codypd

Using HUI/VIX on weekly chart to anticipate major HUI moves

HUI/VIX  
HUI/VIX  
138 0 1
HUI             ( Gold             Bugs Index) throws signals relative to the VIX             that are pretty obvious and allow plenty of time for entries and exits. I'll describe how in a minute - before that think about the aspect of Gold             trading that is a "worry trade" and think about what the VIX             is. As that sinks in, you realize that gold             buyers are often playing a much longer time frame than the options traders who drive the VIX             . So the signal mix here shouldn't surprise anyone with trading experience.

The Chart - I've taken the Heiken Ashi of the ratio of HUI/VIX. The rationale for HUI/VIX? "Worry traders" - those who buy gold             and those that track the VIX             - aren't always the same people, but both are often hedging (or betting on) a market crash - or worse. This chart shows the ratio in the red/green candles and in the background the gray is HUI             itself.

The Sell Signal - I drew three horizontal lines where HUI/VIX pivots are common and pulled up the RSI (important - the Heiken Ashi is important here - it makes the RSI divergences easier to read). The signal pattern for a SELL of HUI             is a bearish divergence on the HUI/VIX followed by a simultaneous spike in HUI             to the top zone while the HUI/VIX moves down to the middle zone. In those cases HUI             plunges shortly after. Why? I think of it as "hang time" - the gold             believers are the last to give up - the VIX             has moved lower and the S&P             isn't showing worry anymore. Gold             as a worry asset then follows suit because fewer new buyers are converted to owning Gold             .

The Buy Signal - Worry assets bottom when no one is worried. Yet worry is cyclical. We are very close (maybe 3 to 6 months out, IMO) from a worry low, and the chart shows it - we are sitting above the "no one is worried" pivot line, but we aren't there yet, at least according to past patterns on this weekly chart. THAT DOES NOT MEAN HUI             HASN'T BOTTOMED. Sorry for the caps, but ratio charts are tricky - we can move firmly down into that bottom zone with HUI             trading sideways (consolidation) and VIX             dropping. I am actually expecting that very thing to happen and have linked a chart showing why I see VIX             lower for 3 more months.

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