Historic Sell Off - Historic Indicator Readings



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As discouraging as the current market is for those long stocks, including myself, I think a look back at history should bring some comfort when all appears hopeless.
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The current reading of the True Strength Index (TSI) indicator on the daily chart of the Standard and Poors 500 (SP-500) is -0.84. I have looked back at the TSI readings for each day beginning Jan 1, 1990. There were, in those 21 years, only 3 days that the TSI reading was as bad or worse - April 4, `94 (-0.91), September 21, `01 (-0.90) and last summer July 2, `10 (-0.83).
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And for what it's worth, in each of these three cases, those days were the low SP-500 price for many months that followed. Which is to say, there was a significant window of time to sell at a higher price.
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I often use the MoneyFlowIndex (MFI) indicator in conjuction with the TSI (7,4) indicator. For this I prefer the MFI (10) setting.
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The MFI indicator measures volume flow and compares it with the change in price. Normally, when money flow peaks, stock price peaks - and when money flow bottoms, stock price bottoms. I will tell you that this indicator does not work perfectly - but it does give one a very good rough estimate of what is going on.
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The MFI (10) reading for the SP-500 daily chart is now ZERO (0). Again, I went back and looked at each and every day beginning in 1990.
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Guess what?
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The MFI (10) has NEVER closed at ZERO. It has had a closing reading or 5 or 6 several times, but never 0.
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So, make of this information what you will. For myself, I will hang on to my long positions because I think the evidence is that this situation has reached an extreme that will be inevitably reversed.

Fibonacci Madness - TNA - Sell @ $72.50(?)

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A friend/reader wrote me today to ask how high I hoped my positions in Direxion Small Cap Bull 3X ETF (TNA) would be able to climb from here. Hummm... good question, so I decided to investigate.
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For starters I decided to look at Fibonacci retracements. My goodness. That was a landmine. The chart is full of Fibonacci relationships, to my amazement.
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As we now seem to be in a bear stock market, I think it unlikely TNA (or the SPX, for that matter) will be able to rebound such that it regains the 200 dma on its first attempt. That would make for a nice sell target.
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It looks to me that the TNA 200 dma will be about $72.50 in a couple days. This price level also conveniently resides at the 38.2% retracement of the downleg begun on July 7. I think a 38.2% retracement is not an unreasonable expectation, all things considered. And, that would represent a 10% gain from today's closing price.
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I have my GTC (Good til Cancelled) sell order now set at $72.50. Wish me luck!

BUY TNA - $64.95 (pre-market) ... More TNA - $63.80

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Following up on my post last evening of the relative 'oversold' True Strength Index (TSI) indicator reading of yesterday's close, I made this purchase of Direxion Small Cap Bull 3X (TNA) at $64.95.

I will be the first to admit that an incredibly oversold TSI reading does not necessarily identify the absolute bottom of price movement. Often, it does nail the bottom. But when it does not, price will have bounced thereby causing the reading to rebound - then a swift drop in price ensues which makes a lower low that is not confirmed by a lower low TSI reading, thus creating the familiar 'positive divergence' BUY signal.
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My TSI Trading record has been updated.

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Well, the TSI dropped even further (to -0.81) after the market opened. So I bought more TNA at $63.80.

True Strength Index (TSI) perspective on the SP-500

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On one side of the technical analysis coin, we see that the SP-500 has made an impressive head and shoulders patterns with price closing just below the neckline of the pattern.
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But there is another side of the technical analysis coin. It says things are not as likely to go to hell in a hand basket as it appears (well, at least not indefinitely).
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It turns out that today's price performance pushed the red panic button with the best of them - for the past 10 years - accomplishing an incredible -0.72 reading on the True Strength Index (TSI) (7,4) indicator setting.
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Have a look at this chart and you'll probably agree it is likely the low is either NOW in, or going to be in the next week or two.  After that, well, odds favor that price goes higher again, of course.
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If only this were an easy business to figure out.
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God help us all.

Buy GBG $2.12 -- Head & Shoulders SP-500, HUI & Gold

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I decided to take what I hope will be a low risk mining position with this purchase of Great Basin Gold (GBG) at $2.12. Honestly, I am not holding my breath on how long this rally in miners will last, but I presume the stock market will bounce soon and that may help, however briefly.
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This chart of the SP-500 was made before the end of today's trading session.....and price continued to fall right through the neck line of the head and shoulders pattern. If this pattern continues to play out, price projects to a continued minimum price decline 110 points or the 1150 area.
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This chart of the Amex Gold Bugs Index (HUI) shows the nearly perfect symmetry of a head and shoulders pattern. If price should continue to rally this week and surpass 587, the symmetry would be perfect.

Today gold managed to reach that $1665 price I referred to in Saturday's post.  Well, it was 50 cents short of $1665, but that is close enough.  Anyway, gold is now 15% above its 200 dma and my expectation is that its daily cycle correction phase should now begin. See Saturday's chart for details.
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My TSI trading record has been updated.

Sold TZA $39.05

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I have owned a position in Direxion Small Cap Bear 3X ETF (TZA) for a little over a month now and figured today was a fine time to take some profit and get ready for whatever is to come next. This daily chart shows that the True Strength Index (TSI) indicator had reached the lofty level of 0.65 which I consider a sell signal. 
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The other issue motivating my sale was the inverse negative divergence that was fairly predictable. Price yesterday made a higher intraday high than today while today's TSI reading was higher than yesterday's.
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My TSI Trading record has been updated.

Caution Advised - Gold, GDX, AGQ, TLO, TMV and URE

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Trying to make complete sense of what is going on in the markets right now is nearly impossible, at least for me. But I do envision 'things on the horizon' that could well become reality and I dare say they are quite contrary to what appears to be true at the moment. In two simple words, I think 'caution advised' is worth our consideration and if you read on I will show you why I think this is true.
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This post will look at gold, the miners and silver, but stray a bit and also consider the bond market/interest rates and include real estate. The conclusion of my analysis may leave the reader with the notion that a period of deflation in all asset classes is likely before us. Or certainly, that an upcoming bout with deflation is a very good possibility. I will tell you right now that this is my concern and again assert, 'caution advised'.
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Let's begin with this look at the weekly chart of the World Gold Index (XGLD). I have used the 40 weekly moving average as a proxy for the 200 dma. The calculations above price are the approximate percentage that price was able to achieve above the 200 dma since the previous C wave top of 2008.
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At this time, a price of $1665 would place gold about 15% above the current 200 dma reading. This, along with gold being on Day 20 of its 20-25 day daily cycle, suggests to me that gold is due for a pull back and soon. The True Strength Index (TSI) indicator looks fine, as it is rising above ZERO. A few weeks ago it made the bullish ZERO crossover and a trend line break BUY signal followed.
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Possible conclusion: gold is due a correction based on its daily cycle and possibly a large correction due to its height above the 200 dma.

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Moving on to a daily chart of Market Vectors Gold Miners ETF (GDX) will begin the analysis that suggests much more caution. First, we note that on this past Friday the 200 dma fell for the first time in over a year, and observe that about 6 weeks ago the 50 dma bearishly crossed down through the 200 dma. Neither of these technical observations are bullish.
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Second, we note the clear trend line break SELL signal given by the TSI well over a week ago, and the following bearish negative divergence price action that yielded another SELL signal. At present, the TSI is in free fall BELOW ZERO, price has closed below the 200 dma and there are no TSI BUY signals remotely imminent or possible at this time. Add to this the fact that gold has been rising while the miners are falling, and well, something is not right.

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OK, so let's have a look at the weekly GDX chart now.
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There is no other way to characterize what I see than to refer to it as scary. Our current situation is eerily similar to that which existed in later 2008 - just before the gigantic deflationary meltdown. I have hand drawn a possible TSI future path that is identical to 2008. In my opinion, we truly are on the cusp of something big and my guess is that it is something both big and unpleasant.

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The TSI was brilliant in spotting the top of the silver parabolic last April. Too bad I did not completely believe all the SELL signals it gave me on the daily, 4 hour and 1 hour charts....but they were all there....like 5 of them!
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Well, here is a daily chart of Proshares Ultra Silver ETF (AGQ) and maybe I would do well to tell you what the TSI indicator says. It says SELL.
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I would imagine that if the markets are going to enter a deflationary episode, everything, at least initially, is sold in panic.  Stocks and miners, of course.  But also gold and silver. And even bonds. Everything gets sold in one of these deflationary melt downs.

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So let's turn to a couple of charts relating to bonds and see how they may be positioned for future movement. This first chart is a weekly of SPDR Lehman Long Term Treasury ETF (TLO).
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An investor may wish to own TLO if they think long term treasuries/bonds are going to rise in price. But that negative divergence in the TSI tells me that the next likely direction for this ETF will not be up. Rather, it will be down.

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And here is a look at an inverse ETF that goes up in value if bonds fall in price. This weekly chart is of the Direxion 30 Yr BEAR 3X (TMV).  At present the TSI is set up to behave exactly as it did last Sept/Oct.  That is, bounce off a positive divergence and make those who own it about 60% richer in 3 months.

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And finally, this look at real estate. As I wrote earlier, in a deflationary panic/melt down everything, all asset classes, get taken down and taken down hard. After you take a look at this weekly chart of Proshares Ultra Real Estate ETF (URE), could you keep a straight face trying to argue why this security should survive a stock market melt down?  I know I could not.