The True Strength Index is a low lag-time momentum indicator that can be used at www.FreeStockCharts.com.  Generally, it is bullish when the indicator is above ZERO and bearish when it is below ZERO.  As the indicator is very sensitive and responsive to movements of price, it can be effectively interpreted for buy and sell decisions.

GLD is making new all-time highs today.  So let’s see what the momentum indicator is telling us.  Below is a chart of the hourly price action of GLD.

A couple of things are obvious.  First, the price performance of GLD has been steadily accelerating for the past 6 trading sessions.  This is significant because it means that as the acceleration begins to slow, price could still continue higher – but climbing at a slower rate.  As the current reading is .45, which is relatively high, I think it likely that gold will continue to rise while the TSI momentum indicator will begin to diverge (trend lower).

There are a couple of techniques for making a sell decision with this setup.  One could simply wait for the TSI indicator to finally cross below ZERO – which will be some time from now, or sell when the indicator makes it first divergence (a lower high if price is still going higher).  A third technique, and one that you should be forewarned of whipsaw, is to buy/sell when the indicator crosses the moving average (purple line).

For the past 4 months, GDX has been advancing in a pattern of 3 momentum waves followed by a correction.  While there is no guarantee that this particular pattern will continue, it is encouraging to note that we have recently been through both a correction and a consolidation phase and are just beginning a new first wave.

It would surprise me if GDX does not ultimately take out the previous all time high of $54.63.  For now we observe open gaps in daily trade that may be revisited on a future date.  But for now, this looks like a powerful first wave that should logically be followed by others.

The chart of GDXJ, not surprisingly, is similar to that of GDX.

The previous GDXJ high of $31.28 may provide a resting point for this first momentum surge.  Like GDX, GDXJ has been progressing upward in a pattern of three True Strength Index highpoints.

The second set or group of 3 highpoints is instructive.  .33 then .29 then .22.  This is an excellent example of price making higher highs while the indicator begins to diverge with lower highs.  It simply illustrates that the rally is losing steam and something to be on the lookout for in making buy/sell decisions.  Again, I think it very likely we will see this phenomenon in the upcoming week with GLD.  If we do that should encourage longs to inch themselves closer and closer to the door.

John Townsend

Email: tsitrader@gmail.com

www.theTSItrader.blogspot.com

By John Townsend

Are you interested in discovering a new technical tool to use in your analysis of mining stocks?  If so, this article may not only interest you, it may also help you make better trading decisions.

I hope you are familiar with the charting capabilities offered at www.FreeStockCharts.com.  If not, you really owe it to yourself to explore this incredibly rich source of online and real-time charts, portfolio management and company specific news.

The main reason I visit this site is that they have my favorite indicator, the True Strength Index.  You can select this indicator from a menu of indicators, display it in a lower panel below price, change its colors and parameters, as well as add an indicator to this indicator.  This added capability is nice because I add a moving average to the indicator as I will show you soon.

The True Strength Index, called TSI for short, is a sophisticated and extremely responsive momentum indicator with very low lag time to response.  The indicator was invented by William Blau and designed to give a couple of important interpretive certainties to its user.  Namely, when the indicator is rising above ZERO, price is always rising.  And, when the indicator is falling below ZERO, price is always falling.

Here is an hourly chart of recent SWC price action that I made at www.FreeStockCharts.com.  In the lower panel are two lines.  The True Strength Index (TSI) line is the rose colored line.  The blue line is a 3 period moving average of the TSI line itself.

On this chart we note that the True Strength Index indicator began falling below ZERO on June 3 and bottomed a couple hours into June 7.  And, price correspondingly dropped from around $12.48 to $11.40.

The white arrows on the right side of the chart pinpoint the area where the indicator was rising above ZERO.  This began a couple hours into June 9 and peaked near the close on the following day.  Price during this period rose from $12.30 to $12.80, or so.

Very observant readers have already figured out how a skilled trader could use the rose colored line as it crossed above the blue line early June 8^th.   It generated a buy signal much sooner that waiting for the ZERO crossover, and also did a perfect job of crossing back under the TSI when it was most profitable to close the trade at the close on June 10.

Using the signal given by the crossover of the indicator with the moving average, one could have bought SWC for $11.40 on June 8 and sold for $12.80……holding the trade 3 days.

Next I would like to introduce a couple of other ways to interpret the TSI.  The following daily chart of GDX provides our examples.

First, an effective interpretative tool is to look for divergences with respect to the indicator and price movement.  By this I mean, look for an occasion of price making a higher high while the TSI indicator (above ZERO) makes a lower high.  Conversely, look for a setup where the TSI indicator makes a higher low (while below ZERO) while price makes a lower low.

Second, a breakdown of a strong trend in the indicator is a sure sign to act, as this chart also shows.

To be clear, there are three different methods that the TSI can be used to render buy and sell decisions.  It is a matter of personal preference, intuition with the current market dynamics that will determine which of the three you chose to use and in what circumstance.

A quick review of the BUY signals:

1. TSI crosses above ZERO

2. TSI crosses above moving average

3. TSI makes higher low (below ZERO) while price makes a lower low

And the SELL signals:

1. TSI crosses below ZERO

2. TSI crosses below moving average

3. TSI makes a lower high (above ZERO) while price makes a higher high

4. Trend of TSI breaks down

I saved the bad news for near the end of this article.  And it is this:  nothing, and I mean nothing, works all the time.  No indicator on earth works all the time.  Even TSI.

Now I feel much better that I have told you the rest of the truth.

Seriously though, this is a great indicator and once you understand how to use it, it should help your buy and sell decisions significantly.

One last chart. This one is a daily of GSS.  The TSI gave the ZERO crossover buy signal on March 1 at a price of about $3.  The rally continued for quite some time – confirmed by higher highs in the TSI with each higher high in GSS price until price reached $4.75 on May 15.  At that point, GSS had made a new high but the TSI did not.  And that correctly gave the SELL signal.

I hope the True Strength Index indicator has captured your attention and curiosity.  That was the point of this article J I have a website where I post mining stock charts with my True Strength Index analysis and pointers.  I invite you to visit and to contribute both questions and analysis.  The address is: http://www.theTSItrader.blogspot.com

I wish you profitable trading,

John Townsend

mailto:TSItrader@gmail.com

By Jack Chan at www.simplyprofits.org

06/12/2010

GLD – on buy signal.

SLV – on sell signal.

GDX – buy signal this week.

XGD.TO – on sell signal.

Summary

Long term – on major buy signal.

Short term – on mixed signals.

We continue to hold our core positions, and adding to positions upon new set ups.

Disclosure

We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.

We also provide coverage to the major indexes and oil sector.

End of update

This essay is based on the Premium Update posted on June 11st, 2010

In our previous essay we have emphasized the importance of the analysis of the Euro Index, while evaluating recent performance of gold. We have also featured a gold chart that included a resistance level which gold has just approached. Since that was the case, you might be wondering if the final top is in or not. Consequently, this essay is going to feature the updated version of the previous gold chart (charts courtesy by http://stockcharts.com), with an additional important factor – areas marked on the below chart with blue ellipses.

Please note how the recent local tops for gold coincide with the stochastic indicator above the 80 level. In other words, in the previous 18 months there was no significant top that was not heralded by Stochastic trading visibly above the 80 level. Today we do not see an extended (more than a few days) above the 80 level, which indicates an additional rally period is likely before the top is reached. It seems that the first thing to take place is the Stochastic indicator moving visibly above 80 and the rally then runs out of steam.

Consequently, based on this single factor, gold does not appear to have topped at this point. Let’s take a look at the HUI Index for more details.

This week’s HUI mining stocks chart is basically unchanged since the last week. Although it had appeared to be the case until about two weeks ago, there are virtually no similarities with recent trends and that which was seen in the November 2009 when a strong rally took hold and lasted for several weeks. The lack of strength in the mining stocks could mean that the rally in gold does not have much further to go from here.

There’s one more thing that we would like to comment on this week before moving on to the short-term chart analysis. One of the messages that we’ve received recently included a question about the possibility of existence of the cup-and-handle formation with the cup being formed between Dec 2009 and May 2010. The implications of this would be bullish, because it would mean that we are right now in the “handle” stage, which – when completed – marks a beginning of a strong rally. This situation is even more visible on the short-term GDX ETF chart below.

Generally, we don’t consider this to be the cup-and-handle pattern because of two important reasons. First of them is the shape of what would be perceived as “cup”. It should be almost ideally U-shaped, and as we see the bottom was quite sharp. The second – and the key one here – is the non-confirmation form the volume. The corresponding volume should also be U-shaped, which means that the bottom of the cup should have been formed on the lowest volume in the Dec 2009 – May 2010 time-frame. The reality is that the bottom took place on huge volume, which is exactly the opposite of what one would expect from the “cup” pattern.

So, the HUI Index chart does not provide us with clear medium-term bullish signals at this point.

A closer inspection of the above chart shows a slightly higher volume daily decline followed by a lower volume rise on a recent trading day. This is normally a bearish sign but may also simply be attributed to consolidation.

Although a slight increase may be seen for the precious metal sector soon, this will likely be offset by any downward movement in the general stock market. This negative influence could more than negate any minor rally for precious metals. However, when the general stock market bottoms out, the negative correlation of the PM sectors could possibly result in a huge catch up rally for silver and mining stocks. This may mean a smaller decline instead of a bigger rally, but it’s too early to say at this point.

At this writing, gold and silver stocks continue to be slightly positively correlated with the general stock market. The situation on the latter is slightly bearish, and at the same time we have bullish signals from gold.

Another confirmation comes from the analysis of the GDX:SPY ratio.

The GDX:SPY helps us to analyze the precious metals stocks‘ performance relative to the general stock market. The ratio in the above chart actually provides us with top calls, which is another word for sell signals for the whole precious metals market.

Ideally, the volume would reach exceptionally high levels (resistance level) and some kind of resistance would be encountered, thus forming the top also in this particular ratio. Recently, however, neither is yet the case.  We have not seen high volume levels and we are presently close to the month-to-month 0.5 support level. This means that when this level is reached one share of the SPY ETF is equal to two shares GDX. When gold and silver stocks are this high – relative to other stocks, it used to be advisable to get out of the market as the top was very close.

Still, we have not seen the ratio reach the 0.5 level yet, and it did not provide us with a sell signal in the form of very high volume. Therefore, the analysis of the GDX:SPY ratio suggests that the final top has not yet been reached for the precious metals sector

Summing up, due to numerous unclear signals and lack of clarity with respect to the general stock market (slightly bearish sentiment), we conclude that the risk/reward ratio for mining stocks is not favorable enough to enter speculative trades at this point.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

The August Gold is leaving little “technical” gaps all over the place. Classical technical analysis suggests that gaps on a chart will be filled. (It doesn’t specify when though.) I will not worry about the gap on the downside being filled and instead, focus on the upside.

Should the Gold attempt another high, I will tentatively focus on the 1267.0 area to initiate a short position with an initial profit objective of perhaps the 1257.3 area. If the Gold moves up rather soon, I could imagine a $20 – $30 fall from its highs, similar to the one from 1254.5 down to 1223.1.

That’s why it’s so hard to buy a dip or stay on a trend- the corrections can be pretty deep.

I prefer to sell to someone who wants to buy at semi-outrageous new highs and ride his ‘slap on the wrist’ down a little ways. I’m more comfortable when I’m on the other side of someone’s trade when I believe they are most likely doing the wrong thing. (In this case, chasing the market).

Long term Trading is a whole ‘nother ball game.

The 60 minute bar chart below is making an ‘upside down’ bear arm formation (thought you’d heard ‘em all, huh?). Translation: The formation is bullish.

Bear Arms can produce big moves from where the shoulder turns. In this case, since it’s an upside down Bear Arm, we could see a move (perhaps rapid) well beyond the recent highs of 1254.5

Call with questions……Silver analysis to follow.

Sean E. Blair

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Adler 747, Inc.

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***Futures and Options Trading is Risky and Not Suited for Everyone. Trading in Futures and Options should be done with Risk Capital Only, and Should Not Affect Overall Lifestyle should Losses Occur.***

Market volatility continues to shake things up making it profitable for traders who are quick to spotting key reversal points, manage risk and taking profits before it evaporates. On Tuesday we saw the market go up and down more than I have seen in a long time… It moved over 5% as it trended up then down in 1% increments as shown in the chart below. Members of FuturesTradingSignals were able to capture a 1-2% gain which may not sound like much but when trading the leveraged ETFs, Futures or CFD’s we are making 4-200% profit within a few hours. That being said this type of price action is proof that the market just does not know which way to go and why trades must be very quick to enter and exit positions.

The SP500 daily etf chart shows my simple volume analysis during market corrections. During the early stages of a trend, pullbacks are quick and simple. But as a trend matures we start to see corrections become much more complex. We first saw the simple 1 wave corrections in 2009, then we saw a much deeper 3 wave correction which was enough to shake most retail (average Joe’s) out of the market before heading higher, and now it looks as though we are headed into a complex 5 wave correction which should be enough to shake out the majority again.

It’s important to note that the longer a trend lasts the larger the corrections/shake outs must be in order to get everyone out. From what I am reading and seeing everywhere online are doom and gloom scenarios. In my opinion this is good. One more leg down should be enough to shake everyone before we see a nice 10-20% rally. Once we see that bounce/rally then we can reanalyze the market to see if we are headed back up to test the 2010 highs or if its just a bear market rally. In the end it does not matter as we play both the long and short side of the market.

The Gold ETF continues to unfold as planned. We caught a good chunk of the recent rally and are now in cash waiting for another low risk entry point in the coming days or weeks.

Crude oil Fund (USO) has been struggling to stay up the past 2 months. As you can see the chart below it’s trading at a key resistance level and at this point it could go either way… I don’t like to get involved in trades when they look to be a 50/50 probability of going each direction. If anything I would think oil will head back down as the US dollar continues its strong rally.

Mid-Week ETF Trading Conclusion:

In short, the broad market is in a down trend and selling volume continues to rise. Investors around the world continue to accumulate gold and the US dollar as they seem to be the safe havens for the time being. Oil is also in a down trend and trading at resistance which means we should see lower prices for oil and oil companies and this will weigh heavily on the equities market.

Cash is king and during times of uncertainty that’s for sure… It is very comforting to know we are in cash most of the time and only get involved with the market when there is a low risk, high probability setup on the charts.

If you would like to get my trading analysis and trading alerts check out my services at: www.FuturesTradingSignals.com and www.TheGoldAndOilGuy.com

Chris Vermeulen

This essay is based on the Premium Update posted on June 8th, 2010

Markets are skittish and the pace and force of financial crises has taken a frightening turn for the worse. It seems like the fuse gets shorter between each crisis. We barely catch our breath from one when confronted with the next. Looking back three decades a crisis had taken place, on average, every three years. But now, a scant 18 months after the 2008 meltdown, Europe’s Greek sovereign debt crisis hit with full, fulminating force. One crisis begets another and it seems like the world’s economy is on a treacherous bumper-to- bumper course where any misstatement from politicians can cause a multiple car pile up. Still, the fact worth keeping in mind is that the main stock indices lead, not follow the main economic indicators, such as the GDP growth.

Therefore, when one reads something about the unemployment, GDP, import/export dynamics etc., in the vast majority of cases this information is something that is already factored into prices. Let’s just say that the realistic assumption here is that the institutional investors / specialists have better access to information / research teams. At the same time they usually control large amounts of capital and their investment decisions can influence the value of the stock indices. So, if these investors’ research suggests that the economic statistics are going to be grim in the future, they are likely to sell stocks right away, before everyone else gets the same information – without waiting for the official numbers to be released. Consequently, prices of stocks are to lead economic statistics.

Naturally, a move in either direction might accelerate after a particular piece of news is released, but the overall trend will most likely be in place much before that.

Moving back to gold – more and more often we hear talk of investors searching for “Safe Haven,” as if it’s a quest for a Holy Grail.

Take a look at these recent headlines:

· “Bullion Sales Hit Record in Stampede to Safety.” (Financial Times)

· “Gold is Safe Haven for Looming Crash.” (Seeking Alpha)

· “Gold Ticks Higher On Safe Haven Buying.” (AP)

· “Gold Rush: This is a new round of safe haven buying.” (Bloomberg)

Safe haven is defined as a currency, stock or commodity favored by investors in times of crisis because of its stability and/or easy liquidation. Gold is a universally recognized currency carrying no counterpart risk, easily portable and unlike fiat currencies, it is nobody else’s liability. Early civilizations equated gold with gods and kings, and gold was sought in their name and dedicated to their glorification. Humans almost intuitively place a high value on gold, equating it with power, beauty, and the cultural elite. And since gold is widely distributed all over the globe, we find this same thinking about gold prevalent throughout ancient and modern civilizations.

Sometimes safe haven is mentioned in connection to gold, other times U.S. treasuries and the Japanese Yen. Last month when financial markets plunged in “flash crash” mode, there was talk of capital flight from countries like Germany and Britain to perceived safe havens like Switzerland. Across the globe, investors fled from risky currencies, bonds and stocks to gold, the dollar, the Japanese yen and U.S. bonds.

In mid-May with intense pressure on the euro, we witnessed panicking German dealers and banks desperate to get their hands on Krugerrands, the world’s most popular gold coin. At the Rand refinery in South Africa, the phone did not stop ringing all that week and people were buying gold coins like crazy.  The Austrian Mint, which produces the popular Philharmonic gold coin, sold more gold in the two weeks from April 26 than in the entire first quarter of the year because of soaring European demand. Still, when the general stock market decline, gold used to move lower in the past years.

There are two reasons why gold has retreated on each of these occasions. The first, gold, as a part of some commodity indices, is automatically subject to liquidation along with the others. The second, gold is sold in order to raise cash or meet margin calls from other sectors. Once nervous investors and distress sellers had been flushed out of the market, sentiment towards gold returned in most of the major crises as well as its status as a safe haven. Still, as mentioned in the previous Premium Update, this might not be the case in the near future, as investors would realize that any declines in gold caused by plunge on the general stock market are only temporary. So far gold’s performance confirms this theory.

Throughout history and in all civilizations gold has been valued and cherished. It has offered security in times of political or economic crisis. In extreme situations a few gold coins hidden in a coat lining could mean the difference between life and death. Gold is almost indestructible and does not corrode or rust. The amount available changes slowly and the quantity of newly-mined gold added each year is a small proportion of the existing inventory.

Gold has been a “reserve currency” and a safe haven for thousands of years, and those who understand history know that it will always remain one.

To see what history will say about the gold price this week let’s begin this week’s technical part with the analysis of the Euro (charts courtesy by http://stockcharts.com.)

In the Premium Update published on May 21st, we identified two strong support levels that the euro was approaching (marked with red circles on the above chart.). Since that time we have seen the euro move lower after having paused briefly. Right now, the euro is declining towards the lower support area at the level corresponding to its 2005 low as well as its mid-2003 high. Additionally, the lower border of the multi-year trading channel is marked by the declining dotted line on the above chart.

These two border levels cross right at the area marked with the red circle. Also significant is the level of the Fibonacci 61.8% retracement level obtained from the euro’s 2000-2008 rally. The euro is not likely to fall much further from here. We have illustrated its probable bottom with the red circle, and we believe that there is about 90% probability that the euro would not move below the Fibonacci 61.8% level.

Therefore, it appears gold is driven by the downward movement in the Euro Index. As the euro declines, gold’s price increases, because – as mentioned earlier in this update – we see significant demand from European Investors. Speaking of gold, let’s take a look at the long term GLD chart.

In the recent Market Alert, we discussed how the self-similar pattern, which we’ve referred to in recent updates, is no longer reliable. It served us guidance for a few months, greatly improving the accuracy of the analysis, but it does not seem to be much useful any longer. Generally, there is a trade-off between particular pattern’s reliability, accuracy, and the time that it is valid. The self-similar pattern was really something outstanding because it provided all of the above benefits for a relatively long time. The reality is that each and every pattern has to end and that self-similar pattern could not have been an exception.

Moving back to the gold market itself, in this week’s long-term chart, the more classical RSI tool indicates that we are not in an overbought situation. We saw a decline and then a bounce-back and we may see it go a bit higher than we saw in early-May. The rising support line confirms this. Moreover, we have seen a confirmation in the form of relatively high volume in recent daily upswings.

Summing up, from the USD perspective, the gold market appears to be moving slightly higher. Still, the current rally might be more visible from the non-USD perspective, as the Euro Index is still declining. In other words, if you’re trading gold for euro, sterling or other non-USD currencies, there appears to be even more upside potential for gold.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

* * * * *

Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

Sunshine Profits provides professional support for precious metals Investors and Traders.

Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free weekly trial to see if the Premium Service meets your expectations.

All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

By Jack Chan at www.simplyprofits.org

06/05/2010

GLD – on sell signal.

SLV – sell signal this week.

GDX – on sell signal.

XGD.TO – on sell signal.

Summary

Long term – on major buy signal.

Short term – on sell signals.

We continue to hold our core positions, now hedged to protect profits.

Disclosure

We do not offer predictions or forecasts for the markets. What you see here is our simple trading model which provides us the signals and set ups to be either long, short, or in cash at any given time. Entry points and stops are provided in real time to subscribers, therefore, this update may not reflect our current positions in the markets. Trade at your own discretion.

We also provide coverage to the major indexes and oil sector.

End of update

This essay is based on the Premium Update posted on May 28th, 2010

In our previous essay we’ve commented on the precious metals stocks, and since that time we’ve received many questions about the yellow metal itself, we would like to provide you with a more information regarding that particular topic.

Let’s begin with the long-term chart of the GLD ETF (charts courtesy by http://stockcharts.com.)

We see a situation similar to what we reported last week on the long-term gold chart. The self-similar pattern is again useful and indicates we may be seeing a repetition of October-November 2009. This is confirmed by both the RSI level and the shape of the stochastic indicator. As a reminder – self-similar patterns are situations when the past price patterns repeat in a very similar manner, at times (as above) in a bigger or smaller scale – meaning that a 10-day move, could now translate into a 15-day one.

Having said that, let’s move to the short-term chart.

The short-term chart this week may appear quite perplexing at first glance. The price has perfectly followed the Oct-Nov 2009 pattern, but we have not seen huge volume levels. What one needs to keep in mind here is that at the beginning of November, volume levels initially were quite low (before the point marked with vertical dashed line), followed shortly thereafter by a tremendous increase (right after the point marked with the vertical dashed line.) The second thing that one needs to recall here is the fact that the scale of the pattern is bigger this time, which means that a few additional days on low volume are not necessarily a bearish sign. Still, if we don’t see higher volume along with rising prices soon, it will make us concerned about the existence of this particular rally.

There’s one more thing that we’d like to comment on regarding the “is this 2008 all over again” question and that the way that gold is likely to react even if we get a substantial decline from here in the main stock indices. We all remember how gold (and also the rest of the precious metals sector) reacted to the severe plunge in the world’s main stock indices – it was far from amazing. In fact, gold got smashed along with everything else, as many (institutional) investors were required to raise cash

Here’s how it can develop:

A hedge fund manager sees that his stocks are declining, so he thinks of selling some of his other investments (including gold), as this he recalls that everything declined back in 2008. However, before clicking the “sell” after having selected his gold position on his trading platform he decides to give this idea a second thought.

Hey – wait a second – gold moved temporarily lower, but just a year and a half after the decline started it moved about 20% higher, so in fact that decline was just a temporary phenomenon. In hindsight – there was nothing to be worried about – in fact, why did I sell back then?! Fundamentals didn’t deteriorate, so why did I jump out of my gold position, when everyone else did? Hmm… I guess I panicked with everyone else. There were some margin calls that I needed to comply with, but there were other ways of raising that cash besides selling gold. Well, I can’t fix what already happened, but I sure can learn on the past mistakes and make better decision this time.

Let’s take a look at our quant team report… Wow! There’s no way I’m selling gold this time! The correlation coefficient based on the last 3 years equals -0.42, which means that on average gold used to move rather in the opposite direction to stocks, so maybe if stocks decline from here, gold won’t fall at all… It’s a tough call, but even if it moves down temporarily, it’s still likely to rebound soon and move to new highs, so why would I risk not getting back in near the bottom?

Besides, I know that John, Andy, Michael, and Daniel have also noticed gold’s extraordinary performance just after the bottom was put and their quant team’s have the same correlation coefficient, as we have and I sure don’t want to have a lower rate of return than they do! So, I’m keeping my gold this time – I will have no trouble in explaining this action to my clients since they are aware of gold’s performance.

As you may see, the above thought process appears rational, and if many institutional investors follow it, it might result in the decline in gold being minimal even if the general stock market plunges. After all, if many wealthy investors (that might influence the market) decide not to sell because they will believe the coming downturn is just a very temporary phenomenon, such downturn may not materialize at all.

Summing up, overall the situation for gold appears bullish. However, it is unclear if we are seeing the early stages of a big rally like November 2009. We would need to see a confirmation in the form of a visible upswing along with very large volume levels before stating that higher prices are likely. More short-term details are available to our Subscribers.

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Thank you for reading. Have a great and profitable week!

P. Radomski

Editor

www.SunshineProfits.com

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