For week ending 07 Apr 2006.
Gold (and silver) just keeps on trucking but was Friday foretelling the future or was it just a teaser?
Last week I mentioned I would update my brief comparison between the gold action of 1976 to 1980 versus the action in this bull market. That article has been updated and can be viewed on the www.themarkettraders.com web site in The Market Trader section under the title "Update! Merv's Report! 4/07/06". The simple review basically looked at the price action associated with a momentum criteria. It's an interesting simple comparison of the two periods. No effort was made to get too sophisticated, I leave sophistication to others.
In the chart above I thought I'd look at the trend in the volume indicator [the on-Balance Volume (OBV)] and see if it is telling us anything in particular. The chart is a weekly based chart so the indicator is based upon weekly closing data (rather than daily data). One should therefore not try any short term or even intermediate term analysis of the volume action but it is a fair chart to view things from the long term perspective.
The OBV shows the bear market from the 1996 top to the bottom in early 2001. It is interesting to note that the OBV did not confirm the up spike in 1999 as a trend reversal. Although difficult to see but the OBV turned around in late 2000 a few months BEFORE the price of gold hit bottom.
The next interesting thing about the OBV action is that for the first three years of this bull market the OBV was trending almost horizontally before taking off into a far more aggressive up trend. The same may be said about the 1976/1980 period except that the time span is shortened, as is discussed in the article.
Without going into a review of the two periods (it would take more investigation as the OBV action does differ somewhat) a couple of things stand out in the present period. For the first three years (four if we go by a daily chart) gold rose without any real conviction from the public. Only in the last year to year and a half has the public really caught on that gold was in a bull market. But look at the various Merv's Indices shown last week. During the period when the public was not interested in gold, gold shares rose spectacularly. From its low in late 2000 my Gamb-Gold Index rose 2215% to the late 2003 top. Now, to get a similar performance from, say, the May bottom, the Gamb-Gold Index would have to rise to the 4452 level (it is now at 555 so it has a long way to go). The real easy money has already been made but there are still a lot of individual bargains out there to be had.
There is still a lot to be garnished from the volume action but time is fleeting and I must get this commentary over with. There is a possible third turn up for the OBV before a final burst into space but that is for another day.
My long term P&F chart just tacked on another couple of Xs from last week. Still very bullish so nothing has changed here.
Looking at the normal indicators gold continues to distance itself above its positive moving average line with no end anywhere in sight. Long term price momentum continues well inside its positive zone but continuing to under perform the gold price action. The long term trend of the OBV on a daily chart is not as positive as it is on the weekly chart. The shorter term of the chart the more accurate the indicator, so, although volume is still positive it is also under performing the price.
Despite the under performance of volume and momentum they still are positive so there is no other choice but to remain BULLISH on the long term.
Friday was interesting but that would be in the short term analysis. Otherwise, the trend of the gold action continues to look quite good. Unlike the long term P&F chart which is still showing a line of Xs, the intermediate term P&F has now reversed with a couple of Os showing. Direction reversed but not yet the trend, that would take some doing at this point (at least to the $530 level to reverse).
With the price of gold moving aggressively higher the moving average has started to turn more aggressively upwards. Momentum is still positive but as you can see on the chart above, momentum continues to under perform the price action. This is always a warning that the price trend is weakening (but not necessarily turning). The volume indicator is still positive but not all that strong. The latest intermediate term volume rate of change has taken a sharp drop lately as could be expected with the sharp drop in the latest daily volume activity.
Taken all together I must still remain BULLISH on the intermediate term.
I had been asked what I really mean when I say "I am BULLISH on the intermediate term". What I mean is that as of today the intermediate term trend of gold is classified as still BULLISH and that despite any warnings or direction changes there has not been a trend reversal. I DO NOT mean that I see the trend CONTINUING BULLISH for the NEXT intermediate term period. The indicators might change next week or the week after and my assessment of where the gold price is then might change.
SHORT TERM and IMMEDIATE TERM
The short and immediate term commentary can be found in the subscriber's section of Merv's Precious Metals Central at www.themarkettraders.com.
NORTH AMERICAN GOLD INDICES
Despite the Friday drop the major North American Gold Indices had a pretty good week. The S&P/TSX closed the week with a 4.3% gain primarily due to the 7.5% gain in Barrick Gold. The PHLX Gold/Silver Sector Index had a gain of 2.7% with the weak performance of Newmont and Freeport and the negative AngloGold Ashanti. The other Indices fell between these two boundaries. Subscribers can check out the Gold Indices Page for the latest chart of the AMEX Gold BUGS Index and compare its performance versus the various Merv's Indices. Since I consider the Merv's Indices much superior to the North American majors from the standpoint of providing information about what's moving and by how much let's get right into them.
For those of you who also dabble in stocks other than precious metal stocks (you know, like technology or energy and such) my good friend Don Vialoux (another CMT) provides a good commentary two or three times a week with simple explanations and plenty of charts. His Tech Talk can be viewed at The Market Traders section of www.themarkettraders.com. It's well worth the read, and it's free.
MERV'S PRECIOUS METALS INDICES
Note: Charts of each of the Indices can be found in their respective Index Pages elsewhere in the subscriber's section.
Another generally good week for the Merv's Indices. They just keep climbing higher and higher into no man's land (the level they have never been in before). From an intermediate term standpoint of the 7 Merv's Indices in the Gold Indices table, only the Qual-Gold Index is not one of the top 7 in performance being cut out of the number 7 spot by the performance of the silver price. It ended up at the number 8 spot.
During the week I had updated the Qual and Spec Indices due to changes in some market capitalizations. The component stocks of both of these Indices are based upon market capitalization. The Qual-Gold Index included the top 30 North American traded gold and silver stocks based upon market capitalization while the Spec-Gold Index includes the next 30 largest market cap stocks. A few times a year I update the list. The Gamb-Gold Index is just that, gambling variety of stocks with no attempt to select any quality or value of company.
For whatever it means but looking over the Relative Strength (RS) ratings of these 7 Indices (always using the intermediate term unless specifically mentioned otherwise) it is interesting to note that the best performances go to the most speculative Indices and diminishes from there until the worst performances are for the higher quality Indices.
MERV'S GOLD & SILVER 160 INDEX
This is the universe of 160 stocks from which all the other Indices get their component stocks from. This week the average price of a component stock in this Index gained 3.6%. On the week we had 98 gainers and 61 losers, a ratio somewhat worse than last week. The overall BULL/BEAR ratings were a mixed bag but with little change. On the intermediate term the BULL rating went from 74% to 73% and on the long term from 89% to 88%. The short term BULL went from 84% to 78%. Very little real movement but with a slight bias towards the bearish side.
There were 5 stocks in my exuberant over and under 30% performance category this past week. The best performance was ECU Silver which was recommended as a new buy only last week. It has moved up 54.1% during the week. ECU last turned POS in the technical tables on 6 Jan 2006 at $0.50 (see arrow). It is now up 424% since going POS.
As has been shown on many occasions in these commentaries, the intermediate term technical ratings almost always get you in near the very beginning of major moves.
MERV'S QUAL-GOLD INDEX
During the week Silver Standard was moved over into the Spec Index and Gammon Lake was moved into this Index. It was just a matter of updating the top 30 in market capitalization.
During the week the Qual-Gold Index gained 2.5%, the second lowest performance of the Merv's Indices. With Yamana gaining 20.8% and with 20 gainers as opposed to 10 losers one might have expected a better performance but that's the numbers. Although the short term BULL/BEAR ratings declined from a very bullish 92% to 90% the intermediate and long term ratings improved, from 65% to 73% and from 83% to 87% respectively. Although the Index continues to move higher into new high ground the intermediate term momentum indicator continues to issue warning bells. One must be prepared for a surprise.
MERV'S SPEC-GOLD INDEX
There were six stocks removed and six added this past week, due to changes in market capitalization. I try to maintain the largest market capitalization stocks traded on the North American markets in the universe of 160 so that I have the top 60 available for the Qual and Spec Indices. If there are stocks out there I may have missed and should be in one or the other of the Indices I would be appreciative to hear about them. One of the stocks added this past week was iShares COMEX Gold Trust which has now enough historical trading data behind it to be used. This brings to about a half dozen ETF type stocks being followed in the universe of 160 and other Indices. Unfortunately I will not be able to include the new silver ETF for about a year since I need that much historical data for the calculation of various information in the tables.
The Spec-Gold Index gained 3.8% on the week. As with the Qual Index, there were 20 gainers and 10 losers. The slightly better performance of this Index versus the Qual probably had to do with the 47.7% gain in Crystallex. Crystallex last turned POS in the tables on 25 Nov 2005 at $1.81 and is now up 235% since going POS. The BULL/BEAR ratings stayed unchanged this week, except for a 2% drop in the short term.
MERV'S GAMB-GOLD INDEX
Ah, the gambling Index, where the action is. The Index had a gain of 4.2% on the week, small potatoes compared to last week's 21.6% but we don't expect that kind of performance very often. The top performer ECU is in this Index as is Excellon with a 30.0% gain. Excellon last turned POS in the tables on 18 Nov 2005 at $0.23 and is now ahead 465%. With 16 gainers and 14 losers it was the performance of those two stocks that gave this Index its gains, In all time periods the BULL ratings dropped by a few percentage points.
We continue to see top performance from the speculative silver stocks while this week the quality silver seemed to fall flat. One continues to wonder how long silver will continue to perform as it has. Sooner or later it will come to a halt but in the mean time, enjoy the ride.
MERV'S QUAL-SILVER INDEX
With six gainers and four losers on the week one can see why the Qual-Silver Index gained only 0.8% on the week. Still that's enough to continue its trek into no man's territory. Although the chart shows an Index whose track is a strong upward track, the momentum indicator is not all that positive in that it continues to show weakness behind the move. Maybe this week was an example of that weakness.
MERV'S SPEC-SILVER INDEX
This continues to be the best performing Index in the Precious Metals. It is rated number one for both the intermediate and long term although with last week's spectacular gains the Gamb-Gold took over for the short term. Despite the good showing with an Index gain of 5.4% there were still 9 losers on the week, with 16 gainers. As for the percentage BULL/BEAR ratings, they moved by a mere 2% during the week. Nothing yet to get excited about.
MERV'S URANIUM INDEX
I have been asked by many to show my Uranium Index from time to time. Without much comment, here it is.
This Index includes 50 uranium oriented stocks. Since the beginning of 2005 it has advanced 340%. The best of the Merv's Precious Metals Indices was the Spec-Silver Index with a gain of 240% during the same period.
Well, that's it for this week