time', then followed by the same chart but with the optimal outcome using the TSI rules and the benefit of hindsight. The shaded area represents the trading days available during the study.

1. Boeing (BA) My trades:

1. Boeing (BA) Optimal:

2. Crude Oil ETN (OIL) My trades:

2. Crude Oil ETN (OIL) Optimal:

3. US Dollar Index ETF (UUP) My trades:

3. US Dollar Index ETF (UUP) Optimal:

4. S&P 500 ETF (SPY) My trades:

4. S&P 500 ETF (SPY) Optimal:

5. Gold ETF (GLD) My trades:

5. Gold ETF (GLD) Optimal:

6. Gold Miners ETF (GDX) My trades:

6. Gold Miners ETF (GDX) Optimal:

7. Goldman Sachs (GS) My trades:

7. Goldman Sachs (GS) Optimal:

8. Home Depot (HD) My trades:

8. Home Depot (HD) Optimal:

9. Microsoft (MSFT) My trades:

9. Microsoft (MSFT) Optimal:

10. Long Term Treasury (TLO) My trades:

10. Long Term Treasury (TLO) Optimal:

So did you get anything out of this exercise? I hope so!

And what's next, you wonder? Good question. What would you like to see?

I've been tinkering with the idea of a spreadsheet with 30 - 50 ticker symbols from a diversity of market sectors. But no charts each day - that about drove me nuts.

Suggestions?

Keep in touch!

John
tsiTrader@gmail.com