Game, Set & Match for Gold

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I have been waiting for confirmation on the daily chart of Gold from the True Strength Index (TSI) indicator and minutes ago I got it.

If gold should bounce back up to new highs, which is always a possibility, it will likely give a additional negative divergence SELL signal. But more likely, once the parabola pops, it pops.

Anyway, gold today was on Day 28 of it's daily cycle and overdue for a top. The usual daily cycle, from trough to trough, generally is in the range of 20 - 24 days. I have yet to see a single parabola that did not at least retrace the parabolic phase rather quickly. If that turns out to be the case here, gold could find itself at $1665 or lower rather quickly. After that, I guess a new daily cycle will begin and if this was the top of the C-wave, gold will not rally for long before turning south once again.  Time will tell.

It's Really Easy to Trade Gold (in Hindsight)

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Just doodling around with this current 4 Hour Chart of the Gold Continuous Contract (/GC), I convinced myself just how easy it is to use the True Strength Index (TSI) indicator to nail every top and bottom in the movement of this gold pararabolic.
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Heck, it's easy to trade just about anything well using the True Strength Index indicator.
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In hindsight, anyway. (lol)

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For my good friend Ron in Arizona - these two charts.  First, the gold parabolic of 1977 - 1980. And second, this look at gold from 2000 - present.
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It looks to me that once gold reached the mania phase in late 1979, its parabolic phase lasted all of about 6 weeks. In that time frame gold roughly doubled in value ($450 - $950). 30 months later gold lost all of the parabolic move and then some - finally reaching $300.  Enjoy!

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Stocks 38.2% Retrace, Go Gold and Sentiment Disappointment

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I have readers inquiring how long I will hold my deep under water TNA position. So I hope this post explains my reasoning somewhat. Gold is walking up a steep plank and we'll take a look at that. Finally, people just aren't scared enough (I'm afraid) - some new data out from Investor's Intelligence.
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School starts next week and I am getting nothing accomplished with that responsibility as I spend too much time on this computer. Hopefully I'll give the blog a rest and get something done that I can actually do something about.

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This first chart is of the S&P 500 as it began the first leg of the secular bear market in 2007. What captures my attention is the degree to which the 38.2% Fibonacci retracement level acted as a support zone for several months. In fact, a vicious bear market rally began several weeks after this price area was reached.

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This second chart, also of the S&P 500, shows us that we have begun the second leg of this secular bear market. Price has reached the same 38.2% Fibonacci retracement level. For now, the jury is out. Will this hold? I hope so, but don't know that it will.

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Here is today's look at GOLD on the same 4 hour chart we used yesterday. Gold is doing great - jumping like a frog higher for the third day in a row. The daily TSI (7,4) looks good. This chart (4 hour) shows that the TSI is in negative divergence with the previous high reading.  That is, price has made a higher high, but the TSI, as yet, is still lower than its previous high. We note the steep catwalk that gold has challenged itself to maintain. I won't say another word.

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And finally, some disappointing news from Investor's Intelligence today.  Well, disappointing if you are long the market.  If short the stock market, it could be great news!
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It seems that our waterfall sell off has done literally nothing to scare people. In fact, the % of bulls increased! And the % of bears decreased!  Huh?

I admire people with ice water in their veins but at this moment we have way too many of these folks holding stock. The bottom line is that we need more people to be scared and selling frantically so that a bottom can be in place. This data from Investor's Intelligence suggests we are not there yet.

It's All About......the Dollar

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This will be a brief post about what appears to me to be the issue of the day - the US Dollar. I snapped this chart of the US Dollar about an hour ago, noticing it appeared poised to break out.  Since this chart was made, the US Dollar has broken reather decisively through the overhead downtrend line on price and trying very hard to get up through the 200 period moving average on this 4 hour chart.

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Meanwhile, a rising dollar is not good for the stock market, as this 4 hour chart of the Standard and Poors 500 Continuous Contract shows us.  It appears that if a retest of the lows is going to happen, the True Strength Index (TSI) indicator will make a positive divergence with respect to price and I hope that means the downdrafts are done for a while.

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And finally, this look at a 4 hour chart of GOLD, which has succeeded in making a new high today. The indicators are in negative divergence, as I presumed yesterday they would be. I will be the first to admit that in very strong momentum moves these kind of negative divergences can just get run over..... ie price ignores them and continues higher. In these cases, and I have seen it happen many times, the TSI will continue to rise but only until it just about reaches its previous high. Then price collapses. I don't know exactly why this is, but I do believe my observations to be true.

I believe that Bernacke's position seems to favor gold. He basically said that interest rates will be below inflation for an extended period of time. That is incredibly bullish for gold.

My concern about gold, however, is that it has entered an unmistakable parabolic phase. These things never last long (I looked back at all previous C-wave tops and 4 days was commonly the limit - today is Day 3). My other concern is that gold is incredibly overbought while the stock market is incredibly oversold. I think big money would infinitely prefer to pile into an oversold market than an overbought market.

At any rate, my 2X short gold ETF (DZZ) I will just hold through whatever gold does next.

Does this Look Familiar? Silver and Gold Tops

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The True Strength Index (TSI) indicator has now given us a sell signal for GOLD on every timeframe but the daily and weekly. And until it does I am not confident, yet, in calling a top in GOLD's price (though I did buy DZZ today because I believe the top, if not here, is very close).

This first chart takes a look at the 4 hour time frame of Silver's recent parabolic top. We note that price bounced around violently within a band of about 10% below the parabolic top. Meanwhile, the TSI and VolumeFlowIndicator (below price) continued to agonizingly fade lower and lower - making a noticable negative divergence.

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This second chart is also a 4 hour time frame look, but this time at Gold. I have identified the SELL signal using a red line and arrow. We can see that gold has already made one attempt to make a new high which failed by $1.60. No doubt traders will keep trying to surpass $1782.50. They may even make it, but I bet the negative divergence with the indicators below will say they tried in vain.

Sold GBG - $1.84 BUY DZZ - $4.96 -- Golds D Wave Retracements

I decided to sell my position in Great Basin Gold (GBG) at $1.84 and recognize an ouchy 13.2% loss. With the same money, I purchased a long position DB Gold Double Short ETN (DZZ) at $4.96. In effect, I traded one position for another.
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Click on any chart to ENLARGE
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I will continue to hold my losing position in TNA in hopes we get at least a decent retracement in the near future.
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Gold is presently trading at around $1750. It clearly seems to have entered into a parabolic phase which I am presuming means it is about to top. In any event, if we get a parabolic conclusion then the D wave will begin.

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Here is a look at the first 4 C-wave tops of gold's secular bull market with an eye to identify Fibonacci retracement levels accomplished during the ensuing D-waves.

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And here is a look at the 2006, 2008 and potentially 2011 C-wave tops with Fibonacci retracement levels.































































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DZZ currently trades a short ways under $5. At the beginning of the current C-wave (April 2009) DZZ traded at $25. I imagine that whenever this C-wave does top, DZZ will retrace some territory back in the direction of $25 and I expect it to outperform GBG in the long run, which is why I traded those positions today.

My TSI Trading record has been updated.

Silver Parabolic Bounces and SP-500 Standard Deviation Extremes

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I do not have any positions related to silver, but for the heck of it I decided to explore what happens after a silver parabolic explodes. Certainly, when a parabolic move peaks, price drops like a rock from the sky. Then, at some point, it stops falling and price begins to rebound - heading higher in the direction of the parabolic top. The question I asked myself was, how high will silver rebound before getting knocked to the ground again?
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I decided to use the Fibonacci retracement tool to do my analysis. What follows are my findings using the silver parabolics of 2004, 2006, 2008 and 2011 as my data.
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Following this look at silver I will treat the reader to something new from www.indexindicators.com  I have visited this site many times for many years but not written about it until today.

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The 2004 silver parabolic retraced to the Fibonacci 50% level then fell to well below the 23.6% measurement.
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Click on any chart to ENLARGE
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The 2006 silver parabolic retraced to the Fibonacci 61.8% level then fell to well below the 23.6% measurement.

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The 2008 silver parabolic retraced to the Fibonacci 61.8% level then fell to the 0% level and kept going towards the dark side of the universe. This is what happens in a deflationary period - all assets lose value (even silver and gold).

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The 2011 silver parabolic retraced to the Fibonacci 61.8% level and so far has fallen to close at the 38.2% measurement.
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Using the three previous silver parabolics as our guide I would guess that silver, as it has not made it below the 23.6% yet, is going to do so soon. And if we get into a deflationary spiral (as I personally am nearly certain we will later this fall) silver could, like 2008, reach the 0% level and just keep going south.










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www.indexindicators.com  Great site.

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This first chart looks at the average RSI (5) of the 500 stocks comprising the S&P 500 and calculates, with respect to the same daily data of the past 3 years, the standard deviation level of the current reading.  Translation: how unusually extreme is the current RSI (5)?
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If the standard deviation reading is 0, then the current reading is not extreme at all.  Indeed, the RSI (5) would be considered very average. However, we see that the standard deviation is -3 (green squiggly line). In simple terms, a reading of -3 is way way extreme. Also, notice what seems to happen to price (black squiggly line) when the standard deviation number reaches such an extreme.

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This second chart from www.indexindicators.com is a 2 year look at the percentage of S&P 500 stocks that are below their 200 dma.
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Again we statistically know that we are not only in an unusual market, but also one that is not at all likely to continue as is. Another -3 standard deviation reading here is literally off the chart.

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And finally, this third chart covering the past 2 years considers how far the current S&P price is from its 5 dma and assigns a standard deviation calculation.
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This time the reading is -4 standard deviation below "normal". And again, examine how price responds to these extreme and rare readings.



Gold: Forgot to mention this. The last time gold went up 6 weeks in a row was fall 2007. In the past 4 years the most consecutive weeks gold has been positive is 5.

Last week was week 5. Odds do not favor a week 6, though it could happen, of course.