John Murphy's Wisdom

I have been a subscriber of John Murphy's Market Message for a long time. I have an infinite amount of respect for Mr. Murphy, for the books that he has written, and the analysis he conducts.

Recently, video Market Messages have been made available. Here is one such video.

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This blog surely would not exist if it were not for StockCharts.com, and the teachings of John Murphy.

Using the ADX Indicator on the US Dollar

Ever since this site was started in June, I have been very bearish on the US Dollar for the long-term. But even though the currency is in a powerful bear market, it still experiences counter-trend bounces, and one of these bounces may now be in the cards.

It is tougher now to pick bottoms in the US Dollar, because it is no longer contained in a descending wedge like it used to be, and the dollar is literally in uncharted territory. In other words, there is no support levels below. But there are other techniques that we can use.

One indicator that is useful in helping determine trend changes is the ADX indicator. This indicator illustrates if a security is trending or not. It does not differentiate between upward trending or downward trending. Here is a daily candlestick chart of the US Dollar Index:



The ADX indicator is shown on the bottom. The line that is most important is the thick red line. I have Stockcharts.com draw a horizontal line at 20 and 40. When the red line crosses over 20, then that indicates that the security is trending quite strongly.

When the red line crosses 40, that tends to indicate that the trend has just about exhausted itself. In the above chart, notice that whenever the ADX is over 40, the USD is close to bottoming out.

Also, in the above chart, the 9 day RSI is not an effective indicator. This ties into the previous post made, and is due to the fact that the RSI does not take into effect the long-term trend of the security. Using 2 Relative Strength Indexes for the US Dollar would be appropriate, in my opinion.

In conclusion, the US Dollar appears to have limited downside left for the short term. In the days ahead, this could put downward pressure on gold and silver. If you have any comments, suggestions, or criticisms please write a comment below, or send an email to DannyMerkel@hotmail.com.

A Chartist's View of the Euro Index

For the Canadians reading this site, I hope that you had an enjoyable Thanksgiving, and for the Americans reading this, my apologies for not posting for a while. The last post that was made was in regards to silver holding support. Here is an update on that chart:



The main thing to note is that when silver descended to the 200 day moving average, it immediately experienced buying pressure. Also notice that the bears cannot close the price in the blue rectangle support area. Please refer to the 2 previous posts for an explanation of this.

However, as each day goes by, I am becoming less and less confident that Silver will continue to hold this support. This is because, behind the scenes, the intermarket picture is beginning to deteriorate.

The Euro appears to me that it is now in correction mode. Whenever the Euro goes into correction mode, it has a negative influence on gold and silver. Here is a daily candle chart of the Euro index:



Last week, while on the subway, I thought of a new technique for using RSI to catch tops and bottoms. I figured that since the Euro is in a major bull market, its RSI will go deeper into overbought territory before registering a sell signal, and, on the other hand, more shallowly into oversold territory before registering a buy signal.

With this in mind, it seemed to make sense to use a less sensitive 14 period RSI for sell signals, and a more sensitive 9 day RSI for buy signals. This is what the above chart does.

In other words, in the above chart, we use the top RSI for sells, and the bottom RSI for buys. And as you can see in the above chart, the Euro has registered a sell signal. Once this occurs, the Euro has a tendency to correct until the point where it reaches a buy signal using the bottom RSI.

In conclusion, this could be viewed as a negative for gold and silver stocks for the next couple of weeks. The long term charts, as always, look excellent though, so I don't expect a significant correction. Thanks for visiting.

Silver Holds Strong Support

Today, precious metals investors, including myself, had to endure a bit of pain as gold and silver experienced some profit taking. What is important now is to determine what we can expect from here on in. In my opinion, there was no technical damage to any of the precious metals charts today.

The daily silver chart, for example, is above three layers of support, which, coincidentally, are all in the same area:


The first support level is derived from the blue trend line. This line was resistance until the point that silver gapped above it. This old resistance line now becomes support.

The second support level comes from the 200 day moving average. I know for a fact that many traders place limit buy orders right on this level, which sometimes causes prices to bounce off this psychologically important level.

The third level of support originates from the gap itself. On one of the posts I made on the weekend, I drew a blue rectangle to illustrate that silver would find support in this gap area in the event of a correction.

In summary, therefore, I would say that at this time, the precious metals charts have not broken any major areas of support. If silver continues lower tomorrow, and breaks these levels of support, then I think that would justify taking profits and standing aside until the next wave higher inevitably comes about.