Weekly Commentary

By: Merv Burak | Mon, Apr 24, 2006
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The two metals we are primarily interested in had very volatile weeks, especially silver. WOW, you should see how Thursday's silver action looks on the chart (see below).

GOLD

LONG TERM

Although I usually start with a quick look at the long term P&F chart let's first take a gander at the chart above. It is a long term (weekly) chart of gold with a 30 week RSI indicator. I've mentioned this activity before when comparing this bull market to the one during 1976 to 1980. First there are the RSI peaks at or above the 65% level followed by a gold price decline and recovery only many months later. This occurred almost every year (cycles anyone?) except - DARN - what happened this year? Always an exception to the rule. We had similar RSI peaks followed by gold declines during the earlier bull market. We also had the price zoom through the channel upper trend line into the stratosphere in the previous bull (going from around $230 to over $850 in less than a year). Are we into the same situation now? If we are then gold would need to climb to the $1600 level within the next few months - and who believes THAT? I guess a big bang from Iran, or in Iran, could cause that but I'm not putting my money on it. For now, just keep following the trend and don't forget to protect your capital just in case the price should collapse. From the more aggressive (red) channel, a reaction of some kind would not be a surprise.

With reference to last week's P&F chart the gold action this past week took the trend through the primary (solid red) resistance line and just touched the secondary (dashed red) resistance line before reacting lower. The next upward move could take gold to the $670 level without breaking the secondary resistance line. The next long term projection is to the $680 level so we would need another up and down move on the P&F chart if we are not to break the resistance line. These up trend lines (support and resistance) have trapped the gold move from day one of this bull market and I don't envision activity that will break either the resistance or support, but who knows, it could happen on the up side. Pay attention to these support and resistance levels but follow the money, follow the trend wherever it takes you and get out when it's over. For now the P&F chart is still yelling BULL.

As for the usual indicators, it comes as no surprise that the gold price is way above a positive sloping moving average line and price momentum is quite positive. The previous caution about an under performing momentum can be dispelled for now with the price momentum showing equal or slightly greater strength than at the previous price peak in early Feb. As for volume, the best that can be said is that it is neutral and that really is not good for a roaring market as we have had lately.

Putting everything together I can only continue with a BULLISH long term prognosis with no immediate end in sight.

INTERMEDIATE TERM

Our next projected level for the intermediate term is the $705 level. Now this is higher than the next long term projection but of course we also have the $1075 and $1575 levels for the very long term to compensate. When projections are based upon continuation break-outs it is not unusual that a shorter time period P&F might give a higher (or lower in a bear market) projection than one gets from a longer term chart. The intermediate term P&F is in a break-away mode, nothing new or especially important about that. It might now take a few weeks to set up new patterns on the P&F chart for it to be telling us what's happening. For now it is very bullish and should remain so for a while.

I just noticed that I included the long term RSI on the above chart instead of an intermediate term one. This indicator shows more clearly the new highs in the indicator nullifying previous concerns for the under performance of momentum. It has now entered the overbought zone so one might expect a reaction from here. However, it would not be unusual to stay in this area for some time, if we have a strong bullish market.

There are times when looking at the same indicator but using different time period charts one gets different information. That's the case today when looking at both the volume and momentum indicators. Using the weekly chart, as shown above, volume is in a real up trend. Looking at a daily chart volume has been going nowhere for several months (which is not a good thing during a rise in price). As for momentum, using a 10 week RSI, momentum is inside its overbought zone and at new highs. It has been in and out a few times now, over the past few months. But looking at a daily chart and a 50 day (10 week) RSI momentum is not yet in the overbought zone and still showing an under performance versus price action. So, what does one do? Well you pretend you did not see those charts and go to some others (just kidding). One uses whatever judgment one might have and go with that (now that should really frighten my readers).

We do know that the price action is way far above a positively sloping moving average line. This gives us the breathing space to remain bullish until the momentum and volume get their act together. So for now my prognosis for the intermediate term is still BULLISH.

SHORT TERM

The short term gave us some concern on Thursday but all was well by Friday. The trend is still positive with a positive moving average line and momentum that remains in the overbought zone. All good things but waiting for the bad to happen. Although still positive, the momentum indicator is at a point of turning down and signaling a short term correction, but not quite yet. The volume indicator (not shown) is also not in good shape, not negative but not what one would like to see during a very bullish price move. The volume indicator has been moving sideways without any gaining of altitude since about November. Only the moving average line (which seems to like the up trend line and is clinging to it) is not showing any signs of reversal. That might come if the price dropped below the up trend line and closed at about $600. We'll only know the exact number when it happens. For now I would stay on the BULLISH side but be prepared to reverse should the price close below the up trend line.

IMMEDIATE TERM

There is a little more to worry about for the immediate term than for the short term. The aggressive Stochastic Oscillator, although very positive, is still in the overbought zone but giving greater signs of moving lower. It is lower than it has been for weeks, is below its trigger line and just about to cross its overbought line on the down side. Continuing to "go with the existing trend" I remain BULLISH but note that the negative signs are there. A change of direction could come with a close at $620 or below.

NORTH AMERICAN GOLD INDICES

It's been an eventful week for Indices as well as for metals. Most of the major Indices closed with gains of around 5.5% to 7.1% on the week. Good gains. The most popular Index, PHLX Gold & Silver Sector Index (XAU), gained 6.8%. Most gold indices are now significantly above their Feb levels except the XAU and the African Indices. The S&P Gold Index is also still lower than its Feb high but what can one expect from a single stock Index? Although the trend looks good on the chart one cautionary feature is the momentum indicator. Here, the momentum is showing an under performance versus the Index action. This is always something to keep an eye out for. Under performance by the momentum indicator may not mean much, just that the recent action has less strength then the previous action. However, if such under performance continues it could result in a price reversal ahead so technicians always pay attention. However, there is nothing in the chart action that tells us that a reversal of trend is eminent. Go with the trend in motion and that is to the up side.

MERV'S PRECIOUS METALS INDICES

Looking through the various Merv's Indices it looks like gold stocks ended on a relatively good note while silver stocks were somewhat in a lesser good mood, which is what happened to the metal performance during the week (gold up 5.9% and silver up only 0.9%). All of Merv's Indices continue to zoom higher into no man's land where they have never been before, except for the Spec-Silver Index which did not have such a good week. For speculators in the precious metals, one should be knowledgeable about what the particular sector of stocks is doing that one has money in. If a sector is not doing well then the odds become greater that any particular stock in that sector will not do well and becomes a more risky speculation. The opposite is also true, if a sector is doing well than the odds improve that a particular stock in that sector will do well and risks are reduced. That is why I have Indices that provide the information as to how different sectors of precious metal stocks are doing. Whether one is interested in "quality" stocks, speculative stocks or gambling stocks there is an Index for you. The Merv's Gold Indices table also provides the information as to which Index has been doing the best for various time periods. In addition to the brief commentary on the individual Indices provided here each week, the Gold Indices table also provides a technical rating for each Index, for the three basic investment time periods. A TUTORIAL in the Merv's Global Indices section of the www.themarkettraders.com front page provides some guidelines as to how to use this table of technical information to the greatest advantage.

MERV'S GOLD & SILVER 160 INDEX

This is the starting point for all of my other Indices. This universe of 160 precious metal stocks includes everything from the $29 Billion Barrick Gold to the $14 Million South-Malartic Exploration. With over 700 North American traded precious metal stocks in my data base it is obvious that MANY, MANY big movers are not in the universe but I try and get as many movers as possible into the universe. All of the other Indices get their component stocks from this universe.

An average price increase for 160 stocks of 6.3% is quite good. This gain was the result of 124 stocks advancing and only 33 declining on the week. Put another way 78% of the precious metals universe advanced while only 21% declined. The indicator shown this week in the Merv's Gold & Silver 160 Page is an intermediate term momentum indicator. What it shows is often considered not an encouraging message. While the Index has been roaring higher all year this indicator has been going nowhere. However, upon a closer study, at 80% this indicates a very strong internal strength, for the price move, that has held constant. Lateral momentum move during a roaring price move is not necessarily bad. If the indicator was moving laterally at about the 55% level, THAT might be bad as it would show a very weak internal strength behind the move. The overall BULL/BEAR ratings for the 160 universe have improved somewhat for all three time periods, as could be expected.

The overall precious metals universe can only be classified as remaining BULLISH.

There were five stocks this week in my plus/minus over 30% weekly move category. Guyana Goldfields Inc. was the best weekly mover with a gain of 55.2%. Guyana last turned POS in my technical ratings on 3 June 2005 at $2.60. It is now up almost 150% since going POS. The other great performer was Maxy Gold Corp. with a 55.0% gain on the week. Maxy last turned POS in my technical ratings on 3 Mar 2006 at $0.80 and is now ahead almost 100% in the past 6 weeks since going POS.

When stocks make the kind of moves that Guyana and Maxy have made this past week I often hear that investors could not have foreseen the move and therefore missed the profits. Well, as I have shown, the moves STARTED long before the spectacular week's advance and there was plenty of time to get in on the action. The technical ratings are not always right, nothing is in this business. There are also the rare occasions when a spectacular move happens without advance warning from the technical ratings. However, the technical ratings most often get you in at the early start of new moves and get you out not too far from the end of the moves.

MERV'S QUAL-GOLD INDEX

These are the 30 largest market capitalization precious metal stocks traded on the North American exchanges. For the top "quality" stocks their 6.0% gain on the week is quite impressive. There were 27gainers on the week and only 3 losers, or put another way 90% of the component stocks advanced and only 10% declined. A very good indication of which way the wind is blowing. As far as the overall ratings are concerned, the BULL rating in each time period improved as would be expected. The intermediate term momentum indicator is under performing the Index action but as with the 160 universe it is at about the 80% level and actually quite strong. As one might expect from these large companies, there are none of the plus/minus 30% movers in this sector.

The overall "quality" sector can only be classified as remaining BULLISH.

MERV'S SPEC-GOLD INDEX

These are the second 30 largest market capitalization precious metal stocks traded on the North American exchanges. I consider them at the top of my speculative sector of stocks. This is where the next "quality" stocks come from if a quality needs replacement. With a 5.9% gain on the week the performance here was just a tiny bit weaker than the "quality" stocks. However, with 28 advances and 2 declines (93% on the up side and 7% on the down side) the market breadth was just a bit better. The lateral trend of the intermediate term momentum indicator is evident here also but as with the previous Indices at 80% the internal strength of the Index price move is still very strong. All BULL ratings improved on the week and are well in the 80% to 90% levels. Although we can often get some plus/minus 30% movers in this sector, there were none this past week.

The overall speculative sector is still classified as remaining BULLISH.

MERV'S GAMB-GOLD INDEX

Here you will find the real gambles. The 30 stocks in this Index are from the lower end (not necessarily the lowest) of the speculative sector and can only be classified as gambles. But here one is most likely to find the real movers. With an average gain of 7.6% on the week it is not up to the standard of a few weeks ago but still the best of the Merv's Indices. The break-up between gainers and losers is not as great as with the other Indices, with 21 gainers and 8 losers (70% on the up side and 27% on the down side). However, on an individual basis, here we get the movers. Two of the plus/minus 30% movers were in this Index. The intermediate term momentum indicator is continuing a positive trend and is almost at the 90% level for an almost TOO positive of a reading. It's getting to the point of not having any more room for growth. The overall BULL/BEAR ratings do still have some growth potential with the short term rating declining a little on the week.

The gambling stocks sector is still classified as remaining BULLISH.

Of the two stocks in this Index that are in this week's plus/minus over 30% weekly move category I have already mentioned Maxy Gold earlier. The other stock was Jinshan Gold Mines Ltd. with a weekly gain of 32.1%. Jinshan last turned POS in my technical ratings on 6 Jan 2006 at $0.70. It is now up over 100% since last turning POS.

SILVER

Didn't anyone see that cliff? It was to be expected after a great several month run-up. Since making its break-out in Sept., after several months of lateral movement, silver basically was climbing a wall of worry with the momentum at the 60% level but in Feb all that changed and silver then took off. Momentum quickly climbed into the overbought zone and on Thursday it decided to react. OUCH! The recovery on Friday looked good but it will be interesting when the volume information becomes known on Monday. In the mean time we are in a short term precarious position while in the intermediate term things are still positive.

MERV'S QUAL-SILVER INDEX

With only 10 stocks in the "quality" sector this is about the minimum I can see for an Index and still be considered a "sector". Despite the Thursday plunge silver still had a plus week although a very small one. The Qual-Silver Index likewise had only a small plus week with a gain of 2.2%. However we still had 7 advancing stocks and 3 declining ones. As with the Qual-Gold Index, the momentum indicator is moving sideways but at a comfortable 80% level.

The "quality" silver sector is still classified as remaining BULLISH.

MERV'S SPEC-SILVER INDEX

25 silver based stocks make up the components of this Index. They may be classified as a mixture of speculative and gambling stocks. With a comfortable 5.3% weekly gain there were 21 winners and 4 losers (84% on the up side and 16% on the down side). This is the only Merv's Index that has not moved into new all time high territory. That might come next week but the momentum indicator is also showing signs of weakness. This momentum indicator is tracing a path towards lower levels. Maybe the great boom in the speculative silver stocks is over. After all, the AVERAGE price of a speculative silver stock has risen almost 300% since last May. Such performance for a group of 25 stocks just is not sustainable.

The speculative silver stocks are still classified as remaining BULLISH. Well that's it for this week. Let's see what the new week brings.

 


 

Merv Burak

Author: Merv Burak

Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
for Mervs Precious Metals Central
www.themarkettraders.com

Merv Burak

For DAILY Uranium stock commentary and WEEKLY Uranium market update check out my new Technically Uranium with Merv blog at www.techuranium.blogspot.com

During the day Merv practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv dons his other hat as a Chartered Market Technician (CMT) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada's Northwest Territories in his youth, Merv has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE.

To find out more about Merv's various Gold Indices and component stocks, please visit www.themarkettraders.com and click on Merv's Precious Metals Central. There you will find samples of the Indices and their component stocks plus other publications of interest to gold investors. While at the themarkettraders.com web site please take the time to check out the Energy Central site and the various Merv's Energy Tables for the most comprehensive survey of energy stocks on the internet.

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