It's been a while since I have had time to write a substantive post due to my full-time employment as a public school teacher. But I found time this morning, so let's do some catching up on where we are right now with respect to gold, silver, the US Dollar and the Stock Market!
The charts I am using come from: FreeStockCharts.
This first chart is a weekly look at the World Gold Index (XGLD) for the past 4 years, more or less. My focus with this chart is the bigger picture of gold's repetitive ABCD price performance pattern and the relationship of price peaks to the 200 day moving average (dma). Some of the details shake out to reveal that price is currently a mere 10.6% above the 200 dma, while significant price peaks do not typically occur until price reaches something north of 25% above the 200 dma. This strongly suggests to me that the current upleg in gold is far from over and also that a projection of $1,500 in November is not that crazy.
Next we will look at a weekly chart of iShares Silver Trust ETF (SLV: 21.01 +0.35 +1.69%). With yesterday's price action, SLV reached a new All-Time high of 21.02 – eclipsing the previous high of 20.73 set on March 14, 2008. SLV will now trade with no overhead resistance and both the True Strength Index (TSI) and Money Flow Index (MFI) indicators suggest there is plenty of room for SLV to explode higher from here. Just based on where the indicators are currently reading, my sense is that this move in silver is right about 50-60% over – suggesting a price of $24-$25 in the next many weeks.
Third on the chart list is this daily of PowerShares DB US Dollar Index Bullish Fund (UUP: 22.97 -0.24 -1.03%). The UUP is a US Dollar ETF that I use as a proxy for the US Dollar itself.
I find a couple of things interesting about this chart. First, the TSI and MFI absolutely nailed the previous counter rally that began on August 9th. This gives me a measure of confidence that these indicators have a good chance of identifying the next counter rally. And secondly, I note that the current situation appears ready for another counter trend bounce or perhaps brief rally. A single strong up day in the US Dollar, at this point, would likely trigger a trend line break of both indicators and signal a trend change.
Fourth and finally, this is a daily chart of the Standard & Poors 500 (SP-500). For this analysis I have chosen to focus on investor sentiment, as opposed to a pre-occupation with the TSI and MFI indicators.
For the sentiment data itself, I have used the industry standard Investors Intelligence. You may review this data for yourself by clicking this link.
The most obvious observation is that we have currently reached a bullish percentage (41.4%) that is consistent with market tops. Another way of saying this is that we are likely at a point where we are going to start running out of a sufficient number of new buyers who will continue to overwhelm the number of sellers. Price, in this situation, may be able to go a little higher but I suspect this rally is, for all intents and purposes, finished.
Additionally, the TSI and MFI indicators are starting to show signs of wear and tear…. with a negative divergence showing up in both indicators and a negative trend line break in the MFI. And considering that the US Dollar is due a bounce, another piece of evidence seems to be falling in place to substantiate my thought that the current rally is about over.
The extremely strong rally we had in gold, silver and the stock market yesterday (Friday) provided a nice opportunity for smart money to take profits and pass off their positions to the new comers. My hunch is that we are due some near term weakness in these markets to temporarily reset sentiment to more pessimistic levels. At least that is the way I have positioned my portfolio – taken profits where I had them, raised cash and waiting to see when/if we get a change in short term direction.
My TSI trading record – which is simply a summation measurement of the gain/loss for each individual trade – is now +343.3%.
The value of my trading account, since beginning this blog June 11th, 2010, has now increased 74%.
Aside from my use of the True Strength Index and Money Flow Index indicators for buy and sell decisions, I credit my record to a general stubbornness to take losses. As I am predominately trading mining stocks which are in a true secular bull market, I take the point of view that the bull will eventually bring price back to a profit if I am patient. My positions do get under water from time to time due to an error in my judgement. When that happens I just wait for the position to come back to green before I sell it. At least that is what I try to do.
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