Saturday, June 11, 2011

Gold, Silver, Miners, Stock Market and the US Dollar

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Today, June 11th, is the one year anniversary of The TSI Trader. Hooray! I started this website last summer when my summer vacation as a public school teacher began with utterly no clue as to what I would write about, other than my passion for the True Strength Index (TSI) indicator, and had no idea how many truly remarkable people I would be blessed to befriend. To all who have read and to all who have written to me I offer my deepest expression of appreciation for the contribution you have made to my life. I look forward to sharing a new year of adventure, conquest and conversation with you. May we all enjoy this journey together and be a selfless help to one another.
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As I have not posted anything for a while I guess the best place to start today is with an overview of where the various markets appear headed. For each investment instrument I have prepared a two pane chart - the left side being the daily chart and the right side is the weekly chart.
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Our first chart will consider gold.
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Click on any chart to ENLARGE
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Gold has held up remarkably well since reaching its all-time high of $1577 in early May. In fact, gold came close to regaining that high just this past week. But to be very blunt, the party for now is over.
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On the weekly chart we see that even if gold had been able to regain the all-time high of $1577 the height of the TSI would have created a glaring negative divergence with respect to price. The counter rally of the past 4 weeks was doomed from the start and now it is virtually over. A break of the TSI trend line on the weekly chart (green line) will confirm this. A ZERO crossover of the TSI on the daily chart will also confirm this. It is much clearer to me now that the D-wave of gold's ABCD repetitive wave pattern has begun.
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Next let's consider silver.
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This chart is fascinating and frankly, down right scary. On the daily chart we note that last Friday's action has just barely given us both a TSI trend line break sell signal and a bearish ZERO crossover. Not good news for silver.
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But what I find scary is the weekly chart. Silver price has formed a pennant and will break out of it, either upside or downside, in the next week or two. Pennants are quite reliable patterns that usually mark the midpoint consolidation price of a larger trending move. In this case, silver began its bearish move at $50 with a now defined midpoint consolidation price of $36. As the first half of this trending move has been a $14 drop in silver price, this projects a final completion of the pattern with silver reaching $22.
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The TSI on silver's weekly chart is sickly hovering just below ZERO. Any price movement at this point will send the TSI into an immediate downward trajectory and certain fatality. If one is interested in playing this setup with something like Proshares Ultrashort Silver ETF (ZSL), I suggest one wait to see how the price pennant breaks and keep an eye on the daily TSI to make sure it is continually falling below ZERO.
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Next up are the miners - Amex Gold Bugs Index (HUI--X). Forgive me for being so bearish today with my assessment of things, but this chart, too, just looks bad.
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First of all, the weekly chart reveals that the price uptrend line corresponding to gold's entire C-wave was tested last January but has now been decisively violated. The TSI for both the daily and weekly time frames is below ZERO - that's always bearish. A number of T1 patterns on the daily chart would suggest we are currently making a T1 pattern and only half way to it's completion. (A T1 pattern, btw, is identical in concept as the pennant pattern we discussed in the silver secion above. The difference is that price in a T1 pattern does not make a pennant). And finally, there is no TSI trend line break BUY signal likely for weeks and weeks into the future.
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An aggressive way to play this setup would be to buy the Direxion Gold Miners Bear 2X ETF (DUST).
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The SP-500 has not been doing so hot for the past 6 weeks, as we observe a string of recent red candles on the weekly chart. However, I would caution that the time to play this aggressively has probably passed for now. On the daily chart the TSI is on the pavement indicating that price is oversold and there is a positive divergence in place (lower low in price, higher low on TSI) suggesting a bounce is forthcoming and very soon.
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The other thing on the daily chart that should make aggressive bears think twice is the 200 dma which is just 15 points lower. I seriously doubt price will be able to get below that on the first try.
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The weekly chart, however, gives us an idea of the bigger picture. If Ben does indeed discontinue QE2 at the end of this month, what will hold the market up then? Answer: nothing (in my opinion).
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The weekly TSI is below ZERO and for as long as it stays there there will be no rejoicing among the bulls. It would be better to have cash in a retirement account than stock. No matter what happens in the next year, at least you would still have all your money.
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And finally, let's consider a daily and weekly chart of the US Dollar (DXY0). The powerful bullish move that began earlier this past week gave us TSI trend line break and ZERO crossover BUY signals. Obviously a new 20-25 daily cycle has begun and we should expect the dollar to be generally higher over the next couple of weeks.
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This analysis is confirming my bearish thoughts on gold, silver, miners and the stock market, as they have tended to perform inversely in the recent past. I imagine the US Dollar will at least test the overhead price trend line, perhaps more than once, in the next couple weeks. After battering away at this trend line during this daily cycle, I view it as highly likely that in the following daily cycle US Dollar price will scream higher through this trend line - sending gold, silver, miners and the stock market to their knees. To put a general time frame on this I would suggest that the month of July will not be friendly to the bulls.

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