Sunday, March 27, 2011

True Strength Index (TSI) and the HUI Gold Bugs Index

Click on the chart to ENLARGE
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This is a daily chart of the Gold Bugs Index (HUI) covering the past 6 months.  The custom software I am using plots the True Strength Index (TSI) indicator reading below the price action of not only the HUI index, but also the individual mining stocks that are members of the index.
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I've put a lot of information on this chart but will slow it down and explain what is there.
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The buy and sell signals I have identified using my favorite TSI technique - the trend line break.  One simply connects the low points of the TSI indicator as it rises and when the indicator does not maintain that particular trend line, it "breaks" and yields a sell signal.  Likewise, a buy signal is generated by connecting the high points of the TSI as it falls. When the indicator does not maintain that particular trend line, a buy signal is generated.
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Along the lower portion of the chart I have identified when the TSI was mostly above ZERO, and when it was mostly below ZERO.  This is another excellent buy/sell technique to use. When the TSI is above ZERO and rising, price is always rising.  And, when the TSI is below ZERO and falling, price is always falling.
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The trend line breaks I identified did a very nice job of accurately and quickly locating the buy and sell swings.  Currently this technique is suggesting we are still on a buy signal.
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The ZERO line crossover also did a very nice job of accurately and almost as quickly locating the main buy and sell swings, but it did not catch some of the smaller swings.  The reason for this is simple.  As long as the TSI remains above ZERO, price is generally rising.  Small price dips within this context are usually not significant enough to cause the indicator to fall below ZERO and trigger a sell signal.  And the reverse is true when the TSI is below ZERO.
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The last thing I would like you to notice are the two bull flags that I have identified.  In the first case price movement was enough to drive the TSI down to the ZERO line.  This is actually very very common (for some reason that I have not yet figured out).  Once the TSI reached the ZERO line it bounced right back up and another rally followed. 
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A second instance of a bull flag is suggested by our price action of the preceding two days.  It would not surprise me if this flag is developed a little further early in the week, the TSI reaches ZERO, bounces, and then a new rally takes us to new highs.
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So there you have it.....and I think things look real good going forward.

If you'd like some help making more sense of the True Strength Index (TSI) indicator, send me your question or a chart with your thoughts and I'll do my best to get it working for you.

John
tsiTrader@gmail.com

7 comments:

  1. Can the True Strength Index momentum indicator be viewed for e.g. AGQ? And in realtime? Where can people use the TSI online?
    Thanks

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  2. Hi Eamonn -- sure, the TSI works great on AGQ, miners, general stocks, commodities, currencies and anything else that has price movement over time. All in real time, of course. At any time interval - tick, 1 minute, 5 minutes, 15 minutes, 60 minutes, whatever you want.

    The two free sources of real time TSI data I use are:

    www.FreeStockCharts.com
    www.ThinkorSwim.com

    Enjoy!

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  3. Hi

    thank you...great charts

    any thoughts on the USD?? it's just the USD had a nice rally on Friday and it refuses to go down...making me nervous

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  4. Anonymous--good article on wht the dollar was up Friday by Dan Norcini--manipulation-
    It is no secret to those attuned to market action that the US Dollar's technical chart picture is horrendous. It had broken through a critical support level near 77 on the USDX last week and had further descended down towards the tremendously important 75 level. No matter what appeared to be happening in the world, the US Dollar could not get much if any of a safe haven bounce.

    Currency traders had been moving to the Swiss Franc as their choice of a safe haven. The Aussie has been making new highs and the Canadian Dollar has been very strong as well.

    Now, it is also obvious that the US would dearly love to see the Dollar stay weak to help it deal with its massive debt load but the ugly truth is that the Dollar was on course for a major crisis if it violated the 75 level.

    Enter the Fed officials today and yesterday. Apparently the strategy was to get several of the FOMC governors to hit the airwaves talking about ending the QE program. Since it is QE that has been partly responsible for Dollar weakness - along with the abysmal fiscal condition of the nation - something had to be done to prevent a Dollar crash. This is the reason we are getting a sudden rash of Fed officials looking for microphones and venues to talk about ending QE.

    Result? Up goes the Dollar and down goes the precious metals market. Coincidence? I hardly think so. If you understand what I wrote earlier this week explaining the antagonism of Western Central Bankers against gold, then you can easily understand that its rise to a new all time high is testifying against the steady debauchment of the US currency by the Federal Reserve.

    As a kicker, they also manage to further knock down the Japanese Yen saving themselves and the rest of their pals at the G7 from having to actually pay to undergo another round of currency intervention.

    You have just witnessed a shrewdly hidden round of verbal intervention camoflauged as normal policy discussions.

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  5. thanks Robert for the explanation

    so, the USD bounce will die in day or two? or if it rallies, how will it affect gold?

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  6. Great article - Thanks! What settings do you use on the TSI?
    Kurt

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  7. Thanks Kurt. I use TSI (7,4) mostly but also (25,13) to get a bigger trend feel for things.

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