Technically Precious with Merv
Well, we now know the path of least resistance, and that is in a depressing direction. Nothing yet in the horizon that would provide the confidence of a turn around.
These weekly commentaries primarily focus on the actions of the bullion traders and what it might mean relative to the position (and sometimes, the direction) of gold. They are not meant to be trading recommendations but are, hopefully, added information one might use to develop their own judgment as to what the trading action should be.
I guess the long term P&F chart was not to be discarded just because it went bearish prior to the recent rally and never reversed. So far it is proving to be right. The initial signal projected to the $480 level ($490 with the $10 Unit chart). The latest action suggests that we just might reach that projection. Once there I can calculate a potential new projection but it is too ludicrous to mention (the $300 level). But that's getting way ahead of ourselves. The $480 looks possible so let's not get too discouraged. This week's action broke through the $600 support so the next one to watch is the previous bear low, at $555 on the P&F chart. $540 would break below that one.
As for the basic indicators, the price is below its long term moving average line and the line has now turned downward. Long term momentum is heading lower and is very close to breaking below its neutral line, but is still slightly in the positive zone. Despite the fact that the price is still above its previous June low the momentum has now moved below its June low suggesting somewhat greater weakness in the price activity than the price itself shows. The suggestion here is that the price will break below its June low, following the momentum. The action of the volume indicator is confirming the downward trek of the price.
There is no longer any possibility of sitting on the fence as far as the long term position of gold is concerned. I am now fully BEARISH on the long term position since both the P&F chart and the indicators are basically in sync.
The Intermediate term P&F chart can no longer claim to be bullish. After several years of up trend it has now broken decisively into the bear camp. I can calculate a projection from this chart but at $465 it is below the long term level so I will first concentrate on that one. The next level to watch for support is, of course, the June low at $550. The intermediate term P&F chart has an H&S pattern with an elongated right shoulder but still a valid H&S. Should the price drop to the $560 level it would break below the neckline giving us an H&S projection to the $380 level. Just some technical information to keep in mind. None of this might come to pass but it is good to keep it in mind before jumping the gun on any small reversal move.
As might be expected the action of the past 2 weeks has put the intermediate term trend in the dumper. Gold price is below its negatively sloping moving average line and we no longer have that lateral trend to confuse us as it had for the past many weeks. The move is decidedly in the down direction. Momentum has moved well into the negative zone and is now below its level from the June lows. The volume indicator is also heading into the ground. The daily volume action, although still pretty low, has improved somewhat versus the past few months BUT this improved volume is on the down side, not a good sign.
As with the long term both the P&F and the bar charts and indicators are giving us the same story. Back into the bear camp. The next level to watch is the June low to see if that level will be significant or just a minor inconvenience along the downward trend.
Although I am back into the bear camp that does not mean that I think that gold will continue to move lower for an intermediate term length of time (several weeks to several months). What it does mean is that AT THIS POINT IN TIME the intermediate term trend is bearish. It may continue as such for months or only days. Each week I review the intermediate term charts and see what the latest position is. When the charts turn around, so will I regardless of when. It is hoped that the indicators will provide some advance warning of any turn around so as to prepare for new moves but we will just have to take it one week at a time.
Well at least the action this past week resolved which way was the path of least resistance. For the past few months we had been in a see-saw environment with the price (and moving average) changing direction almost every week. We are now in a well defined down trend. The price is below its short term moving average line (15 DMAw) and the line is following and heading lower. Short term momentum (13 Day RSI) is also in its negative zone just touching its oversold line but not quite below it. From this I would venture a guess that over the next short term (several days to a few weeks) we will see still lower levels. The Merv's FAN Principle trend lines suggests that at the least the short term should see levels at the FAN apex point, i.e. the June low.
All that is fine and dandy for the next few weeks but what about Monday and Tuesday?
We have a firm trend in motion and usually I remain with the trend BUT there is an indication that we might just see some upside action in the next few days. The Stochastic Oscillator (SO) is inside its overbought zone from which rallies occur. Looking closely at the SO we see that it has been closing in on its trigger line and almost at the point of crossing it on the up side. If that should occur then the chances are fairly good for a short rally, otherwise we remain in a downward drift.
NORTH AMERICAN GOLD INDICES
As mentioned earlier, the analysis above was to see what's happening to gold. The analysis below is an attempt to see what is happening to precious metal stocks. This analysis is from the standpoint of looking at various Precious metal Indices and not individual stocks. Analysis of individual stocks is, as one would expect, available to subscribers of the Merv's Precious Metals Central service at www.themarkettraders.com.
All four of the major North American gold Indices had a terrible week. They all had double digit % losses. This was not unexpected as they were exhibiting a head and shoulder patter (along with a recent upward sloping bearish wedge pattern).
The week's action has broken the wedge pattern on the down side, as expected. It has yet to break the H&S neckline for a more serious break. A move below the June low should just about do it. Should that happen the projection for the HUI would be to levels just below the previous May 2005 low. The trend is down so any attempt to buy component stocks because they may look cheep is taking extra risks.
The most popular momentum indicator is probably the MACD (Moving Average Convergence/Divergence). It is shown here with the AMEX Gold BUGS Index chart. I have never really gotten into the MACD, maybe because everyone seems to use it and most are not fully familiar with its criteria. I have preferred the Relative Strength Index (RSI) but that is just a personal preference. Anyway, here is the MACD. It does show weakness at the most recent rally high and is now well inside its negative zone.
MERV'S PRECIOUS METAL INDICES
My, oh my, what a week this has been. Losses all around but the worst were in the "quality" sector of the precious metals. The speculative, especially the most speculative (gambling variety) were down bad but not as much as the "quality". This was definitely not a time to be loading up on gold stocks, although who knows, maybe this is the low for the year and it's up hill from here on in.
The Merv's Composite Index of Precious Metals Indices had a rough week coming down sharply. It is just above its previous low from June and just about to make a new low. The Index is below both its intermediate and long term moving average lines with both lines now pointing downward. As for momentum, the MACD shown in the Indices page is still in its positive zone for an intermediate term indication but the RSI is already below its neutral line. I go with the RSI for a negative reading, intermediate term. On the long term the RSI is still in the positive zone but barely so. Another week and it will be negative. This suggests that based upon a composite of twenty some Indices we are bearish intermediate term and bearish or minus neutral on the long term.
MERV'S GOLD & SILVER 160 INDEX
The overall universe of 160 precious metal stocks declined 9.0% on the week. This is a little better performance than the major Indices which all were in the double digit decline range but still nothing to brag about. Looking over the 160 stocks there were only 10 stocks in this total list that closed the week with a gain. In total, 149 of the 160 stocks declined on the week, that's a full 93% of the stocks. I wonder what constitutes a disaster for a week?
Continuing with the breadth information, The overall stock ratings went decidedly in the downward direction. Short term rating went from a neutral to an 86% BEAR. The intermediate term rating went from a bullish 53% to a BEAR 67% while the long term rating, with a bearish rating of 52% last week, further declined to a BEAR 75%. The decline was wide spread and hit all investment/speculative time periods equally hard.
Looking at the 160 Index we see that the Index has dropped below both its intermediate and long term moving average lines and both lines are now sloping downwards. As for momentum, well it depends upon which indicator one uses. For the intermediate term the MACD is still positive although below its trigger line and heading lower. The Price Oscillator had gone negative over two months ago and is still negative while the RSI has been oscillating above and below its neutral line for months and has once more gone negative. This time the RSI has moved further negative than it's been for over a year. As for long term, both the Price Oscillator and RSI are still in their positive zones but below their trigger lines and moving lower fast. From this I would rate the time periods as intermediate term BEARISH and long term as BEARISH or at best, MINUS NEUTRAL.
The 160 Index has ended the week sitting right on top of previous lows. Any negative close this week would see this Index into new bear market lows, below the June level.
MERV'S PRECIOUS METAL SECTORS
MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX
I am still lumping the three precious metal sectors (really gold) together as they are still basically moving together. The silver sector is analyzed separately.
Once again the highest "quality" Index had the worst weekly decline, at 10.5%, while the speculative stocks had somewhat lesser declines, at around 8.6%. All three Indices are now below their intermediate and long term moving average lines and only the long term Gamb-Gold moving average line is still positive. On the Indices pages I had shown the MACD indicator. For all three sectors the MACD is still positive but below its trigger line and moving lower. As for the RSI, it is still slightly positive for all three Indices for the long term. For the intermediate term the RSI has moved into the negative for the Qual and Spec Indices but is still slightly positive for the Gamb Index. The Gamb-Gold Index seems to be holding up the best of the three sectors while the Qual-Gold Index is performing the worst. This can be seen in the short and long term Relative Strength (RS) ratings in the Gold Indices Table.
As for the market breadth for these sectors, pathetic. 100% of the Qual-Gold stocks declined on the week as did 90% of the Spec-Gold and 87% of the Gamb-Gold. As for the overall component ratings, they moved south, in some cases quite far south. As might be expected the short term ratings moved the most. The Qual moved from bearish 50% to BEAR 95%, for the Spec the move was from bullish 50% to a BEAR 85% and for the Gamb, the move was from bullish 52% to a BEAR 72%. For the intermediate term the moves were as follows: Qual, from bullish 63% to BEAR 82%, Spec, from bullish 60% to BEAR 70% and for Gamb, from bullish 58% to BEAR 57%. And finally for the long term, Qual, from neutral to BEAR 82%, Spec, from bearish 57% to BEAR 78% and for Gamb, from neutral to BEAR 63%. When one looks over those figures it is obvious that to this point the gambling stocks are holding up the best, but still in the bearish camp.
Silver had been acting stronger than gold for some time but it sure took the plunge this week with a decline of 11.5% versus gold decline at "only" 5.6%. The MACD indicator had shown the weakness of the latest move into rally highs by not confirming the silver high. We can now look forward to a test of the previous June low, at $9.45.
MERV'S QUAL-SILVER INDEX
The brunt of this past week's decline was seen in the "quality" silver stocks. These ten stocks had an average decline of 12.5% on the week. All ten stocks declined with no gainers in the crowd. Although the Qual-Silver group has been among the strongest over the past several weeks (it is number 1 in intermediate term relative strength) it seems that the trend has turned. The Index is below both its moving average with the averages turned down. The MACD indicator was the only MACD of the Merv's Indices to have moved above its trigger line recently but is once more below the trigger, still in the positive zone. As with the gold indices, the RSI indicator here is positive on the long term (just barely) and negative on the intermediate term.
The worst drubbing can be seen in the results of the overall component ratings this week. On the short term the ratings went from a bullish 60% to a BEAR 95%. On the intermediate term the ratings dropped from a bullish 90% to a BEAR 60% and on the long term this drop was from a bullish 50% to a BEAR 75%. Severe drops for one week.
MERV'S SPEC-SILVER INDEX
We go from the worst performer to the "best" performer. The Spec-Silver Index lost "only" 8.4%, the least loss of the Merv's Indices or the major North American Indices. However, when we look at the weekly breadth its not good. Only one stock gained on the week while 23 (out of 25) lost. The overall component ratings also dropped although not as much as we had seen in the Qual-Silver group. The short term dropped from a bullish 60% to a BEAR 86%, the intermediate term from a bullish 62% to a BEAR of 50% and the long term from a bearish 50% to a BEAR of 74%.
We have a similar situation with the price, moving averages and momentum as with the other Indices with one important difference. The Index closed below its long term moving average line but like the Gamb-Gold Index, the moving average line has not quite turned down yet. It is in the turning mode but has not reversed.
MERV'S PRECIOUS METALS INDICES TABLE
Tyhee Development Corp
I have refrained from providing recommendations other than GAMBLING recommendations in my weekly service. This week was a good example why I am not yet confident to have investors RISK their capital at this time. That may change next week or maybe not for months. It is no use buying stock when they are going down. One gambling recommendation of mine has been Tyhee Development Corp. (TDC on the TSX Venture (Vancouver) Exchange). Initially it was purely from a sentimental standpoint as I had worked underground in their gold mine in Canada's Northwest Territories back in my youth, in the mid to late 1950's. The arrows on the chart show the original buy point along with a very brief stopped out and buy back locations. The momentum indicator at this time is showing some weakness so it may not be the time for new buying but as one of only ten stocks to close higher from my overall universe of 160 stocks it is showing that maybe something is going on with this stock. I would recommend gamblers might want to check with their broker or advisor and look it over.
That's it for this week.