I’ve been anxious to rebuy some mining positions for a couple of weeks now, but just haven’t seen the setup that is right for me.  We had a buy signal many days ago on the Market Vectors Gold Miners ETF (NYSE:GDX) but I could not bring myself to take it.

Click on any chart to ENLARGE

If you are interested in pondering some of the finer skills of using the True Strength Index (TSI) indicator, this post may interest you.  I’d like to show you why I did not take a perfectly good buy signal the other day and how my decision has played out so far.

This first chart of GDX shows where we were when the buy signal from a trend line break of the TSI first appeared on the daily chart. Not only did we get the trend line break, but the TSI was rising and clocked at -.03.  Surely another positive day would cause the TSI to rise further and generate another buy signal – the ZERO crossover!

But like a chess player trying to think a couple of moves ahead, I noted that the previous TSI high was +.67.  And I noted that the previous high price associated with that reading was $64.14.  Hummmm……… 

What would happen if GDX price were to rise a few points?  Wouldn’t it make a higher price than $64.14?  Yes.  But would the TSI, then at -.03, make a higher high than +.67? NO WAY. 

And if the TSI did not surpass +.67 that would surely create a negative divergene and most likely bring the Tower of Babel crashing down. Heck, who wants to buy just days in front of a crashing tower?  Not me.

This second daily chart of GDX brings us up to date as of this morning’s early trade.  Sure enough, price did rise and nearly reach the old price high.  And sure enough, the TSI at that point was no where near the previous +.67. 

Price has recently fallen as I hoped, creating a new TSI high point from which to draw a new trend line. I hope that in addition to the upcoming trend line break of the TSI (7,4) we see a subtle change in direction from the slower trending magnification of the TSI (25,13).

Also, the last time GDX descended to its 50 dma it was supported for a few days, before falling below.  If that happens this time, honestly, that would be ideal for me.  It would push the TSI that this morning was at -.20 all the way down to -.50 or so.  And then, like holding a ball under water, the release unleashes energy that propels the ball, or in this case GDX, to defy gravity.

Some time ago I read that a person said, “In the stock market, there are no certainties.  Only probabilities”.  And that statement struck me as very true.  There is no certainty that my chess move was the best move possible.  But I do think it has a very favorable probability. That was my move. 

Your turn

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