Technically Precious with Merv

By: Merv Burak | Sun, Aug 6, 2006
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The week started out okay but got weaker as the days progressed. There seems to be no real panic to get back into the gold game, war or no war. It's a waiting game now.

GOLD

LONG TERM

A quick glance at the long term P&F chart tells us that we are still not at the point of reversing our long term bear signal. That still requires a move to the $690 level. The action in gold near the week-end suggests that it will still be some time before the resistance gets breached. However, as mentioned in the intermediate term section, THAT P&F chart still has us in a bullish trend unhindered since the start of the bull several years ago. Which one to believe?

Looking in on the normal trend, strength and volume indicators we see that the action is still above its positive sloping moving average line and the price momentum (strength) is still in its positive zone. Although positive, this momentum indicator is showing signs of weakness. Volume action, more of a supporting indicator, is confirming the positive nature of the long term price action.

With a continuing conflict between the P&F and the normal indicators I will continue to stay NEUTRAL on the long term, awaiting better information from one or the other sets of charts.

INTERMEDIATE TERM

The intermediate term P&F chart shown last week continues to move higher but is still within that up trending channel that has basically trapped the action for several years (except for that month and a half recently). The action is back to the mid-point of the channel and I don't see the action breaking either the upper or lower trend lines anytime soon. Still bullish by this chart.

As for the normal indicators the price is above its moving average line and the line has just turned oh so slightly upwards. Still, it's a very weak moving average line. We are in a "whip-saw" area so the action would have to get away from this area for the message of the moving average to have more credibility. A move above the high from a month ago or the low of a couple of weeks ago should do it. Momentum continues to remain weakly in the positive zone where it's been for a month now. Volume continues to be very weak on a day to day basis but the volume indicator is very positive and at new high ground. We now have a couple of price bottoms far enough spaced to give us an intermediate term up trend line. The longer the action stays above this line the more powerful this line will become. As mentioned last week, this move could still take us to the $700 level but at the present time the indicators are so weak that I can't see it going much higher than that. Of course the opinion could change should the action take a stronger tone to it.

For now I will call it an intermediate term BULL but a very weak one. Watch the action and the up trend line.

SHORT TERM

Now we are getting closer to the meat of the analysis. What does it look like over the next week or two?

First a review of the basic indicators. The price is above its positively sloping moving average line (15 DMAw) but a close look shows the line starting a possible curve back towards the down side. Well, maybe not yet back towards the down side but towards a more horizontal trend at the least. The short term momentum (13 Day RSI) is in its positive zone but here also the weakness can be seen. It has started to point lower. As for the volume action, well the daily volume action might be classified as close to pathetic. Every two months it seems that the volume perks up. More professional futures analysts probably have an explanation for this. What I look at is a comparative view. This time around the high volume barely reached into the 100,000 level, not like other times two months ago or four months ago. In addition, the period following the high volume action is also very, very low, compared to previous similar periods. It could be vacation time so we'll just make a note of the action and go on from there.

In addition to the normal indicators we do have a short term up trend line and a possible channel to give us an upper resistance. Friday's action is very close to this line and the next few days should be watched for a possible crossing and trend change. For now, going with the trend in motion, which has done us good duty over the past many months, I will still call the short term as bullish but will be prepared to change should the price drop below the moving average line. That would, no doubt, cause the momentum to also break below its neutral line.

IMMEDIATE TERM

Sometimes the immediate term analysis is very similar to the short term. However, what one is probably looking for is not which way things are going but are they expected to continue or turn around over the next day or two. As you might imagine, trying to guess a turn around is very risky. World events that no one knows will occur can cause everything to change on a moments notice, but here goes.

Both the price and the Stochastic Oscillator are still above their moving average lines BUT in both cases the indicators are in the process of turning and the moving average lines do seem to be likewise in a turning process. We could sure use the price making a new rally high, above $678, to give us a higher high following an already higher low. However, that seems unlikely with the weakness shown in the indicators. Again, baring unexpected world events, it does look like the immediate trend has shifted towards the down side. For confirmation it would need to drop below $644, which would break below the support line. So, look for action on the down side over the next day or two. It could take us back to the intermediate term up trend line.

NORTH AMERICAN GOLD INDICES

Well, let's see what the majors are doing. This week we look in on the AMEX Gold Miners Index. We have an Index of about 40 stocks that is up some 500% since the start of its bull move at the end of 2001. As with most Indices this Index places a far greater weight on some stocks and next to no weight on others. It is, in reality, an Index of about a dozen stocks that have enough weight to make a difference in the Index value. The chart is interesting in that we had 3 ½ years where the Index was above an up trend support line and now we have about 2 ½ years where the Index is below the line. The trend is still towards higher prices and the trend line is now a resistance line. As with the PHLX Gold/Silver Sector Index reviewed last week, we have a developing head and shoulder pattern but with a more pronounced sloping neckline. Should the Index close below the neckline then a move back to the mid-500 level (mid-50 on the chart) would not be unusual. At the present time we'll just have to play it one week at a time and see how things develop further.

MERV'S PRECIOUS METALS INDICES

It was another plus week for the various precious metals Indices. Not as good as last week but we'll take what we get. This week the performances were not as diverse as last week with the quality and speculative gaining about the same. Only in the silver groups was there a noticeable difference. With silver bullion gaining 9.9% versus gold at 2.3% it was not surprising that the silver stocks performed better than the gold stocks. One observation about the various Indices is that almost all are in new rally highs except for the two gambling Indices, the Gamb-Gold and Spec-Silver Indices. Due to the lack of stocks, the Spec-Silver Index is made up of both the high end of the speculative and the low end, or gambling end, of the speculatives and should be better thought of as a gambling Index.

Looking at the Merv's Composite Index of Precious Metals Indices we see that this overall Index of all Indices of the Gold Indices table has just eked a move into new high rally ground since its plunge in mid-May. It continues above its long term moving average line and more importantly, the line continues in an upward direction where it's been for the past year. Long term momentum is also still in the positive zone so from the long term perspective the trend is still BULLISH for the overall components of the Index.

Intermediate term is somewhat more iffy. This is the first week where we have both the Index moving average and the intermediate term momentum in a positive mode. The moving average just turned up but is still in a precarious position. Another week or two is required to really confirm the turn around although it IS valid at this point. I would call the intermediate term as BULLISH with an eye open for a possible surprise turn.

MERV'S GOLD & SILVER 160 INDEX

This is the second week in a row with a gain on the week. We had two in a row in May, then a move back to new lows and two gains in a row in June then a turn back to new lows. Are we going to turn down this week and move once more into new lows? We'll just have to wait and see.

Although the gain on the week, at 3.3%, is only half of the gain last week the number of individual stocks closing higher was about the same, at 114 or 71%. There were 43 losers or 27%. Both numbers suggest a shift of 7% towards the losers. To continue with the breadth numbers, the overall component BULL/BEAR ratings improved for the lower time periods but had little effect on the longer tern. The short term has a bullish rating of 73% (versus 53% last week) while the intermediate term has a bullish rating of 55% (versus a bear rating of 50% last week). On the long term the ratings are still neutral with neither bull nor bear ratings over the 50% mark although there was a slight improvement towards the bull.

Looking at the normal indicators we have the Index above both its intermediate and long term moving average lines. The long term line is continuing with its upward slope while the intermediate term line, which had been sloping downward, is in the process of turning up but needs another week to confirm. Both momentum indicators are also in their positive zones but showing weakness. The long term showing slightly more weakness than the intermediate term.

Although we have 114 stocks (71%) on the up swing this week there still is no evidence that professional speculators have turned all that bullish and are jumping in. My arbitrary plus/minus over 30% weekly move category still is not showing any stocks with these kinds of gains. In the previous weeks about the only stocks that showed up in this category were a result of surprise court decisions. When the professional speculators really jump in you should see at least a few stocks with this performance. This just might be the period of quiet accumulation before the real moves but I'll need another week or two of action to determine this.

MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX

The titles of these sectors is a little misleading in that they include both gold and silver stocks but at the time I just couldn't think of more representative titles.

This week all three sectors closed with almost the exact same percentage gains, between 3.4% and 3.6%. We do not see such a close grouping of gains between these three diverse sectors. Usually the Qual-Gold is much ahead of the others or the speculative sectors are much ahead of the Qual. As for the normal indicators, looking at the chart and using slightly different momentum indicator than that used in the tables I get a momentum reading that is slightly better than the table. However, the overall ratings end up to be the same as the tables

From a market breadth stand point there has been very little change in the number of stocks advancing or declining on the week. From the overall BULL/BEAR ratings the changes versus last week have mostly been towards the bullish side. The Qual-Gold has a short term bullish rating of 83% (67% last week), an intermediate term bullish rating of 70% (52% last week) and a long term NEUTRAL rating (bearish 68% last week). The Spec-Gold has a short term bullish rating of 80% (57% last week), an intermediate term bullish rating of 63% (neutral last week) and a long term neutral rating (50% bearish last week). The Gamb-Gold has a short term bullish rating of 77% (neutral last week), intermediate term neutral rating (58% bearish last week) and a bearish rating of 55% (bearish 68% last week). So, all ratings improve versus last week.

MERV'S SILVER INDICES

The silver group seems to be omitted during some weeks (like last week). This is sometimes due to lack of available time to include them. I'll try not to miss them too often.

Silver bullion is performing superior to that of gold. One only has to look at the chart and see this performance or look at the table and see that silver gained 9.9% on the week versus gold gain at only 2.3%. The P&F chart shows a clear upside break-out for silver which is not yet evident for gold. This P&F chart gives us a projection for a good $5 move. Unfortunately, this does not quite take us into new high territory so we'll have to see how things develop as the trend progresses. Looking at a bar chart of silver we have an up trending channel, better drawn than the one on the P&F chart. However, in both cases the recent price has come up to the upper resistance trend line so one might be expecting a short rest period or possibly some short down side action any day now.

MERV'S QUAL-SILVER INDEX

As can be expected from the silver performance, the silver stocks were the darlings of the week, as they were last week. The surprising part is that despite a silver gain double that of last week the stocks gained only about half of last week's gain. Oh well, I guess it all evens itself out.

In the Qual sector we had one loser, one neutral and 8 gainers on the week, as opposed to all 10 gainers last week. The overall individual stock ratings are right up there at 100% bullish for the short and intermediate term while the long term is still languishing in a neutral rating with neither bull nor bear being over the 50% mark. As for the normal indicators, they are all positive for a POS Index rating for both the intermediate term and long term.

MERV'S SPEC-SILVER INDEX

Despite the silver performance the speculative silver stocks have been holding back. In the tables it is the only Merv's Index with a long term NEG rating while it and the Gamb-Gold share the distinction of being the only two that are not yet rated as POS for the intermediate term. When speculators are holding back this causes me to wonder if they REALLY, REALLY have confidence in the latest bullish moves or not. Confidence in the bullish trend should translate as a very positive move in the more speculative stocks. Hesitancy in the moves translates into lack of movement in the speculatives.

We did have 19 gainer on the week and only 6 losers but no real movers in the bunch, i.e. real % gainers. The action is still subdued. Even the BULL/BEAR ratings of all component stocks leaves a lot to be desired. A bullish rating of 82% on the short term (versus 54% last week) is okay but then we get a neutral rating for the intermediate term (bearish 70% last week) and a bearish rating of 62% on the long term (82% last week). Although an improvement we are still not bullish on the intermediate or long term.

Well, I'll call it another week. Here's hoping for another positive week ahead.

MERV'S PRECIOUS METALS INDICES TABLE


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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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