Technically Precious with Merv
Gold up, silver up but all the Indices down. Is there a disconnect here or is this just natural? Continue reading.
First a look at the long term P&F chart. No change from last week, not even an extra zero. So, we go directly to the bar or candlestick chart.
This chart also does not seem to move much from week to week but at least each week there is an extra bar or candlestick added. What this chart is telling us is that slowly the chart is coming to a point where it REALLY has to decide which way it wants to continue. Even though I have gone bearish on the long term, that can change with a reversal of action. Technicians are not dogmatic (or should not be). Just because the charts are saying one thing this week does not mean we have to stick with that assessment way into the future. Technical analysis is an art trying to gauge what the markets are telling us at any point in time. If the consensus of those who's actions can affect the charts should decide to reverse their position on the market the charts will tell us and we change with them. No ego involved that too often keeps an analyst from changing his position.
Using a daily chart to do my analysis I see that the long term moving average line has started to point downwards. The week's action was also below the moving average even though the price ended the week up 2.1%. The chart shows what might be a two week saucer reversal pattern but we'll go into that in the short term section. The long term momentum indicator (30 week or 150 day RSI) is still holding just slightly above its neutral line and is showing a mild tendency towards turning up. The long term volume indicator is still below its moving average line confirming the position of the price.
From the long term indicators I must remain BEARISH until the turn has occurred and confirmed.
Now that the spell from the long up trend is broken we can go back to a more conventional P&F analysis. From this it looks like a move to the $610 level would be required to provide us with the first indications of a turn. Depending if there is any more up and down moves on the chart, that will not break a 40 degree down trend line (not shown). At the present time the line is at the $620 level so an intermediate term reversal still requires some more upside action, P&F wise.
Looking at the usual indicators we have the price action below the intermediate term moving average line and the line slope is negative. We have momentum that is in its negative zone although showing some signs of wanting to move up. We have a volume indicator that is still below its intermediate term moving average line for a confirmation of price action. All this still places us in a BEARISH intermediate term position.
I guess the short (and immediate) term still seems to be the more interesting time period to investigate the actions of gold. From the chart we see that gold has broken below a significant two month support level but has remained above its previous June low. It closed on Friday just a hair above its short term moving average line and the line itself is on the verge of turning up (not quite there but close). Friday also closed above a previous turn around attempt from earlier in the week. We have a short term momentum indicator (13 Day RSI) that is also indicating some strength in the latest action. The strength has been in a positive direction since late last week and although it is still in its negative zone IS heading towards the neutral line after bouncing off its oversold level. There are enough signs to suggest that we may be in for at least a week or more of positive price action.
On the immediate term we are further along in the rally or bounce mode having already sustained three consecutive days of upside action. The price is above its very short term moving average line (8 DMAw) and the line has already turned up to follow price. As mentioned earlier, the close on Friday is now above its previous high set earlier in the week. The aggressive Stochastic Oscillator (SO) is turning around and above its trigger line but still inside the oversold level. It should break above the oversold line, most likely on Monday. Only volume is a laggard but volume really means little on the short or immediate term. It is an important indicator of strength for those prolonged moves and an indication of longevity for a move. So, it looks like a few good days ahead for gold, barring world events muddying the situation.
NORTH AMERICAN GOLD INDICES
I am running a little late this week so I'll cut the remaining analysis short with only the pertinent information.
The various North American Indices all closed lower this week despite the rise in gold price. Usually trends are started in the stock Indices and THEN in gold bullion so if we are into a reversal of trend situation with gold turning first this is not the norm but not totally unusual. All Indices have a Head & Shoulder pattern to some extent (I had shown these over the past few weeks). Although the Indices closed lower, it was in general only a mild lower closing and the H&S patterns are still in their formation stage and not in the confirmed stage with a breached neckline. We still await the confirmation of the pattern.
MERV'S PRECIOUS METALS INDICES
As mentioned above, this week will be just a brief summary of information. I should be back to normal next week.
All Merv's Indices closed lower on the week and as was the case last week, the higher the "quality" of the Index the lower the loss. The Qual-Gold Index closed only 0.7% lower on the week while the Gamb-Gold Index closed 4.3% lower. Looking over the various Indices charts there seems to be very little difference with last week. The major difference is in the overall Merv's Gold & Silver 160 Index chart. Although lower on the week all Indices, except for the 160 Index, are still above their low levels from their June/July lows. The 160 Index has now closed below its previous low and is now in new bear low territory since the start of the downside move in May. This is somewhat unusual in that the 160 Index represents the overall universe of 160 stocks encompassing all sectors. One would have expected at least one of the sector Indices, say the Gamb-Gold Index, to also show a similar new low but the overall universe is the only one so far. As for the analysis of the chart action, what was written last week still holds.
As for the breadth of the weekly action, the decliners are still in control over the gainers in all Indices. Overall, the universe had 29% of the stocks advancing and 59% declining. This was a significant improvement from the disaster last week but not quite into the positive range. With the restrained losses the movement in the various ratings had not changed and barely moved, although most moved very slightly towards the more negative side.
Shown below is the Merv's Gamb-Gold Index from the start of the gold bull market to the present. A 4690% gain in a little over 5 ½ years. Not bad. Since the start of 2006 this Index is still ahead by 75%. Again, not bad. What Index of 30 stocks has done as well? (and this represents the AVERAGE performance of the component 30 stocks)
I know that most of you are getting a little bit frustrated that gold and gold stocks have not yet reversed and started new bull moves. That time will come. I continue to refrain from specific recommendations (except for some GAMBLING recommendations) as the timing is not yet ripe. You may be frustrated that the market has not reversed but that's better than getting frustrated watching your capital continue to decline.
This week we see a mild potential bottom in gold. Will it reverse from here? I don't really know but too much capital is lost by speculators getting into the market at what they think might be a low point (remember Nortel at $100, at $60, at $30, at $15 etc.). Wait for the reversal to confirm and then you can jump in with full force at a low point but not THE low. Once a turn is confirmed, there will be plenty of huge gains to be made. RELAX, HAVE A BEER, PLAY SOME GOLF and WAIT FOR IT.
MERV'S PRECIOUS METALS INDICES TABLE
That's it for this week.