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Gold stock update – Entry criteria for new pair position

July 8, 2013

Last week I showed the Philadelphia Gold & Silver Index (XAU) forming a bullish divergence on its 14 week RSI. I set the entry criteria for a long trade as a weekly close of the RSI above the intervening peak of 31.64 from the week ending 31 May. This has yet to occur.

Philadelphia Gold & Silver Index (XAU)

XAU WEEKLY
The other approach is a pairs trade against the S&P500 Index. I had shown a potential bullish divergence setting up for Newmont Mining (NEM) earlier in the year but as was noted then, the daily RSI divergence criteria were not in place. Using my strict entry criteria in February/ March meant that I did not enter any wrong positions.

Now, there is better commonality about the gold stocks but still, NEM vs. SPX does not meet the daily RSI divergence entry criteria.

One pair that does meet the weekly and daily RSI entry criteria is Agnico Eagle Mines (AEM).

AEM v S&P 500 Index weekly chart

AEM v SPX weekly

  • The chart has a bullish weekly RSI divergence. There is no MACD divergence
  • In spring 2012, there was RSI and MACD divergence
  • There was a successful trade on AEM at the time, albeit against its sector index

AEM v S&P 500 Index daily chart

AEM SPX DAILY

  • Successive lows have had higher 14 day RSI values
  • Now, the daily RSI is above 30, fitting the daily entry criteria

The entry criteria is a weekly close of the RSI above the intervening RSI high, in this case the RSI was 31.64 in week ending 31 May (blue arrow  on weekly chart).

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