This article will examine the current up leg in gold price that originated in October 2008, present a study of the Fibonacci relationships of this price movement that are evident both in terms of price and time, and offer a projection of future price movement within the time frame suggested by the evidence.
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We will begin with a simple weekly chart of the World Gold Index (XGLD) and employ a diagonal support trend line and three horizontal lines identifying price breakout levels.  No doubt you will notice that price movement has been subdivided into three completed stages, each separated by a new break higher through a horizontal resistance line.  And, current price is contemplating a move higher that would take it into a fourth stage of the up leg.
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Click on any chart to ENLARGE
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This first chart gives us a general concept of the shape, size, stages and elapsed time of this massive up leg in gold.  This will be important to keep in your mind as the following charts will add considerable visual complexity to this price history.
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I am going to present three charts that have taken various Fibonacci measurements into consideration and identified their location on the gold price chart.  This first chart observes the Fibonacci relationships of price movement.  Measurements are taken from price movement that results in a low, a high or a breakout. The second chart observes the Fibonacci relationships of lows, highs and breakouts measured in terms of time.  The third chart attempts to consolidate and simplify the most significant details of the two preceding charts.  This chart details both Fibonacci price movement and time on a single chart and offers a possible future outcome for price movement within a specified time frame.
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Each Fibonacci measurement uses the base price of $681 which was the price of gold when this up leg began in October 2008.
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I have retained the white horizontal lines that subdivide price movement into three complete stages, though admittedly you will have to look carefully to find them.  They are identified as Level 1, Level 2 and Level 3.
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Level 1 concluded with a bullish breakout that rallied 38.2% while Level 2 concluded with a breakout that climbed 23.6%.  Price is presently at the Level 3 horizontal resistance level and should it breakout and also rise 23.6%, gold would be taken to somewhere around the $1639 area.
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I found it interesting that most lows (but not all) were in Fibonacci relationship with a high that followed it. Also, literally every time price reached the diagonal trend line it turned out to be a significant Fibonacci price level for either a future local high or a return to the trend line. Finally, the Level 2 and Level 3 price levels were each affirmed with a Fibonacci relationship.
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This next chart considers various price landmarks and their Fibonacci relationships observed in terms of time.  Unlike the previous chart that uses the $681 price of Day 1 as the basis of all observations, this chart notes the Fibonacci time relationships that exist using many different starting points, each of which is associated with either a low, high or breakout of a resistance level.
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My impression of this Fibonacci time data is that it may be an even stronger determinant of significant price turning points than we observed in the previous chart of Fibonacci price data. This suggests to me that gold does indeed has strong cyclical and seasonal characteristics.
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Nearly every significant low, high and breakout had a Fibonacci time relationship with another price landmark that followed. I was truly amazed at the intricate time relationships I found and I am sure I did not find them all.
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This final chart is my attempt to synthesize the preceding charts, simplify and offer an hypothesis on future price movement. But rather than use the previous model that included significant consideration of the horizontal price levels that separate the three concluded stages, I decided to take a fresh look at price action and made some interesting discoveries.
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Here I have subdivided price movement into four stages which are identified using four different colored rectangular borders. Each stage has a singular similarity – that being significant price action occurring at the Fibonacci 61.8% level of the rectangle, as measured from the baseline price of $681 to the top of the rectangle. We note that the height on one rectangle become the identified break out level within the next rectangle. And, each rectangle is separated by a drop in price movement that rejoins the long term trend line before beginning the next rectangle.
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Future price movement suggests the current rectangle will top at $1639.
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Various Fibonacci 50% time relationships are illustrated.  If the February 2010 low is of large scale significance, it would be the 50% midpoint of gold’s beginning in October 2008 and somewhere around May 23, 2011. Also, if gold should break out this week within the fourth rectangle that would correlate nicely with the breakout within the first rectangle, as the midpoint of this time frame is the beginning of the third rectangle. Finally, we are presently at the 50% mark of the time frame contemplated for the current fourth rectangle.
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If you have comments, questions or new insights about the Fibonacci relationship of the current gold up leg and want to share them with me, just send me an email.

John Townsend
tsiTrader@gmail.com

Coeur D’alene Mines Corp (CDE:NYSE $34.70) is just beginning its monumental move. I believe we may see its share price double in the next 8 – 12 weeks.  This article will provide you with an update of silver’s current parabolic move; detail the underpinnings of Coeur D’alene’s incredibly strong fundamentals going forward into 2011, and expose the powerfully bullish technical outlook for its stock.

Silver is presently making its fifth parabolic appearance of this secular bull market for precious metals. Our first chart is a weekly look at the World Silver Index (XSLV) dating back to 2004 and including the three previous silver parabolic moves of 2004, 2006 and 2008.  The 40 week moving average is shown as a proxy for the 200 day moving average.  
One of the metrics to observe is the degree to which a silver parabolic ultimately rises above its underlying 200 dma.  Another consideration is the length of consolidation time that precedes the parabolic move.  When I combine these two metric considerations and apply them to our current silver parabolic, it is apparent that silver’s price rise above its 200 dma could match or exceed 65%.  This projects a silver peak in excess of $50.  In fact, as the consolidation preceding our current parabolic has been massive, $50, in retrospect, may turn out to have been too conservative.

This second weekly chart of XSLV considers our current parabolic using a different metric – the midpoint consolidation. There is a tendency for parabolic moves to exhibit a resting point that divides the move into two equal legs.  And we observe that silver has now cleared its consolidation phase at the $32 level and is headed towards a completion of this pattern at $48.
The takeaway from these observations is not to argue just how high silver will soar, but to simply note that silver is going much higher, quickly and now.
Coeur D’alene (CDE) is poised fundamentally to skyrocket right along with silver.  The company has three mines that are now in full production and the 2010 Q4 results announced last week revealed that analysts were significantly underestimating the company’s new earnings power.  Analysts expected the company to earn 33 cents per share and instead the company reported quarterly earnings of 56 cents per share.

Some highlights of Coeur D’alene’s key fundamental data include: $3 Billion market capitalization, shares outstanding 89 Million and holding flat, selling at 1.5X book value, 2011E Price to Earnings ratio of 12 (which is about half the average PE of other large silver miners), and 2011E Price to Cash Flow ratio of 7 (also about half the average of comparables).

Consensus estimated earnings for 2011 are $2.28 per share vs. 2010 $0.39 actual earnings per share. Cash flow from operations (chart below from the Coeur D’alene website) is expected to more than double in 2011 from 2010.
Debt levels are trending downward quarter after quarter while cash levels are trending strongly upwards.  For 2011 the company projects that capital expenditures will decline, while production of both silver and gold will increase, as will sales.
Regarding the issue of hedging the CEO, Dennis Wheeler, commented during last week’s conference call, “I just want to make it clear that Coeur has the policy of non-hedging in silver production. We know that our investors like you are believers in the continued price appreciation of silver and gold and we want our investors to be able to maximize their investment and leverage to the metal so we will not be hedging any of our silver”.

To summarize current and projected CDE fundamentals, it is somewhat difficult for me to imagine a more ideal setup.  Projected earnings and cash flow growth are explosive, current market valuations in terms of book value, price to earnings and price to cash flow are in the silly cheap category, and last quarter’s performance puts the sting to any who may have doubted Coeur D’alene’s ability to deliver. I should add that ownership of CDE shares is literally a list of the ‘who’s who’ of investment heavyweights – ETFs GDX and GDXJ, as well as Van Eck, Dimensional, Vanguard, State Street, JP Morgan Chase and Blackrock.

The following weekly chart of CDE reveals that several months ago stock price broke above a 5 year long down trend resistance line, has since consolidated above this line after a successful retest, and is now continuing higher.
The chart also details the significance of the $28 price level which was a support level for CDE price from 2004-2008 and has since 2008 been a resistance level.  Until last week that is, when CDE took on that $28.00 price level and blasted right through it, closing the week at $34.70.  Technically speaking, this is the recipe for beginning a monumental move.

The 2004 and 2006 silver parabolic moves took CDE from being a $28 stock to the $75 neighborhood and quickly.  As I believe the current silver parabolic is likely to surpass the magnitude of each of the four preceding silver parabolics, the fundamental underpinnings of the CDE stock are nothing short of both impressive and ideal, and the technical setup is exactly as one would hope, I consider it a realistic possibility that CDE could again achieve a $75 price target before the current silver parabolic expires.

One final thought with a chart.  The overhead resistance (selling pressure) should be reasonably mild as CDE has not traded any shares above $28 for three years or so.  Not all, of course, but most sellers of the shares now are sitting with a profit and are not particularly motivated to sell provided price continues higher. And for that matter, this chart shows us that shareholders who bought 4 and 5 years ago are not holding a lot of shares anyway.
Disclosure:  I own CDE and look forward to participating with CDE throughout the concluding leg of this silver parabolic.

I wish you a great week of trading and invite you to peruse my website, The TSI Trader, where you will find a focus on both the techniques of using the True Strength Index (TSI) indicator for accurate trading signals and the secular bull market for precious metals.

John Townsend
tsiTrader@gmail.com










]]> http://thedailygold.com/commentaries/as-silver-continues-to-soar-this-miner-is-just-beginning-its-monumental-move/?p=6088/feed/ 0 http://thedailygold.com/chartstechnicals/an-exquisite-recipe-for-a-price-disaster/?p=5506/ http://thedailygold.com/chartstechnicals/an-exquisite-recipe-for-a-price-disaster/?p=5506/#comments Mon, 10 Jan 2011 02:32:51 +0000 John Townsend http://thedailygold.com/?p=5506 Sunday, January 9, 2011

An Exquisite Recipe (for a Price Disaster)

I was chatting on the phone earlier this weekend with one of my readers about the shocking drop in the price of gold earlier this past week.  We agreed that the mini-crash seemed to be the result of a well coordinated effort by some powerful bullion banks who, incidentally, are notorious for shorting gold.
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Honestly, neither of us saw the Tuesday bear raid coming and our mining positions were flooded in a sea of red for the rest of the week.  Perhaps yours were as well.
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With noticeable disdain for the alleged perpetrators, my friend commented that it is really too bad this kind of manipulation is allowed to take place in the free markets, as lots of small investors are literally blind sided and ripped off when “da boyz” decide to “take down” the market.
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And he particularly lamented that there was simply no way to know when they would strike.
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This last comment struck me as interesting as I suspected this was not necessarily true.  We decided to look at the gold continuous futures contract and see what the True Strength Index (TSI) indicator could tell us.  

First Chart – Click on to ENLARGE

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I was not too surprised with what we found but my friend was rather stunned - particularly after I explained what the chart said.
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If you would like to learn how to anticipate future bear attacks, I encourage you to continue reading as I am going to show you an exquisite recipe for preparing a price disaster. 
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Successful bear raids are no accident.  They are carefully executed when the market’s underlying momentum is prepared to a degree of extreme vulnerability. I hope my effort to explain the following will shed new light for you on the True Strength Index indicator techniques available to you for the anticipation of these powerful selling phenomenon. 
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Let’s begin with a quick look at this first 4 hour chart of the Gold continuous chart contract (/GC) for the action of the past week.  I have simply added my usual True Strength Index setting of (7,4) below price, and highlighted the price disaster that began on Tuesday with a red rectangle. I made this chart using the software available at ThinkorSwim.
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I have permanently placed a page on my website that details the 6 Buy/Sell techniques using the True Strength Index (TSI) indicator that you may reference whenever desired.  On the sell side, one of the techniques is the recognition of a negative divergence. 
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A negative divergence occurs when price continues to make a higher high, while momentum (TSI indicator) diverges by making a lower high.  Normally, a negative divergence will cause price to correct downward. In effect, price has moved higher without a correspondingly stronger measurement in the TSI momentum indicator, and will need to be corrected.

Second Chart – Click on to ENLARGE

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Our second chart shows that indeed price corrected immediately after the first negative divergence.  But incredibly, price then continued to make a new high and a second negative divergence.  This alone is fairly unusual – two negative divergences in a row. Price should have certainly gone into a corrective phase but instead, price went higher yet and made a third consecutive negative divergence.
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At this point, price disaster was virtually assured.  Whether “da boyz” get the credit for pushing price up like this when it should have been correcting, I have no idea.  But once the heavy selling started it was clear that there would be a vicious outcome.

Third Chart – Click on the ENLARGE

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A couple of the other Sell techniques of the TSI indicator are the trend line break (green line) and the ZERO crossover (hot pink circle).  As seen in this third chart, the TSI faithfully sounded these sirens immediately for all who knew how to listen and who were watching the chart at the right time – SELL!
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Unfortunately for me, I was not watching this chart at the right time and my positions were clobbered.

Fourth Chart – Click on to ENLARGE

But I was keenly tuned in to see when the “all clear” siren would be sounded and though it took a few days, I knew it when I saw it.
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Early Friday morning a couple of the bullish TSI Buy signals appeared to signal the end of the bear raid.  As seen on this fourth chart, a bullish positive divergence (orange line) was created when the TSI failed to make a lower low as price made a lower low, and secondly, as price began to rise a bullish trend line break (light blue line) occurred.  And once again, the True Strength Index indicator absolutely nailed the bottom of this painful sell-off and gave the Buy signals at the most opportune time.
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To put it all together, negative divergences between rising price and the underlying TSI indicator call for a downward direction in price.  More so after two consecutive negative divergences.  And most urgently following three.  
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Trend line breaks of the TSI indicator are sell signals when the indicator is falling and buy signals when rising.  The Zero line crossover is bullish when reached from below zero and bearish when the crossed from above.
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I hope this article will help you in your future trading decisions.
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Wishing you a profitable week,
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John Townsend
tsiTrader@gmail.com

Posted by John Townsend, The TSI Trader at 2:08 PM

By John Townsend, The TSI Trader

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There is no other way to describe silver’s price movement of the past 13 weeks other than to call it parabolic.  With that in mind, I thought it would be interesting to do a little study of past silver parabolic moves and see if I could get a handle on just how high silver could travel into December before it implodes.
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For this study I have chosen to examine the relative degree to which silver price can exceed its underlying 200 day moving average.  This weekly chart of the World Silver Index (XSLV) uses the 40 week moving average as a proxy for the 200 day moving average.
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Silver is currently making its 5th parabolic appearance since the secular bull market for gold and silver began in late 2001.  The range that silver has been able to soar above its 200 dma in previous parabolic moves ranged from a modest 21% to a mind boggling 65%.  
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The rule of thumb for these kinds of things is that the longer the consolidation period preceding the parabolic, the higher the concluding parabolic is likely to rocket.  This understanding explains why the parabolic near the end of 2004 achieved only 21% above its 200 dma – as the consolidation period preceding it was a very brief 8 months.
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The three other previous silver parabolics had consolidation periods of between 18-24 months.  And these three were able to achieve heights exceeding the underlying 200 day moving average by 45%, 48% and 65%.  
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Our current silver parabolic has had a consolidation period utterly dwarfing all previous specimens – logging in at 33 months.  It is conceivable this could be the mother of all parabolics for the current secular bull.  
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But not allowing myself to get too carried away, my chart offers a projection for silver in the range of the 3 more or less comparable predecessors.  i.e. that the current parabolic will achieve a height of 48% to 65% above its 200 dma ($30.20 – $33.45).  As silver closed this past week at $27.20, this range projects price higher some 11% – 23%.
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If one is invested in Proshares Ultra 2X Silver ETF (AGQ), it is reasonable to double those projected results to amount to a forward gain of between 22% and 46%.
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And don’t forget, these calculations pretend that the consolidation period of the current parabolic is roughly identical to its predecessors.  And it is not.  It is nearly TWICE the size.

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Here I offer a simple chart of Proshares Ultra 2X Silver (AGQ) with my likely modest forecast applied to the chart.  I have arbitrarily chosen to guesstimate that this move will last approximately 3 weeks past today.  
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As gold appears to have begun a new 20-28 day cycle in just the past few days, it would be reasonable to assume that gold may now progress higher for approximately 3-4 weeks.  The strongest seasonal price performance for gold occurs in the mid-November to mid-February time frame each year and that time window has just now been swung open. Also, in the past, the top in the daily/weekly cycle of gold has very closely lined up with the top of each silver parabolic move.  So, about the time gold tops, so does silver. And unless one believes that gold has already topped, there should be plenty of time left on the shot clock for silver to complete its electrifying mission.
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I know that to many readers my thoughts may appear to be fantasy.  But honestly, I don’t know how to better explain what is going on with silver than the way I have.  
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The other thought I want to share is that while some of us are excited about buying this high momentum run, now is a good time to think about your plan for selling it.  I really encourage each participant to think this one through before we get close to the parabolic top. It is infinitely smarter to make a decision based on premeditated rational thinking and then live its consequences, than turn into an emotional basket case and get run over by the freight train when it comes back the other direction.
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Wishing you a highly profitable and rewarding month of December!
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John Townsend
tsiTrader@gmail.com

The TSI Trader is a website dedicated to the deployment of the True Strength Index (TSI) indicator for buy and sell signals related to gold’s secular bull market.  The TSI indicator is freely available at FreeStockCharts.

When too many players are on the same side of a trade they eventually find themselves in a crowded position where most everyone around them has the same motivation – to reverse their position when the tide changes.

Little by little, as participants slip out the back door by changing the bias of their position, the pendulum of price swings more sharply against the remaining herd in the crowded trade. Inevitably, something akin to panic sets into the herd as they begin to aggressively reverse their position for financial survival. The primary ingredient that causes price to catapult, up or down, is sentiment oscillation and capitalization from one sentiment extreme to the other.

An astute market technician, investor or trader will look for those flash points where conditions are ripe for a market reversal. It sounds easy to do, but remember that when the analysis is very convincing, the preponderance of market participants will disagree. It seems that to be effective at market timing one needs to listen not to what others are saying, but to what the sentiment data represents as truth.

With these thoughts as a foreword, let’s see what the current sentiment situation is for the SP-500.

The following chart is from Market-Harmonics and assimilates 4 years of bull/bear percentage data from Investor’s Intelligence. To this chart I have measured and notated in blue the percent change in bearish advisors per the Investor’s Intelligence data, for each downswing of the SP-500. My notation in green is the percentage change in bearish advisors for the related upswing of the SP-500.  The price of the SP-500 is notated in black at each swing peak and trough.

One of the most striking observations I have made of this data is that it appears the maximum pendulum swing in the bearish direction is a 20% change. This occurred in Q1, 2008.  More frequently this percentage change has topped out at 19%, followed by 16%, 11% and smaller percentage changes.

The obvious conclusion I come to is that our current bearish % change situation, at a 19% reading, is about at the maximum. History seems to show that investor’s emotions, like a physical rubber band, can only be stretched so far into pessimism (19-20%) – the bearish direction – before they snap back in the opposite bullish direction.

The pendulum swing in the bullish direction is about to begin at this very time.

I would expect that the stock market could not possibly peak until the % of bears decrease by a minimum of 8%, and more statistically likely 10-15%.  With a current reading of 36%, I am suggesting that we should not even consider a peak in the stock market until the bear percentage reading drops from where it is now at 36% to 28%, and more likely to around 26-21%.

What this means for now is that 1100 is not the top in the SP-500.  Far from it.  The bears have not even begun to turn into bulls. Price will go much higher from here and it will take weeks, if not a couple of months, minimum, to reach a shift where the % of bears are themselves finally out of whack on the teeter-totter.

Gold, while not covered by Investor’s Intelligence to my knowledge, would appear to be in a similar setup as the stock market. For this I turn to data published this past week at Schaeffer’s Investment Research and look at the 2 year history of the GLD put/call option ratio.

When the put/call ratio spikes high, it means that traders/investors are convinced that the price of gold will fall.  I have circled on the chart such instances from the past two years in red.

What we can observe is that when the bearish trade gets excessively crowded, when a preponderance of participants are convinced that gold will fall, that is not the top in gold. Rather, it is the bottom.  I have circled with green the price of gold for each occasion of a put/call ratio spike.

Again, think about what is going on here. When the put/call ratio spikes upward you have an intense perception and emotionally dramatic conviction of traders that substantially puts too many folks on the same side of the trade. When gold starts to move against them, even just a little out of their expectation range, each owner of a put option is no longer a seller of gold, but becomes a motivated buyer of gold!  This is precisely how huge brisk run ups in price are both setup and then executed.

If I were presently short gold and looked at this chart it would send shivers down my spine. No kidding. Nothing like finding out you are in a crowded trade that once it starts to go bad, you KNOW it will go very bad.

Now, I am not saying that the bottom for gold is in just yet.  Gold could still delight the bears and frustrate the bulls with one last brief maneuver lower this week.  But after that, if it happens, I believe gold’s low will most definitely be in and then there will be a lot of folks who will wish they did not hold puts on gold.

While gold has not yet told us if the last shoe has dropped, the GDX miner ETF, however, is suggesting a favorable outcome. The following daily chart is the GDX and below its price movement is the True Strength Index Indicator (TSI) with volume. You can make you own chart and use the TSI indicator by visiting Free Stock Charts.

On the negative side for GDX, the True Strength Index indicator reading is still barely below ZERO in negative territory (-0.06). On the positive side, GDX is sporting a positive divergence between price and the indicator, a recapture of the uptrend line begun last February, a breakout of a 4 week price downtrend line and a breakout of the TSI indicator on increasing positive volume. All in all, I regard this setup as bullish for GDX and most likely for GLD, as well.

If you are interested in reading more about the techniques of using the True Strength Index (TSI) indicator, want to be exposed to discussion and analysis of various mining stocks, as well as the US Dollar and stock markets, or just want to participate in a blog where your thoughts are heard and responded to, I invite you to join me at my website which is: The TSI Trader. Or jot me an email, tsiTrader@gmail.com

I wish you a profitable week!

John Townsend
Website: The TSI Trader
Email: TSItrader@gmail.com

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Gold managed to hold this week with a low higher than last week’s low.  However, GLD did not.  Sooooo…. with that bit of ambiguity, I’ve got to think we likely have not seen the bottom in gold as of today.
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A couple of possibilities for the bottom.  First, let’s look at them with trend lines,  then Fibonacci, and finally the midpoint consolidation pattern.
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This chart attempts to demonstrate that there is a trend line in the current C wave that takes its beginning in February and projects to around $1,165 (aqua).  The other trend line is of the entire C wave that began a year ago in July 2009 (purple).  That projects to around $1,165.
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Click on the chart to ENLARGE

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Here is a look at the Fibonacci dissection of the current C wave to date.  The 23.6% retracement level comes it at right around $1,181 – nearly exactly where the aqua trend projects.  If this price level prevails next week, and it is certainly possible, we could now be only $10-15 above the final low.
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Click on the chart to ENLARGE
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We have looked at this pattern more than once already, but it also projects price to around the $1,164 area as does the purple C wave trend line above.
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Click on the chart to ENLARGE

Source: http://thetsitrader.blogspot.com/2010/07/gold-how-low-1181-or-1165-maybe.html