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Friday, October 1, 2010

THROW THOSE OCSILLATORS AWAY

Most people have a lot of trouble buying anything when it's in an overbought condition (they have trouble buying when it's oversold too). Unfortunately virtually every breakout occurs from overbought levels. This is especially true during a powerful C-wave advance.

Take a look at the last two C-waves and the first leg up in the current C-wave.


You can see that each one of these powerful rallies when it broke out of the trading range had already reached overbought levels. Then it stayed overbought for most of the rest of the rally.

If you didn't buy the breakout you missed a huge portion of the C-wave as no corrective move retraced back to the breakout point.

One of the biggest mistakes investors and traders make is using oscillators after a breakout has occurred. Oscillators are great tools if an asset is in a trading range. Once that trading range gets broken though one has to throw out their oscillators as they will cause you to miss huge portions if not all of the move.

Now let me remind everyone that Bernanke clearly stated he would print money if the economy didn't improve. We know there is no way the economy can improve because we still don't have the next "new" industry to drive job creation.

Folks this one is a no brainer. The Fed is going to print. That is going to cause asset inflation. The dollar is going to drop down into a yearly and three year cycle low. And the market is going to make Bernanke pay for his insane monetary policy with at least a mini-currency crisis in the dollar by next spring. And ultimately it is going to cause general inflation in all prices with the possible exception of real estate.

Gold is likely now in a runaway move higher. Smart money is using any and all pullbacks to get in ahead of the inflationary storm that's coming. We saw it in the action yesterday. Gold briefly traded down to the $1300 level and miners briefly tagged 500. Buying pressure immediately came in at those levels.




I think there is a very strong possibility that the miners are never going to see sub 500 again for the duration of this bull market. And even if they do it will be only briefly. As a matter of fact, The miners are on the cusp of a historic event which I have been discussing at length in the last several premium updates.

212 comments:

  1. Your country needs you, sell gold and buy doll hairs!

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  2. Shalom,
    You rock! Keep the faith.

    So, my strategy for the next buy in...(I've been adding in 5% to 8% chunks, 8% in late July, 5% twice since, and its adding up nicely with current allocation at appx 78%invested in PMs) is all based on the dollar. I am waiting for the dollar to rally, and I will add to positions in GDX/SIL with a swing reversal high on a USD rally.

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  3. The dollar rallied yesterday buddy, up to 79.

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  4. The dam definitely has a nice crack in it. 3/4 of a percent and we enter vacuum territory.

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  5. This comment has been removed by the author.

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  6. HUI-- 516.88
    Closer--ever closer

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  7. gary, would you say we just had a daily cycle low on Gold ? Would like to add a little more leverage.

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  8. 519.44, nice.

    A close above 519 flat would be very nice.

    Well this is a good headway for next week (hopefully starting October already past all resistances).

    Feels like a very nice C-wave is heating up to me.

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  9. Unfortunately this one is to vague to call. I put my leverage back on becasue of the close proximity to a breakout DWIW.

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  10. Dennis Gartman is apparently shrieking about how overbought gold is. Right on cue.

    Quote of the Day: Gold is “Hyper-Overbought”



    And we all know just how fantastic every one of Gartman's public pronouncements have been over the years, right? ;-)

    The guy's a bit of a blowhard it seems to me.

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  11. I love how volatile this sector is.

    This bull is definitely on roids.

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  12. I have to agree Gartman has to be the worst commodity timer in the world. I have no idea why anyone would listen to him anymore. He's almost as bad as Precther.

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  13. TZ from the prior post...

    Yes, I'm aware that buying the pinks can via the us exchanges can be hazardous to your financial health. I had those ticker loaded on my Thinkorswim watch list as I can't chart them without the pinkie symbol. I'm looking into brokers that can access the Canadian tickers directly (Interactive Brokers was recommended to me--let me know if you have a good one.)

    My strategy on the juniors is GDXJ and SIL for the core, but I wanted to build my own lottery pick basket and put maybe 5% of my capital into a longer term buy and hold strategy. There's gonna be the next ANV in there somewhere. A good thread over at Kitco board is taking place with several experienced posters trying to pick a bunch of potential winners.

    Here's the thread at Kitco

    here

    Canadian Zinc Corp (ADR)
    Great Panther Silver Limited
    GENCO RESOURCES LTD
    ECU SILVER MINING IN
    Silver Dragon Resources Inc
    Mines Management, Inc.
    Revett Minerals Inc ADR
    Alexco Resource Corp. (USA)
    EURASIAN MINERALS


    Name

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  14. (Those are the company names vs the pink sheet symbols)

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  15. HUI 515.88
    OK-- maybe starting second run at 520 so far today.

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  16. yes, I think that a weekly close over 515 is key, as back in 2008 we didn't get that. Not bad considering that most of the HUI components are targets of naked shorting. :)

    515 HUI

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  17. Gary,

    You can say gold and silver will continue shooting straight up and never pull back again and you may be right (so far you are), but circling sections of a chart that CLEARLY show pullbacks and areas of

    overbought->then *NOT* OVERBOUGHT-> then overbuoght-> then *NOT* OVERBOUGHT

    and subsequently stating "look how it stays overbought" is akin to changing the definition of words.

    RSI is considered overbought when it is above 70. A return below 70 such as to 50 is *NOT* overbought and on your chart usually show a pullback or correction - some significant. (A few times gold just pauses flat however.)

    So..you have managed to circle multiple overbought areas FOLLOWED by PULLBACKS to *non-overbought* areas and managed to say "it can stay overbought for a long time." No...*none* of those areas stayed 'overbought' as per proper definition.

    But, like I said, if you mean to say this thing isn't going to correct much at all and it may continue up against everybody waiting for a pullback, then I AGREE you've been right and could continue to be right.

    I simply would like us all to be using words like 'overbought' with the same meaning.

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  18. I'm not trying to be a jab in the board and I'm just as much into making money on this thing like the rest of us. I think I've been fair and honest all along.

    I tried SLW puts once on overbought and they went to zero. I've been waiting for another good entry which still doesn't come. I've been predicting a rest in this rally which doesn't happen.

    I'm fully direct here. But I'm also trying to keep the discussion on the level based on past action. No..this is NOT behaving like past action. I'm really really REALLY damn aware of that. Trust me.

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  19. TZ,
    What you are failing to notice is that the dip down in RSI is not bringing price back down below the breakout. Sop you can wait for an oscillator to move back down but the odds are still good that you will have to enter at a higher and higher price.

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  20. What strikes be unreal of the situation is the STRAIGHT LINE nature of both gold and silver rallies. I've seen these patterns before on the downside as the guys in NY walk a security lower and lower using algorithms until they break longs.

    Now it seems they are managing the move to the upside. X% every day is allowed, no more.

    But it conversely shows they are overwhemled as many of us (and growing) perceive them to be. They are simply containing the gains as best possible, but the question is where does that lead?

    It could either mean they will be successful shortly and manage another selloff. However it could also mean they will have to give up or blow up soon too - recall how as these rise the demand increases. (And the dollar is looking incredibly sick).

    Is this the time they fold and crumble? A person playing past odds would say no. But a person playing CURRENT events and an understanding of what will happen in the future would reply "they will at SOME point" - which means as time passes we risk getting closer and closer to that point.

    If you are on the sidelines out and waiting for a pullback at that point - then all your years of work are mostly out the window.

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  21. TZ-

    you have been at this much longer than me, but I agree this time looks and feels much different than any time that I've been watching the mining charts over the past three years. On the miners, I'd say buy when they hit their 20 day moving average and shut off the computer? I know you are talking about leverage and playing the gold futures, but you and I both need to stop attempted to trade this beast.

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  22. Gary,

    I'm not missing that it is a bull market and those charts keep going higher and higher (and that the pullbacks are higher and higher lows). That seems self evident.

    I would just like you to agree with me that the use of those charts and then stating that gold stays 'overbought' is disingenous.

    You can still make your argument and you HAVE been right. But you don't need and shouldn't use a chart that doesn't show what you are saying. That's all.

    If you are trying to get in and hold for 100% gains it is not a clear argument whether you should try to game 15% in the middle of it. I've been honest with that.

    What I have said is that if you are at a point where you are pretty pretty PRETTY darn sure that you think one of those (let's call them mini corrections) on the chart is arriving, then why not try to take the 15% pullback.

    Well...that was my plan for last week or so and still no pullback. I'm honest about it.

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  23. There were no 15% corrections during those C-wave breakouts. The only correction came as a mid-point consolidation at the end of an intermediate cycle. I've been warning that we have probably another 9-12 weeks before the next intermediate correction though.

    I think you are concentrating way too much on charts to the fact that you are forgetting the fundamentals. Ben has promised to print. Smart money is flooding in to this sector trying to get ahead of that. That is why we aren't getting any pullbacks. And I expect it to continue.

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  24. JAYHAWK,

    I have a metric probably similar to your 20dma buy thing that tends to give a good (non overbought, non 'chasing') entry every 3-6 weeks or so.

    The only problem is that nothing is pulling back to it anymore. This thing is actually behaving as you would expect at the END of a major move (when things really go just and just run away into a buying frenzy). Yet we know with reasonable certainty that there are still months left. That is what is so unbelievable.

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  25. TZX-

    No offense, but you sound like your about to pull out all your hair being frustrated that you don't currently have the position you'd like in PMs.

    The PM market is also bigger than NY just to let you know, much much bigger.

    What is so hard about getting on the bull (not stressing out about a few percentage points of a difference in an entry point) and riding it into Spring, and then exiting prior to a most-likely significant D-wave decline?

    It sounds like you're worried b/c of leverage, correct me if I'm wrong.

    Silver today is at 22.1 or thereabouts. It will still increase in all likelihood by 50% or more in the next 8 months. Is this an acceptable gain for you or do you need a 52.5% gain?

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  26. Gary,

    Whenever I say something like 5-15% pullbacks (which applies to the sector) you always jump in the high number and apply it to gold. Gold usually falls in the lower end of range, the stocks near the higher end.

    And now you are discussing "C wave breakouts" instead of those circled regions on your original chart.

    I cant argue a clear side if you shift the terms.

    What I have stated is that if you take those CIRCLED REGIONS on YOUR chart and calculated the GOLD and the STOCK pullbacks (slw and gdx would be good choices) of THOSE regions you would find many and multiple selloffs of 5-15% or so.

    You would find those selloffs in the same circled region where you state things go overbought and stay that way.

    Please be fair with my comments.

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  27. I think one of the hardest things for a technician to handle is the fact that the world changes. Just like sometimes value stocks are working and other times growth stocks are working, indicators and trading patterns work sometimes and not other times. The markets have all been moving away from their mean-reverting tendencies. When i couple that with the fact that tons of printing is going on it all makes sense to me. We are in a new world and those who can adapt to it will do well, and those who cannot will do at best less well. Gary, thank you. You came along at the right time for me. just as i was realizing what I stated above, I found your blog. You have kept me in the PM's much longer and heavier than I would have been otherwise. If the dollar really caves in mean-reversion be damned---there will be various panics all over the place. I'd like to bee there for them.

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  28. Robert,

    I'm frustrated cause I'm trying to make some honest gentlemanly statements on the board and my arguments are getting twisted, dodged, and sidestepped. That isn't warranted.

    Do YOU have an ACTUAL FLAW with the same argument I'm making here or are you just jumping on the bandwagon? (I'm discussing the "overbought" and not pulling back nature of gold and the stocks during these big up moves.)

    Gary posted a big chart saying stuff stays overbought and that's not what the chart shows. I'm waiting to see who has the guts to say i'm right.

    As for me, I have been clear about my position, thinking of pullbacks, and not getting any.

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  29. What does SLW have to do with anything. You are trying to enter gold futures positions am I correct?

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  30. @ Robert 6:34: lol.

    If that is the best the dollar can do, we are phiked. Hey, maybe the dollar rally will be from 74 to 77 or something, but that will likely me my next add, wherever the dollar puts in a rally of three or more days with a swing high. in the meantime, 78% allocation to PMs feels about right for me at this time.

    Mitch

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  31. So now my specific positions determine the validity of my statement about that RSI chart and that neither gold nor mining stocks 'stay overbought' during circled regions that clearly show pullbacks to non overbought levels?

    I'm almost to the point of taking that chart and annotating it with the gold, gdx, and slw pullback amounts on each RSI peak. But i'm not sure I should spend time (yes...out of frustration) when I now perceive people just playing with me.

    Believe what you want at this point.

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  32. TZ,
    I'm trying desperately to convince you to get in so you don't miss any more of this move. You've already miss $170 and it is solely due to the fact that you insist on using heavy leverage.

    Whether you want to admit it or not the need for leverage is costing you tons of potential profit. And then if you miss time an entry it is going to cost you real money on top of that.

    You are doing everything you can to sabotage yourself.

    Take a step back and see what you are doing.

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  33. Hey Gary, STOP THE PRESSES. Karl Denninger thinks the bond bulls who pushed the 2-yr Note to a new record low today are the REAL smart money!

    Furthermore, he argues that Ben won't allow severe inflation because severe inflation would screw the people he serves--the bankers. I quote:

    "But the banks - the people Bernanke really cares about - don't fare so well in such an event. Not only are they big and visible, but their collateral - the buildings in the cities and towns - would almost-certainly be destroyed in such a circumstance. And with the market trashed, insurance companies would fail and be unable to pay too.

    I believe this is the logic the bond market is using."

    It gets better. Denninger continues...

    "That is, Bernanke is jawboning and has no intention of taking actions that could provoke such an outcome. That is, he'll threaten and cajole, but he won't drive oil to $200 and double the price of every other necessary commodity, taking the risk of outright disintegration of our nation."

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  34. Denniger is a perma deflationist. Of course he thinks Ben will all of a sudden reverse course after 10 years of debasing. ;)

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  35. HERE all....
    http://img543.imageshack.us/f/goldoverbought.gif/

    I spent 5 min to put two points on that chart.

    I would appreciate the decency of admitting I have an accurate argument. I'm not here to jab people or try to hurt the board.

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  36. TZ,
    Do you realize that the two points you picked coincided with gold moving down into an intermediate cycle low?

    Gold is still 9-12 weeks from that happening. One might as well enjoy the ride until we get into the timing band for that kind of a correction.

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  37. Gary,

    The two points I picked are from your chart where you said it stays overbought. Gold doesn't (and neither do the miners) through use of RSI which you were trying to demonstrate. I said that most of those RSI points result in 5-15% pullbacks in gold and the miners and they do. How many points that you circled should be annotated before my statement is true? You really wont agree with my statement? It doesn't hurt your calls or advice.

    And now you are saying that some of the points on your chart are different from other points on the chart. And some animals are more equal than others.

    I never said or was concerned about cycles or anything else. I was simply concerned about your statement and the chart you use to support it.

    I'm enjoying the ride like the rest. I just wish I had more and my attempts to add aren't working.

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  38. This is simply a wasting argument at this point. Funny how message boards slippy slope into a mess like this.

    It all started plainly and simply a week or two ago. I was just trying to explain to people why I suspected a pullback of reasonable amount was due BASED ON HISTORICAL actions of the same sector. Then my (factual as far as i'm concerned - nobody else seems to agree) statements continued to weave and dodge here with yours and we ended up here.

    Sorry I started. It doesn't seem worth it.

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  39. It's friday...and I *do* live on the beach so time to bug out and stop arguing I think.

    Have a good weekend all. Enjoy the gains.

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  40. I've done my best to try and convince you to get rid of this need for leverage so you can ride this C-wave. You can ignore my suggestions if you want, and if this just keeps chugging higher you will end up missing the entire move.

    Maybe we will get a pullback and you can get in at a level you feel comfortable with.

    I'm going to move on to something else..like that big juicy chicken burrito I'm contemplating for lunch ;)

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  41. "Ben has promised to print."- Gary

    Indeed I have, and I'll remind everyone again that everything is ok. Keep your head down, keep going to work as normal and pay those taxes. Everything is not going to be fine, it already is!

    And Denninger is a likable fellow, but he also believes gold's only purpose is a doorstop. I read him, but would not trade off his ideas.

    Back to making doll hairs!

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  42. TZ--
    IF I MAY
    your argument is fair-- there may be pullbacks or small corrections where you MIGHT get a better buy price. (your argument has merit)Gary is simply attempting (If I may act as mediator and however ineptly attempt to speak for anyone)
    to explain why worry about a better entry point that might not hapen-- Long term it is going up and he does not want you to miss the rally by hoping/expecting/getting a better entry point.

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  43. The PM complex is definitely not behaving normally. It simply won't go down. Silver, in particular, is running like Forrest Gump.

    Way too many technicians out there pointing to lines on a chart like so many carnival fortune tellers.

    Thanks Gary, you've gotten me to think about the market in much different ways. It's Occam's razor. Print money, kill the paper currency, PMs go up...it's that simple. Price action on a chart should be the least weighted item in market analysis.

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  44. TZX -

    "I'm frustrated cause I'm trying to make some honest gentlemanly statements on the board and my arguments are getting twisted, dodged, and sidestepped. That isn't warranted."

    Get used to it.

    "Gary posted a big chart saying stuff stays overbought and that's not what the chart shows. I'm waiting to see who has the guts to say i'm right."

    Don't hold your breath.

    And expect this to be deleted in 5,4,3,2,........

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  45. If I had to guess it would be next week the HUI closes above 515, and for some reason fails to get above 520, but then the following week we see the close above 520. That would put us in the third week of October for the fun and games to really begin.

    BUT if next week we close above 520 the games could start early.

    I never do underestimate this C-wave though, as Gary has always said "surprises come to the upside in bull markets".

    Essentially it doesn't matter what week it takes off is the key. I do though like to try and forecast.

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  46. Right now looks like a pretty decent time to add, to me at least.

    Maybe half now of what you were going to add, and half in the first 3 days of next week?

    Any other opinions?

    HUI being at 512, if we assume it won't go under 500 again, your downside is 2% and upside probably all the way potentially to 15%-20% until a consolidation or pullback.

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  47. Ok...so I don't like to lose.
    I mostly finished the chart. Draw your own conclusions.

    http://img839.imageshack.us/f/goldoverbought.gif/

    Now I'm really heading out.

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  48. Gotta be in it to win it, TZ. I work hard printing more currency every day, so hop on and enjoy the ride!

    When this blows up, oh it's gonna be sumthin' to see! I buy/support all sorts of paper with just the stroke of a key, things you will never hear about because I have no requirement for transparency. What would you do?

    Hopefully I'll be in my new pad in Tel Aviv by the time everybody figures out the scam. Oops, did I say that?

    I must be at the wrong meeting, strike that from the record. Everything is OK.

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  49. That's a pretty nifty chart, TZ, and I now realize you're on my side trying to get people out of gold, or at least not to buy more at these levels. Thanks for that, much appreciated. Personally and in secret, however, I'm long a butt-load of the yellow metal, still your chart does say we could see a sharp pullback.

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  50. Glad I was talked out of reshuffling my portfolio. ANO up 18% today.

    Sun finally out after 5-6 inches of rain. We needed the rain too.

    Have a great weekend everyone.

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  51. Talk about inflation, two gallons of milk at CostCo up 17% in one week. Last week it cost $3.49 yesterday, $4.10. When you have three teenagers, two of whom are over 6'2 and weigh 200lbs. groceries really add up.

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  52. TZ,

    It hasn't been two weeks, it's been over two months of your hysteria. It started at the July 27th low.

    Either you suffer from analysis paralysis or you just don't have the stones to trade leverage.

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  53. TZ,

    I second Wes's motion. You've become an annoyance. You do not contribute any useful thoughts, just agita.

    Here are some of my holdings (thank to Gary):
    Symbol Bought on Price then Price Now
    HL 04-13-2009 2.35 6.38
    SLW 03-30-2009 7.79 26.86
    EGO 09-30-2009 11.26 18.57
    BVN 05-04-2010 31.96 46.53

    I will not bore you with the rest of my 22 positions but the point is, the less I fuss around the better the results. My entry timing is not great, I usually experience a drawdown within the first 6 months or so, but it all works out. Every time I try to get clever and time the market all I get is small profits and short-term capital gain taxes.

    Just bite the bullet and get invested. You will make money and spare yourself the pleasures of ulcers.

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  54. No disrespect is intended when I say that the mindset of people waiting for pullbacks to enter is vital to the PMs continuing their climb IMHO. I know a number of others who have been waiting for a pullback even from 1156!

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  55. There is no doubt in my mind that sooner or later we are going to get a pretty good whack, but how many of the people who are waiting for the pull-back will jump on it? When the decline happens it looks so scary most people are paralyzed with fear.

    I bought some more GDXJ at $30 in mid-may and a week later it was at $24, that's 20% decline. Did I buy more? NO, I went to China for two weeks so that I would not see any charts. We are at $34 today (from 24 to 34 it would have been a tidy 40% gain) and the chart looks pretty. If we tread water for another week it could rally pretty hard.

    Don't try to outsmart the bull market....

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  56. I'm head over heels bullish until it is priced at $4000-$5000/oz. I am 100% confident it will tag these prices (could go higher, John Williams at shadowstats.com things $7000 plus is fair). I honestly don't know what that means for silver, I guess if we conservatively assume that eventually the gold/silver ratio will get to 20 (about its historic mean give or take), that would be $200-$250 ounce of silver. Of course the timeline for this is probably 2015 (many gold bugs will be off the bull long before that)...

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  57. what makes me even more bullish on the miners vs. physical is that it is quoted that historically the miners have outperformed the physical by 20-40x on average (data taken from 1980 bull market).


    Just thrown out there the big picture. Fuck the very short term. I have been saying the same thing since 2008, and all seems to be going to plan.

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  58. TZ,

    How much has gold gone up since you've been waiting for the pullback? We may finally get it, but if it's only a few percent, I suspect the price at the low of the pullback will be above the price you could have bought it weeks ago.

    Or we may not get it now. What it gold goes up another 10 percent, then pullback 6 percent? You'll have your pullback, but the price you'll be buying at will be higher than the price you'd pay today.

    Good luck with whatever you decide.

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  59. And that's if one times the bottom of the correction correctly.

    What usually happens is one waits because they can't be sure when the bottom has arrived in real time and then the bull comes roaring back and the correction gets wiped out in the blink of an eye.

    One is just kidding themselves if they think they are going to time the bottom of corrections in a powerful C-wave thrust. It's hard enough to time moves in the general stock market but timing corrections in a C-wave has to be the single hardest trade of them all.

    I can pretty much guarantee Old Turkey is going to put every trader to shame, just like he's been doing for the last two months.

    Which is just a way of saying if you haven't been able to successfully time the first half of this move what makes you think you will do any better during the second half?

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  60. @Robert 2:22

    "I'm head over heels bullish until it is priced at $4000-$5000/oz. I am 100% confident it will tag these prices"

    You're right! That's why I'm up to about 30% of my net worth in PM's right now. That, of course, is a very large bet on one sector, and arguably not prudent. OTOH, my real estate got to nearly 50% of my worth at one time, and most everything I had was denominated in dollars once too. And I never really considered that an outsized bet, which it really was.

    And TZX guy, tks for the input. Nobody benefits from an echo chamber.

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  61. For those expecting a pullback, a little hope:

    http://www.investireoggi.it/forum/immagini/1286025699euro.jpg

    CFTC data on Eurofx shows that maybe there will be a pullback on EURUSD in the next 2 weeks.

    That would drive down stocks and gold.

    Please consider that this indicator is still in backtesting.

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  62. TZ's chart sparked my interest, as quite often what seems obvious on a chart is not so clear when trying to trade it in real time. So I created two backtests from 2007-01-02 to 2010-10-01. I used a simple exit, as I only wanted to test the entries.

    1) Buy Gold on day 1 and sell x days later. Repeat on next day. So you get the average gain after x days with non overlapping intervals:

    X | #Gain | #Loss | % >0 | %Gain | StdDev
    04 | +114 | -82 | 58 | 0.25 | 2.75
    08 | +65 | -44 | 60 | 0.53 | 4.22
    12 | +45 | -31 | 59 | 0.95 | 4.78
    16 | +36 | -22 | 62 | 1.25 | 4.85
    20 | +33 | -14 | 70 | 2.12 | 6.81
    24 | +25 | -15 | 62 | 1.72 | 6.08
    28 | +22 | -12 | 65 | 1.92 | 5.53
    32 | +17 | -13 | 57 | 2.86 | 6.72

    So with longer holding periods the
    - %Gain increases about linear (as expected)
    - number of positiv trades stays constant. -> "Constant" gold price increase over all time horizons
    - StdDev decreases (->Law of large numbers) relativ to %Gain but is much larger than %Gain


    2) Buy Gold when RSI(14)>70 and sell x days later. Again no overlapping intervals:

    X | #Gain | #Loss | % >0 | %Gain | StdDev
    04 | +17 | -10 | 63 | -0.18 | 2.71
    08 | +10 | -9 | 53 | -0.12 | 4.01
    12 | +7 | -9 | 44 | -0.36 | 4.17
    16 | +7 | -8 | 47 | -0.36 | 6.09
    20 | +8 | -5 | 62 | 0.32 | 7.13
    24 | +7 | -5 | 58 | -0.59 | 7.23
    28 | +6 | -6 | 50 | -0.45 | 7.07
    32 | +6 | -6 | 50 | -0.57 | 7.04

    So with longer holding periods the
    - %Gain decreases very slow. Interesting statistical outlier at X=20 with 0.32
    - number of positiv trades stays constant and in most cases >50% -> Avg %Gain is smaller than avg %Loss
    - StdDev decreases relativ to %Gain and is larger than StdDev in case 1)

    Résumé about the RSI entry:
    - It really signals potential weakness in the days ahead
    - The potential gain by shorting is relative small to the StdDev. This suggests erratic results (see X=20, positive gain 0.32) and a bad risk/reward ratio

    This is by no means a system to trade. It could be much improved by using proper exits (e.g. trailing stops). But the aim for this exercise was just to get a numerical grip on this chart. So thanks to TZ for stimulating my curiosity.

    One of the reasons why these charts look so convincing is, that the gains by shorting are calculated in hindsight: You know when to exit your shorts, what is not possible in real time.

    This is somewhat similar to what Gary wrote above with his own words.

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  63. QE2 Nov 3 - here is what I remember from the announcement of QE1 circa March 20 2009 - Gold spiked, cough sputtered and then rolled over on the day the market rallied 400 points (the Monday after I believe - I remember this day well).
    I know, I know, with Old Turkey it doesn't matter, but short-term folk be careful what you wish for when QE2 sets sail. I believe it's going to be a big "sell the news" event...

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  64. Gold was in the process of putting in a B-wave correction that needed to retest the breakout above the 1980 high of 850. After rallying
    47% in only 4 months it had to have some kind of corrective move.

    The announcement of QE was irrelevant. Gold is now in the process of finishing the largest C-wave of the entire 10 year bull market. That process will continue until the dollar finishes it's move into it's three year cycle low. That isn't due to happen until spring of next year.

    Will there be corrections along the way? Of course there will. Should one attempt to trade them? Have we learned nothing in the last two months?

    ReplyDelete
  65. Hi Hiptwist,

    Your post also sparked my curiosity about backtesting. What software/system do you use for your backtest?

    ReplyDelete
  66. Gary,

    You talked about the new phasing in gold's cycle low. You are now saying the last daily cycle low for the metal was on Sep 10 and not Aug 24. Looks like you are now in sync with Doc.
    Out of curiosity, what prompted the change in your thinking? Was it because gold broke through 1300 and did not form a swing high?
    Pick cycle lows can sometimes be tricky business so I like to learn how you decide.

    Many thanks.

    ReplyDelete
  67. Well I never like to assume a cycle has stretched until it is apparent. The current cycle is either strecthing long or one can just rephase it and assume the first daily cycle stretched and the current cycle is normal.

    Either way it's very apparent that the dollar cycle is dominating all asset classes and all other cycles are synching with the dollar cycle.

    So rather than get too tangled up trying to decipher the gold or stock market cycles all I have to do is figure out the dollar cycle.

    ReplyDelete
  68. Gary,

    Thanks.
    But deciphering the dollar cycle can also be tricky.
    I suppose we have to look at all the major markets (i.e. gold, stocks and dollar index) taken together.

    ReplyDelete
  69. When something is in a left translated intermediate cycle it makes things a little easier. You can pretty much figure all daily cycles are going to be left translated and all daily cycles are going to move below the prior cycle low.

    In that regard it should be easier to decipher the dollar than gold or stocks.

    The only realy question will be whether or not the next intermediate cycle will also be left translated. I believe it will be as the dollar is due to put in a 3 year cycle low next spring.

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  70. I see. That is a useful insight!
    Left translated int cycles are easier to decipher than right translated ones. So we start the analysis from there.

    BTW it must be after midnight in Vegas. Do you sleep at all? :-)

    ReplyDelete
  71. Usually I'm in bed by 9 but I made the mistake of taking a nap this afternoon and I'm not tired yet.

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  72. RA,

    my backtest software is completely self-written. That's one of my edges, as I can test ALL things I can imagine if it's quantifiable.

    If you want to buy backtest software, check out http://www.tradingblox.com/

    It was originally programmed by Curtis Faith (Author of "Way of the Turtle") as he had the same problem as I had. Its the best in its class IMHO.

    ReplyDelete
  73. Gary, What do you see as the driver after the 3 year cycle low? A failure of that low?

    ReplyDelete
  74. I don't expect Ben will change his policies so yes I expect after a strong rally the dollar will roll over again at the next 3 year cycle low.

    ReplyDelete
  75. Thanks for the quick answer and thanks again for getting me on track coach. It will not be forgotten.

    ReplyDelete
  76. The US Congressional Charter gave the Fed a monopoly control of the US $dollar. Literally, the dollar (a "Federal Reserve Note") is the intellectual property of the Fed, not of the US Government. The charter "promotes" use of the dollar as a currency, and in return the Fed (at some level) is "restricted" in what it can do with the dollar.

    Nightmare scenario? Not for me!

    http://www.zerohedge.com/article/nightmare-scenario-fed-outlives-us-federal-government

    LONG LIVE ME!

    ReplyDelete
  77. Hiptwist,

    You said "my backtest software is completely self-written". I am impressed!
    Thanks for the recommendation :-)
    Yes I know about Curtis Faith. He was one of the orignal turtles taught by Richard Dennis I believe.

    ReplyDelete
  78. SB,
    Besides creating more dollars, you also create more entertainment on this blog. Keep it up! I mean both the entertainment and the dollars. For the former, you always give me a few laughs. For the latter, you make me laugh to the bank :-)

    ReplyDelete
  79. Did I see a $10 monthly thing on Friday? That disappeared quickly. Can I still sign up or was that just a 1-day offer?

    ReplyDelete
  80. It's still too early to know if it'll hold, but early Monday it appears my beloved doll hairs are up a wee bit.

    Good. It gives me a chance to fire up the presses and "sell" into this demand.

    Gonna chew some tobacky and check back at the open.

    ReplyDelete
  81. I'll probably get shot for this on this blog, but I'd like to make the point that Bernanke is not an "idiot." We are facing a deflationary depression or an inflationary one. Gary has said that the middle class will be destroyed in inflation. Well, they didn't do so well in the 30's either. I am not saying it is right to print, just that there are no good choices. The real "idiot" is Greenspan for having created this mess in the first place, but that's water under the bridge. It's easy to sit on the sidelines and say "let the deflationary depression happen, it'll be better than the alternative" but the deflation is now, and they hope inflation can be forestalled by timing the monetary extraction correctly. Don't tell me it won't work---it very likely won't. I'm just saying that the other position is not idiotic; it's trying to avoid a disaster. There are simply no good choices. Quoting the ravages of inflation is not arguing which is less bad, because the ravages of deflation are pretty bad as well. He gets to pick which way we go down in flames. People on each side are passionate. Gartman said (if I remember), "I'll take an inflation at any time in any form over a deflationary collapse." It just isn't the case that everyone on the other side of this terrible choice is an "idiot."

    ReplyDelete
  82. Very true. This mess gets thrown squarely in Greenspan's lap.

    Although I don't know that a hyperinflationary dpression is worse than a deflationary one. I suspect the survivors of the Weimar hyperinflation might disagree.

    In a hyperinflation there will be no food on the shelves of stores coupled with massive unemployment. In a deflation at least prices will fall and supply will be plentiful although we will still have to endure huge unemployment problems.

    Either way the end result of a credit bubble is a depression. There's no way to escape that. We just get to choose the form of depression we are going to endure.

    ReplyDelete
  83. DG,

    The only reason he doesn't allow a deflationary collapse is because it would take out the banks. He works on behalf of the banks. In deflation they may make more in real terms on any debts, but the defaults would destroy them.

    The people thrive in deflation when they have done the right thing and put aside some savings. Of course we know not many have, but even they thrive in deflation - if they can keep their jobs. If you still have an income and everything around you is dropping in price it like getting a tax free raise.

    Once the imbalances are washed out of the system, real demand starts when prices hit a bottom, not a false demand because of too much paper/fear of inflation.

    Then real employment can begin again.

    How bad would it have been, if they let that happen? No one knows 'cause they didn't.

    ReplyDelete
  84. Yes, Movax, good point. I agree with you that in deflation the people who have been careful survive best, and that would be my preferred approach to this mess too. I am just saying that what Bernanke is doing is not reckless and idiotic; he's just trying to avoid a disaster (and will probably fail). I just got tired of the Bernanke bashing when he is just trying to clean up a mess that someone else foolishly made. Not always easy or even possible. Greenspan bashing---now that makes more sense to me!

    ReplyDelete
  85. Just keep repeating "Everything is OK", and it will be. Since paper can be made instantly and forever, thus with no real value, I'll print until somebody stops me.

    It hurts the people that don't understand value vs. numbers on paper, but that's the purpose of even a modest "inflation target", to slowly skim the productivity without people noticing. The last couple years have been scary on our end, because we might get lynched if it collapses too fast, but for your needs, remember that everything is ok.

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  86. I'm not sure I would let Bernanke off so easy. Anyone who can read history should understand that what he is doing has never worked and has only made the problem much worse.

    Heck he even has first hand experience. His debasement of the dollar in the vain attempt to halt the subprime crisis was directly responsible for spiking oil to $150 which ultimately collapsed the already weak economy.

    Now he's doing the same thing and he's getting the same result. At what point does one "learn their lesson"?

    ReplyDelete
  87. It seems to me that he is trading a certainty for a near certainty. That is, the deflation is here now (bank collapses, etc.) while the potential inflationary disaster is still to come. It has not worked in the past, but he probably thinks he has learned the lessons of history and can avoid the outcome that has happened before. It is not certain that the result will be worse than allowing the deflation to happen now. It obviously would have been better for G-span to let things deflate in 2001, but that would have taken someone with the guts of Volcker, and he didn't have the stomach for it. At this point we have a certainty of disaster and a near certainty of future disaster. Not an easy choice. And again, I'm just saying he's not behaving like an idiot, even if he takes the path that I (and others on this blog) would condemn. I'm glad I don't have his job right now!

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  88. I think if Bernanke implemented what many think is a more prudent monetary course his employment at the Fed would end abruptly. (Society and the Administration will not cope with the short term pain caused by correct monetary policy) even if that monetary policy is corrct and healthier in the long run.

    ReplyDelete
  89. Looking to go long GDX or GDXJ via short puts. Trying to get use to gold's volatility. lol

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  90. Mom,
    Are you saying you want to sell puts?

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  91. Yes,not naked though. I figure if I sell puts at support I either will collect the premium and maybe get the shares. Could miss a big move to the upside, but I am just starting to focus on PM's and after the move from 1160 I am a bit skittish.

    (Is there a way to edit messages?)

    ReplyDelete
  92. That is one way to do it. If you are a subscriber I will be tracking a potential move into a cycle low in the next week or two. When we get close to that bottm you could start scaling in.

    You could also consider buying a core position on today's weakness. Something that you can hold "Old Turkey" through any correction.

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  93. Mr. Mom,

    I have profitably written puts on GDX in the past. The basic premise for writing options is to collect time. You therefore want an environment in which you think shares have hit a near-term low but don't stand much chance of great appreciation. Therefore, the ideal spot for writing puts is at the intermediate low after a parabolic run.

    At present, precious metals and mining shares face the prospect of superb gains going into next year. For my money, I therefore prefer the unlimited upside of being long the shares or their respective calls.

    ReplyDelete
  94. Re. TZX-1138 vs. board
    I appreciate Gary's blog, and him as a person, that's why I am here and read pretty much everything he posts. But when he has a blind spot, blind it remains, as I could learn from experience (http://goldscents.blogspot.com/2010/09/test-highs.html).
    In the present particular case, his general assessment of gold's trend is correct, but he chooses to support it with an invalid syllogism. TZX-1138's criticism is valid, and even more valid is his normative stance regarding the ethics of the blog.
    Crowds are crowds everywhere, and it was with dismay that I realized that the gold crowd is no different. They follow "leaders", "authorities", they need invalid arguments to support beliefs, and they go for the kill when they smell blood... Sad but true.

    ReplyDelete
  95. And what makes you think the market won't test the highs. The trend is up and has been since July.

    The dollar trend is down and has been since June.

    I repeatedly warned bears to wait for confirmation before shorting although I suspect most ignored me.

    I've been warning for months that the dollar would drop into a yearly and three year cycle low. Despite the many non-believers at the time I think we can all agree that is exactly what is transpiring. As long as that process continues it's going to tend to support stocks and drive Gold's C-wave higher.

    Well it will support stocks until inflation crushes the economy again.

    I'm not sure what invalid syllogism you are talking about. I follow basic Austrain economics just like Rogers, Schiff, Faber, etc.

    I suppose you could claim that Austrian economics is a flawed theory and that the smartest and most successful traders in the world don't know what they are talking about but it did predict exactly what has transpired.

    So you might want to think twice before assuming you are smarter than Jim Rogers or Marc Faber or George Soros or John Paulson, etc.

    ReplyDelete
  96. DG and Gary, why are you so sure we would have deflation if Ben stopped printing? Isn't inflation caused by an increase in the combined value of money supply AND debt? And vice versa, deflation is caused by a decrease in the combined value of money supply and debt. So the thinking goes, private and corporate debt is decreasing, so we're going to get deflation, right?

    But what about PUBLIC debt? Didn't the US government borrow 2 TRILLION dollars within the past year? Doesn't that increase in public debt more than make up for the shrinking of private debt? Seems to me that as long as the US government continues borrowing at the current pace, Ben can shut down the presses because we're gonna have inflation regardless of what he does. And if he keeps printing, then he's only going to fuel the fire, a fire that is doing just fine on its own.

    If what I've said makes sense, then I'd have to say that if Ben keeps printing with inflationary forces high, he is indeed an idiot.

    ReplyDelete
  97. PM,
    I don't think the US can continue to borrow without the Fed buying treasuries (monetizing debt).

    If Ben discontinues monetizing then the massive debt loads will act as a deflationary force.

    We certainly aren't going to be able to service our debt with productivity since we remain mired in an ongoing recessionary environment. Until the next "new thing" is invented the sluggish economy will continue to mire us in a deflationary environment that Ben will no doubt continue to fight with his printing press.

    ReplyDelete
  98. Prima: It seems to me that it's not just a question of debt taken on but of asset value being lost. The loss in value of housing and stocks swamp what has been printed. If he stopped printing and allowed rates to rise I believe the economy would immediately tank like it did in 1937, when the Fed drained money out of the system. Keeping rates at zero is the Fed lending money to the banks at zero and then buying their assets (T-bonds) at a higher price. This is basically giving the banks money (a form of "printing") and is only possible with rates near zero. If rates went up to end that subsidy all hell would break loose, I believe. The Fed starting withdrawing a little in March and the general weakness showed up right away. I think Ben is doomed no matter what he does.

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  99. C,
    I would have to point out that I have no problem recognizing when I'm wrong and changing my stance.

    In early 09 I was under the impression that deflation would win out over inflation. But when Bernanke aborted the left translated 4 year cycle it was obvious that I was wrong about deflation.

    I had no problem reversing my stance when the market showed me I was clearly wrong.

    ReplyDelete
  100. Gary: The BoW numbers seem to be stuck today, and haven't posted for hours. Do you shows that too? I know it's the close that counts but I'm concerned they won't get those numbers either---?

    ReplyDelete
  101. Lest we forget!

    http://usdebtclock.org/

    ReplyDelete
  102. Hi Gary,

    For the past 2 weeks, it seems like the gold miners have decoupled from gold and the miners seems to have coupled withe the overall market...is this cause for con cern?maybe I'm reading too much into it...does anyone else feel the same way? Any thoughts Gary? Thank you.

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  103. Good article by Peter Degraaf today. Seems to think gold has about $50 to go before being overbought: http://www.kitco.com/ind/degraaf/oct042010.html

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  104. Oh,look! Shalom B-Man! I found a home movie clip from your Winthrop House days at Harvard!

    Check it out: http://www.youtube.com/watch?v=zDAmPIq29ro

    My, my. Besides the beard you really haven't changed much. And at least you know how it's going to feel when the same thing happens to you at the Fed!

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  105. BonW stuck problem finally fixed---big number today, which supports Gary's take on things thus far.

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  106. Nike,
    Don't get caught up in the daily wiggles. The dollar is due to bounce at some point and that should drive a daily cycle low for gold. But just like the last 50 times this has happened it will just be temporary.

    ReplyDelete
  107. Gary, thank you for blog and thanks participants for comments. what do you think about using of call options on GLD for example in long term - may be 2012 - looking beyond the future frontiers of D-wave when the price of gold rebounds and goes upper nowdays records ? The idea is not mine but one of the authors of WSJournal who might not even had any imagine of Elliot's waves. Using this strategy one must be very careful with timing.

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  108. the huge BoW that I'm seeing is on SDY and not SPY...

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  109. I've bought another 500 QLD into the weakness. I'm thinking that a next leg up, if it happens soon, will be a good selling point for all of it.

    That would be in anticipation of further short term weakness, which is what my indicators are suggesting.

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  110. Doc, I'm with you on the short puts versus long calls issue. I'm expecting the boost in the big miner's profits and margins to be forthcoming as we move into earnings season (resulting from the run up in metals prices) is going to light a firecracker under GDX as the majors play catch-up with the juniors.

    I'm using this dip to go long Jan & Mar 2011 calls. This is my "leverage", as Gary puts it. I have and am keeping my core "Old Turkey" position.

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  111. Andy,
    The only time I would suggest using calls is at an intermediate bottom. Unfortunately that is also the toughest time to buy them.

    How hard was it to buy into the Feb. or July bottom with all the deflationists assuring us everything was going to crash?

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  112. NikeBoy: re BoW numbers. Thank you! That'll teach me to read my screen without my glasses.

    ReplyDelete
  113. Shalom B. was busy today. It was good that they screened the students first to make sure that there weren't any of these gold-bug whackos.

    PROVIDENCE, R.I. (AP) -- Federal Reserve Chairman Ben Bernanke says oversight of the nation's financial system has been strengthened following the economic meltdown of 2008.

    Bernanke spoke Monday at a town-hall style meeting with Rhode Island college students.

    He said the Federal Reserve will have a greater role in bank supervision in the future to prevent another financial crisis.

    Bernanke also fielded questions about student loans, investment strategy and partisan bickering.

    College students were selected by their schools to participate. The Association of Independent Colleges and Universities of Rhode Island says most of the students are in business-oriented areas of study.

    Bernanke is also scheduled to deliver remarks Monday evening to the Rhode Island Public Expenditure Council, a taxpayer watchdog group.

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  114. Hey DG..

    it's funny...the first I saw it, I thought that it was SPY too...it was the second time that I realized that it was SDY..

    market has been choppy for a few weeks now...any buy or sell signals from your system?

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  115. NikeBoy: No signals. I will post if I get something. It was a little unusual to get so many so close to each other over the past six weeks (and welcome as they almost all worked!) They are pretty random as to frequency of occurrences though, so no way to tell when one will pop up. I think Gary has finally infected me as I am more interested in PM's than stocks now. But perhaps that's just because there are no stock extremes for me to fade.

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  116. The gold price will finally start to go down when the crooks are no longer running the system.

    The reason gold continues to rise is because crooks are currently in control.

    We have recently undergone an economic crisis. How many bankers have gone to jail yet? 0. That is why gold is going higher and higher.

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  117. OTC derivatives frighten me half to death.

    It seems like the bankers continually, because there is not regulation allowed in this field, are able to bet whatever amounts they like (there is no capital requirement) in total secrecy. If their bets fail (as did in 2000 with the LTCM hedge fund needing to get bailed out, and of course in 2008 with the bailouts) they lose nothing- they then go to congress and the taxpayer and say "pay up our lost bets or the entire financial system will collapse." We have no choice but to pay (reduce our standard of living by debasing our currency).

    We do live in a feudal system.

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  118. http://en.wikipedia.org/wiki/Bankers_Trust

    "wet dream"... what crooks.

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  119. It seems the bankers can bet whatever amounts they choose with no repercussion. They basically only have upside. lol.

    Can any of you recommend how I become one of these bankers? Does it have to be in the blood?

    They truly do seem to be the masters of the Milky Way.

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  120. Check out this latest video from Peter Schiff...

    http://www.youtube.com/watch?v=MPtFLNq7NWU&feature=player_embedded

    A bit long winded but nevertheless a reinforcement of what we are thinking about on this blog.

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  121. Gary, thank you for the answer. Truly, one needs to have "steel" nerves to buy calls at the bottom. But, as Tudor has mentioned, it is the only possible "leverage" now. But my question was not about "calls strategy" exactly. What I highly appreciate in the blog and through discussions - it is the right timing for entry and exit / though you say that in a bull gold market this is not very important/, and, secondly, one's behaviour during D-wave. How long will it be ? What will be, in your opinion, highs and lows of gold price ? When the rebound begins, in real time ? Sorry for too many "stupid" quostions but these themes are being widely discussed now and there are different opinions on the issue. Really, no one is able to suggest the perfect solution ... Imagine, Fed begins QE-2 not now in November but in January or March 2011...

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  122. RA,

    thanks for the link.

    But I'm always wary of reinforcing opinions - one might miss new developements. I prefer contrarian opinions as they force me to formulate my views clearly.

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  123. Hiptwist,

    How right you are! Yes we must not get to engrossed in our own thinking and not notice if things have changed - very bad for the portfolio :-)

    And like you, I am more interested in making money than in winning arguments.

    Will take note to also post alternative views to generate dialog and debate :-)

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  124. Andy,
    It really is impossible for me to guess at accurate targets. I know what to look for in real time to try and spot tops and bottoms but to tell you ahead of time where they are going to occur at is beyond my meager abilities :)

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  125. Robert says, "Can any of you recommend how I become one of these bankers? Does it have to be in the blood?"

    Indeed it is in the blood. Just about all of the biggest criminals, errr "bankers" do have something in common, but I am not permitted to tell you what it is for I am one of them. The illusion of sovereign nations is a joke, as we're international in scope, viewing the world as gov't that we control. But don't concern yourself with our plans for the "Goyim", instead buy dolares, and shout "everything is OK!"

    P.S. If you ever wonder why the media is so full of BS and propaganda, it's because we own that too! We only cover the topics we want, and it the manner we wish them to be consumed. Again, the illusion of freedom and choice is much different from reality.

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  126. Gold already above 1320.50. Looks like we will not get the swing high today.

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  127. Bull market surprises to the upside never fail to impress! Thanks for the commentary.

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  128. Gary - what do you think about a flash crash in GLD?

    http://www.etf-corner.com/markets/2010/10/gld-could-gold-have-a-mini-crash-sure-.html

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  129. The thing about a flash crash though is that it will be over in a...well...flash.
    And the gold bull keeps going and going and going...
    My two cents worth.

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  130. DG,
    You wrote "I think Gary has finally infected me as I am more interested in PM's than stocks now."
    Welcome to the hospital DG. I have the same infection.
    But I must say this is much better than the other disease, getting ulcers by having to agonize over every wiggle of the stock market.
    Life is much more serene and profitable this way.

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  131. Well in the last 10 years gold has never crashed so my best guess is this guy is dreaming :)

    Gold will put in a serious decline when it's time for the D-wave to correct this monster C-wave but we are still a long way from that yet.

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  132. Gary did tell us to throw out those oscillators! :)

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  133. More about oscillators: I use them pretty heavily for short term trading. The problem is if you get into a powerful move they get overbought, then more overbought, then even more. Then when they correct they work off the overbought conditions by not even dropping back to where they started being overbought. If you can't identify a range-bound market from a strong one, they will get you into trouble. They are best during counter-trend rallies. A bear market bounce that gets overbought should be shorted at the first hint of overbought, unless sentiment got wildly bearish at the bottom. If gold gets oversold on the dip to come you can buy with both hands at the first sign of it.

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  134. Dollar has broken below 78...

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  135. HIPTWIST,

    I appreciate your backtesting curiosity regarding my patched together RSI overbought chart, but for somebody who wrote their own backtesting system (kudos; what language by the way?) I'm disappointed with your simple test to evaluate the worth of the current argument that was bouncing around. No offense intended here - please follow me for a moment for my criticism of what you did. It's not a personal attack.

    RSI, like many indicators, is not linear in it's readings. A (technically 'overbought') reading of 71 is LESS likely than one of 70. 72 is LESS LESS likely than 71, but **not linearly**. The probabilities taper off dramatically as you go higher. I'm pretty sure you know this.

    For example, I can't ever recall a rsi over 87 or so....EVER...even though theoretically RSI of 100 is possible. (yes...i'm sure there is something out there somewhere. Like takeovers and limit ups and stuff, but it is DAMN RARE.).

    Thus, we could presume this perhaps:

    RSI >=70 occurs 6% of time
    >=75 ... 3% (1/2 drop from previous value)
    >=80 ... 1% (1/3rd)
    >=85 ... 0.2% (1/5th)
    >=90 ... 0.02% (1/10th)
    etc.

    Each increment up in RSI is 5, but the percentage likelyhood of REACHING that number is INCREASINGLY SMALLER.
    (These values are just guesses. Obviously testing could give you accurate numbers.)

    So...that you chose evaluate a system of "RSI over 70" SORTA addresses the argument I was having with Gary over his chart and language, but it does NOT really tackle my specific comments and details with RSI we are having now from a trading and pullback probability standpoint.

    While Gary's chart (and my discussion) covered "overbought", I was more specifically discussing VERY overbought levels such as the rsi reading for gold of approximately 84 two days ago. I was discussing (and not putting in cash here) based on RSI=84 which has a SUBSTANTIALLY higher risk associated with it and a MUCH HIGHER chance of resulting in down action.

    A bet to load up a security at a lower price is MUCH more likely to pay off the higher RSI goes over 70.
    In this game you want **high probability** trades (note everybody-this in no way means CERTAIN trades. We are *already* higher this morning than two days ago.) Yes, there is a probability trade with RSI at 70. But the HIGH probability trade (or caution level) is at levels of 78, 79...or (NOSEBLEED!) 84.

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  136. So, If you would like to address my specific trading caution and not so much Gary's chart and definition of 'overbought', I am proposing more specific testing of extreme, low probability, high risk RSI levels.

    Now...on to what you specifically tested (I have tested systems too, by the way)....

    From what you say, you tested RSI 70 or higher (too low, imo) and checked the price level X days later (very crude exit).

    Let's work in it with some common sense and up the probabilities, risk/reward:

    First, start with RSIs of at least 78 or higher.
    This substantially reduces the points on a chart and dramatically increases the odds of a short term peak.

    Then, instead of just picking the high RSI level, WAIT FOR THE FIRST DAY THE RSI DROPS TO A LOWER NUMBER before starting the clock.
    If the rsi is 78-> then 78.9, ->thenn 79.2 then 81.4....JUST WAIT.
    When it finally closes lower, THEN YOU START.

    Your crude approach ignores one of the most simple market tenents here...when you have strength you are trying to fade, wait **AT LEAST** until the first weakness shows. Don't step in front of a train. LET IT RUN.

    So where are we:

    1) Pick RSI's of higher significance than the relatively easy and common 70. Let's say >=78 (although again this is something testing could help validate).

    2) Don't take the testing position UNTIL the rsi stops making higher values. Wait for first daily dip to a lower value than the day before.

    (NOTE so far that NONE of my comments or conditions are based on backward bias as you suggested. ALL of this is doable in real time without subjective action.)

    Now...how about your exit criteria: "X days later".

    Really? This is the best you could come up with?
    It's not an attack, i'm just very very surprised.
    (Yes, I *do* understand how the basic nature of it helps make a test that reduces the variables and trys to provide a vanilla slate for the results, but come one...it's a horribly crude exit. Anybody in this thing for a while should easily have a couple better picks.)

    I've given an entry level and entry trigger already, so I'm loath to start spelling out an exit situation too. I'm not going to spell out a tradable system just for the sake of trying to assert an argument. I'll leave it to you (or others suggestions) if they want to identify a better exit criteria.

    Regardless of the exit picked, I'm pretty comfortable that if you make those simple changes to your test you will come up with results that more clearly indicated caution is warranted in such RSI situations and back up the specific nature of my RSI argument and not the 'overbought'=70 thing between gary and I.)

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  137. Might I suggest you take the RSI indicator off your charts at this time. Its irrelevant. Concentrate more on cycles and sentiment and especially the dollar.

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  138. Even "RSI over (say) 78, on first downturn" has already created a bad entry just in the last week. I'm aware of that.

    Gold RSI dipped on 9/30, and went higher the next day.

    I clearly said these were based on probabilities and risk/reward points. And the results of the last week still show this is a messy discussion.

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  139. GARY,

    We are just having a discussion and it just happened to be over RSI. I'm long. I'm in with core. I'm making plenty of money. All hail turkey.

    jeez.

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  140. Just pointing out there are times when all your back testing will break down. This is one of those times.

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  141. any thoughts on the relative outperformance of sil vs gdxj? I would think that during a c-wave the smaller caps would go up more, but it hasn't been the case recently...

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  142. How come nobody wants my doll hairs?

    I'm doing the best I can, and everything is ok, dammit!

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  143. Thomas--
    One reason is SIL has silver miners while GDXJ has gold and silver miners. Silver has outperformed gold in this last rally. SIL also has a large percentage of foreign silver miners.

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  144. Bank of Japan really blew a hole in things this morning. Driving rates "almost to zero" and starting to buy assets across the board.

    http://www.bloomberg.com/news/2010-10-05/boj-steps-up-asset-purchases-cuts-key-rate-to-0-0-1-to-revive-economy.html

    What is really telling is that by doing this they ironically highlighted the situation WE are in and what WE are about to (resume) doing - the same thing.

    So instead of making the dollar potentially look better (by them printing more Yen) they actually showed how messed up we are and tanked us (although the dollar index doesn't have as much yen in it. still.)

    Interesting times.

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  145. Funny thing is the Yen is still up against the dollar.

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  146. GARY,

    I'm sorry if the RSI discussion wasn't proper. I didn't argue for people to sell their position and I'm clearly aware that plenty of things don't work plenty of times.

    Let's be happy so many things are all failing and our assets are going up.

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  148. TX-
    Yes-- Japan is desperately racing to devalue their yen before others devalue their currencies. Very interesting times!

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  149. dxy Chart indicate long-term support for dollar at around 76, or another 2.2% lower from here.

    Any expectation it will fall that low? Would take dow over 1100, gold up to maybe 1360's. Thoughts?

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  150. I don't mind talking trading strategies. Once we get in the early stages of the next C-wave (2012?) then an RSI system will probably work great.

    But at the moment I think it's going to be more profitable to just concentrate on the dollar and cycles and put the oscillators back in the tool chest for a while.

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  151. Cycle top on 10/5/2010 -
    --- 14% extension of Wall's cycle (see LWD) from the April 26th top
    --- 61.8% extension of the QW cycle from the 8/9/2010 top.

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  152. I don't know cycles. That's why I'm hear listening to you on that part.

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  153. Hi Gary:

    What are your thoughts on buying Gold or Silver in Euro instead of against the USD? I'm beginning to worry that the short USD trade is getting very crowded and that the EUR has a whole slew of problems themselves and it may make sense to short EUR/USD to get Gold or Silver exposure funded in EUR.

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  154. I am a new reader, is this the right time to get into the miners or will there be some kind of cycle low, breakout test in the coming weaks. Or does the runaway move probably already startet?

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  155. The three year cycle low isn't due till next spring. The dollar has a long way to drop yet.

    I'll bet a Mexcan dinner we will see 80 by the time the yearly cycle bottoms and the dollar will be at new all time loes by the time the 3 year cycle bottoms this spring.

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  156. Hey...another "DG" just showed up! If he keeps posting I may change my moniker. His is lower case but mine is caps. Too confusing, though.

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  157. Pepper,
    You should at least get a core position.

    This is a historic breakout today. There is a chance we will never drop below 520 again during this bull market. You don't want to have no position if that is the case. And if it is then today is the very first day of the start of the run.

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  158. Gary:

    Do you mean 70 on the dollar or 80? 80 would imply USD strength. Mexican dinner in Maui would be nice. Have to see if I can take off work then.

    I sure have to say that holding through this massive run up is hard as the urge to sell or at least hedge the USD part is high! But Old Turkey seems to be working so far.

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  159. DG/GARY,

    There is a reasonable solution to the user name problem.

    If you put your cursor over your name you will see you have a number connected to your PROFILE.

    DG, you are:
    http://www.blogger.com/profile/15668568316531084679

    Gary, you are:
    http://www.blogger.com/profile/14556370683669428668

    What you can do is change your profile name, for example, to:
    DG(4679) and GARY(8668)

    The numbers would match the last 4 (or whatever you pick) digits of your profile ID.

    A person could still pick "DG(4679)" but putting your mouse over the link would show the ID is *NOT* 4679. And, on average, It would take a person 5000 signups to get a profile that ends in the same 4 digits.

    It's a shame the system here is so piss poor to allow such a thing, but that's a simple solution.

    TZ(7006)

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  160. Screw it. I'm gonna follow my own advice.

    All hail, TZ(7006)

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  161. SLW does not seem to be moving like it should on a giant breakout like this. SLW way overbought?

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  162. Perhaps GaryUK could chime in regarding his short positions flambe, or at least reaffirm that everything is ok?

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  163. TZ: You post some interesting things but boy do you love minutiae! I bet you'd go from San Jose to San Francisco by way of Boston (I hope you don;t mind the tease.) I'll just change my name to DG1 so people don't have to memorize my four digit number, if that other guys starts posting regularly.

    DG-not-1-yet

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  164. I've just sold the 500 QLD I put on yesterday into this strength.

    This is not the "all out" sale I'm contemplating, just a routine sale into strength.

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  165. Or others could use confidence-inspiring avatars like myself in order to avoid confusion.

    Days like this I'm glad I have dual-citizenship and two passports!

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  166. when do we close this gold trade? my account just blew up this morning

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  167. Don't look now, Timbo, but there goes your ride!

    http://slopeofhope.com/2010/10/spring-forth.html

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  168. Gary:

    I've compared the returns of Gold and EUR(which is about 60% of the dollar basket) and all the returns from Gold since late August comes from being short USD against the EUR. Do you see this continuing or perhaps Gold will start rallying against the Euro again like during the May Greece scares.

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  169. If silver leverages gold, and small caps move more than large caps, shouldn't we all be investing in the smallest silver companies we can find?
    why does everyone only use gdxj or sil here?

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  170. Gary,

    I will buy you a Mexican dinner no matter what the dollar does.

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  171. Thomas, Check the stocks within SIL. There are many I would like to own, but not easily traded as they are on foreign exchanges.

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  172. GARY,

    If i'm not mistaken, aren't we gonna get your bollinger band trade indications on gold and silver today? (I know we dont short bull mkts, but does you signal work to the downside).

    Unlike the slow grind in gold and silver for weeks and weeks, today we have clear accelerations to the upside that COULD be iterpreted as short term exhaustion (or panic buying).

    Just asking your thoughts when combined with hitting your 1340 target and your BB trade tool.

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  173. Gary would it be safe to assume that the HUI in itself should offer some support to the metals themselves since its trading in a new found vacuum, HUI 520 is like Gold at 1265?

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  174. Do you think there's a chance this HUI breakout will be a smart money trap this time, Gary?

    I notice GDXJ:GDX is falling - like HUI seems to be going it alone for some reason...
    Perhaps it's that GDXJ is made up mostly of Canadian stocks [?] or something.... [ie Can$ not falling like USD].

    I also see that the euro:dollar has reached the top of its channel today = a good time for the bounce.

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  175. This comment has been removed by the author.

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  176. I mean, a trap on a short term basis.

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  177. Gary, Does a temporary bottom in the dollar according to your cycles fall this week or next? If we do get a dollar bounce, I am doubtful that equities will sell off since next week is OPEX and typically OPEX is bullish. Gold may correct a bit, but don't think there will be any major correction in equities.

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  178. RA,

    Thanks for posting the Schiff video.

    As Schiff sat there rattling off all the commodities that had surged higher in September, I had to chuckle a little at Denninger. Denninger points at housing as proof that we are deflating, never mind the ridiculous oversupply of houses we have in this country. Most people only need one house to live in, whereas with things like oil and sugar, our dollars are constantly chasing them. But I'm preaching to the choir.

    Gary: Have you heard the deflationist argument that "we've already gotten our hyperinflation! it started in 1983 when stocks took off! the price of food and everything else we buy is FAR higher today than in the early 1980s! ? That argument is a Denninger mainstay. Was curious about your rebuttal.

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  179. AGQ is treating me very well, and also driving me a little crazy.

    Last Tuesday: it "tumbles" all the way to $79 at the open and I don't buy more.

    Last Thursday it "plunges" to $81 and change and I don't buy more.

    Yesterday: it has a "brutal" down day and closes a hair below $85. I don't buy more.

    Today it soars over $91!!

    Do I add to my position at the close?! I guess so...

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  181. OK TZ, I'll bite this time :-)

    First some remarks

    - My statement about hindsight addressed the percentages you calculated on Garys chart. You can calculate these gains by shorting AFTER Gold had bottomed. At the time of entry you only have an expecation about average gains.
    - You asked about better exits. I wrote already above "It could be much improved by using proper exits (e.g. trailing stops)". But EXITS are not the reason for this exercise. I wanted to check if this ENTRY is exploitable. In my experience, the EXIT has a much greater influence on the result as the ENTRY. So I kept it simple.
    - The software is written in PERL plus some C-libraries. Not the fastest solution but definitely the most flexible.

    Now some more backtesting data:

    3) Buy Gold when RSI(14)>x and sell 'hold' days later. No overlapping intervals:

    hold=2
    X | #Gain | #Loss | % >0 | %Gain | StdDev
    70 | +20 | -17 | 54 | -0.16 | 1.88
    72 | +19 | -12 | 61 | 0.08 | 1.52
    74 | +9 | -8 | 53 | -0.13 | 2.51
    76 | +6 | -9 | 40 | -0.45 | 2.31
    78 | +3 | -6 | 33 | -0.24 | 1.61
    80 | +2 | -4 | 33 | -0.46 | 1.71
    82 | +1 | -2 | 33 | -1.08 | 1.82
    84 | +0 | -1 | 0 | -0.48 | NA
    86 | +0 | -0 | NA | NA | NA

    hold=4
    X | #Gain | #Loss | % >0 | %Gain | StdDev
    70 | +17 | -10 | 63 | -0.18 | 2.71 *
    72 | +14 | -9 | 61 | 0.28 | 2.10
    74 | +8 | -4 | 67 | 0.26 | 2.99
    76 | +8 | -3 | 73 | 0.07 | 2.90
    78 | +3 | -3 | 50 | -0.55 | 2.22
    80 | +3 | -2 | 60 | -0.59 | 2.59
    82 | +0 | -3 | 0 | -2.10 | 1.12
    84 | +0 | -1 | 0 | -0.80 | NA
    86 | +0 | -0 | NA | NA | NA

    hold=8
    X | #Gain | #Loss | % >0 | %Gain | StdDev
    70 | +10 | -9 | 53 | -0.12 | 4.01 **
    72 | +9 | -8 | 53 | -0.44 | 4.09
    74 | +4 | -4 | 50 | -0.04 | 4.29
    76 | +3 | -5 | 38 | -0.42 | 3.67
    78 | +2 | -3 | 40 | 0.30 | 3.14
    80 | +2 | -2 | 50 | -0.78 | 3.14
    82 | +1 | -2 | 33 | -1.62 | 3.51
    84 | +0 | -1 | 0 | -0.16 | NA
    86 | +0 | -0 | NA | NA | NA

    You'll find the lines * and ** already in my first post in 2) as the parameters are the same there.

    No comment here, just compare the numbers. No edge to be found here.

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  182. Part 2/2

    4) Like 3) but RSI has to drop one day

    hold=2
    70 | +13 | -10 | 57 | -0.03 | 1.73
    72 | +11 | -9 | 55 | -0.11 | 1.68
    74 | +7 | -4 | 64 | 0.01 | 1.83
    76 | +7 | -4 | 64 | 0.01 | 1.83
    78 | +4 | -2 | 67 | 0.16 | 1.88
    80 | +3 | -2 | 60 | 0.12 | 2.10
    82 | +0 | -1 | 0 | -0.32 | NA
    84 | +0 | -1 | 0 | -0.32 | NA
    86 | +0 | -0 | NA | NA | NA

    hold=4
    70 | +10 | -11 | 48 | -0.03 | 2.97
    72 | +8 | -10 | 44 | -0.22 | 3.04
    74 | +5 | -5 | 50 | 0.25 | 3.39
    76 | +5 | -5 | 50 | 0.25 | 3.39
    78 | +4 | -2 | 67 | 0.52 | 2.99
    80 | +4 | -1 | 80 | 0.65 | 3.32
    82 | +1 | -0 | 100 | 1.77 | NA
    84 | +1 | -0 | 100 | 1.77 | NA
    86 | +0 | -0 | NA | NA | NA

    hold=8
    70 | +8 | -8 | 50 | 0.04 | 3.45
    72 | +7 | -8 | 47 | -0.25 | 3.18
    74 | +4 | -4 | 50 | 0.82 | 3.14
    76 | +4 | -4 | 50 | 1.02 | 3.17
    78 | +3 | -2 | 60 | 0.95 | 4.10
    80 | +2 | -2 | 50 | 0.65 | 4.68
    82 | +1 | -0 | 100 | 0.73 | NA
    84 | +1 | -0 | 100 | 0.73 | NA
    86 | +0 | -0 | NA | NA | NA

    The results are even worse then in 3). The reason is, that the system enters much too early. This is the proverbial "stays longer overbought than you can keep solvent".

    TZ, I'm sure you'll find now another improvement of this simple system. But believe me: I investend hundreds of hours in such tests and 99% is just a waste of time (in monetary terms). And I would love to find the shortcut to this 1% of gems. So it's much easier to be a longterm trend follower (at least in techical terms) -> Old Turkey.

    Anybody interested in this kind of stuff should check out Rob Hannas Blog http://quantifiableedges.blogspot.com

    Sorry for this long post. I won't bore you any more with these data "blobs", but the request had to be answered.

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  183. Monster day.

    Thanks Coach Gary :-)

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  184. I've sold another 1000 QLD into this strength.

    It looks as though the "all out" signal will not occur today, and in any event it will require some weakness before the trigger.

    With my love of selling strength, it is difficult for me not to try to anticipate the signal.

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  185. Gary-

    Got your email regarding the trip to Hawaii for the subs.

    I also got your follow up email telling me you would be willing to babysit my kids so my wife and I could go to the beach and see the sights. Very generous offer! :)

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  187. Jay,
    It ain't too far away before your kids start talking about cycles, sentiments, money flows after Gary baby sitting..

    Add to that calling Bernanke stupid..

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  188. TZ,
    The bollinger band trad3e doesn't work on the upside. Markets go up differnetly than they go down.

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  189. HIPTWIST,

    I read and appreciate your response and the work.

    I did a quick spot check on your results along the line of my assertions and can't verify you conclusion. In fact, a simple spot check shows my comments are pretty reliable. Please see below:

    Since January 2001, the RSI(14) for gold has only been at 83 or higher FIVE times (not counting last week):

    5/21/03
    5/12/05
    5/11/06
    11/8/07
    11/25/09

    (These are the days the RSI hit peak after moving to 83 or higher. On the following day they started back down. I picked 83 because I wanted to keep the probability high as I explained earlier. Also, my data is esignal which uses the day comex session and not after hours to make daily bars. This will not differ materially from GLD or regular market hours.)

    The following are the results from selling at the close of the day when the RSI first ticked down and covering at close 8 days later:

    5/21/03 -> 1.5% profit
    5/12/05 -> 3.6% profit
    5/11/06 -> 10.4%profit
    11/8/07 -> 4.3% profit
    11/25/09 -> 3.8% profit

    Every single of them is a gain and relatively substantial for gold which is stable compared to the rest of the sector. Thus, on these declines you would generally expect silver and stocks to drop 2x-4x of those percentages.

    Your table on PART 4 which is supposed to mirror what I just described shows this section for an 8 day hold:

    hold=8
    70 | +8 | -8 | 50 | 0.04 | 3.45
    72 | +7 | -8 | 47 | -0.25 | 3.18
    74 | +4 | -4 | 50 | 0.82 | 3.14
    76 | +4 | -4 | 50 | 1.02 | 3.17
    78 | +3 | -2 | 60 | 0.95 | 4.10
    80 | +2 | -2 | 50 | 0.65 | 4.68
    82 | +1 | -0 | 100 | 0.73 | NA
    84 | +1 | -0 | 100 | 0.73 | NA
    86 | +0 | -0 | NA | NA | NA

    Right off the bat using RSI>=82 (remember my example above uses an even *higher* and *rarer* RSI of 83) has only a SINGLE trade. You should have at least *five* and probably closer to 7 or 8 trades in your table!

    Furthermore, even your single trade you show for the 84 line has only has a gain of 0.73%. None of my trades is less than a 1.5% gain on the short.


    I must conclude either your data or program appear bad. Not a personal insult.

    The guys reading this are probably tired of the RSI discussion, but I'm here building a *reputation* for what I say and when I say something that's right I want people to realize it.

    Anybody who doubts what I have just proven as per "buying a high, overbought RSI such as 82 or 83 or 84 is dangerous", etc can EASILY pull up any chart, scan it, follow my dates if you want and do the same math. I MANUALLY constructed the data I presented to you above with visual counts and a calculator so i'm darn sure it's right.

    The accurate conclusion confirms my statements -> RSI's at this level are DANGEROUS and the history proves it. In fact, they prove it PERFECTLY 5 out of 5 for an 8 day hold (so far).

    Gotta watch out for PERL. Those $_'s will kill you dude. Switch to Ruby and you'll get the right results :-)

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