Technically Precious with Merv

By: Merv Burak | Tue, Oct 3, 2006
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It looks like gold and silver are in a little rally BUT are they really going anywhere? You'll need to read on to find out.

GOLD

LONG TERM

There is no long term chart this week. Long term, the charts do not change much so it is just repeating week after week. I'll show the long term chart every few weeks or if there is any real change from the previous chart.

Long term P&F wise there has been no change for a couple of weeks now. We need the action to reach either $615 or $570 before we can plot any new O or X. As far as the P&F is concerned we are still in a bear market with a projection to the $480-$490 level. It would take a move to the $690 level for the present P&F chart to turn back to the bullish side.

As for the usual suspects, they continue to give us mixed messages. Although gold continues below its long term moving average line the line itself is changing direction. A few weeks ago it was positive, last week it was negative and this week it has once more turned positive, although oh so slightly so. The more important part is that gold price has remained below its long term moving average line. As for the price momentum over the past few months it has been moving sideways just above its neutral level. One cannot see either strength or weakness in its actions, however, since it remains slightly above its neutral level it is still considered as positive. As for the volume indicator, after a two week rally the volume indicator has once more moved above its long term trigger line for a positive reading.

Putting all that together one would not yet reverse to a bullish position but outright bearish is also not appropriate (other than the P&F message). I will move to the minus neutral (- N) rating for now. It represents a situation where the indicators are improving from the outright bearish position but not yet enough to go bullish.

INTERMEDIATE TERM

Despite the two week rally the intermediate term still does not look all that great on the bar or candlestick chart but the P&F is starting to perk up. The action this past week caused a break above two previous highs for a reversal warning but has not yet crossed the down trend line. I need both to give a P&F reversal confirmation. At this time we are getting a preliminary upside potential to the $670 level, which would be just to the previous July high. This would keep us in the lateral pattern and not yet into a comfortable bull.

After a two week rally the price has almost reached the intermediate term moving average line but is still below the line and the line is still pointing lower. Momentum has improved a little but is still slightly below its neutral line in the negative zone. Only the volume indicator has pulled up above its moving average trigger line for a positive reading. One always wants to see the volume indicator ahead of the other indicators as this is an overall positive sign. If the volume indicator was lagging the other indicators it would be a real drag on the prognosis.

With the mixture of positives and negatives one cannot go all out one way or the other. The negatives still out weight the positives so I will go minus negative (- N) for this week and see what transpires next week.

SHORT TERM

Friday was a downer day but all in all the short term rally is still in vogue. The action is above the short term moving average line and the line itself has now turned to the up side. Momentum had been gaining strength and had moved into the positive zone for one day but turned back below the neutral line on the Friday action. Volume action has been confirming the rally by slowly improving but could still use a little more upside activity. We have the past two week's action trapped in a nice up trending channel but with the limited data the trend lines could change quickly. As the chart shows, the region around the $610-$615 price range is a potential resistance zone from the actions during the Aug period. We might find the price hesitating somewhat as it tries to get through that range. Apart from that hesitation, we are still in a short term positive trend and should continue.

IMMEDIATE TERM

As for what the next couple of days may hold, look for some hesitation in the action. It might take the form of sideways action or outright reversal. However, from all indications the trend should continue in the positive direction after any such hesitation. My concern for such hesitation is that with the very short term moving average so close to the present price trend any hesitation might break below the average and turn the average line in the negative direction. This might cause the move to continue to at least the recent low and cause a test of such low. Whether the test would be successful or not we'll have to view the action at such time.

NORTH AMERICAN GOLD INDICES

When we last left this section it was the turn of the S&P/TSX Capped Gold Index to be reviewed so let's get on with it.

Apart from the normal indicators there are two interesting features of this Index. First is the previously mentioned head & shoulder (H&S) pattern. It is still evident but the right shoulder is starting to get somewhat elongated. This does not necessarily nullify the pattern but does make it more difficult to continue defining it as an H&S the longer it continues laterally. Although not drawn, the neckline may be placed variably at the 255 or 250 level or if one were to draw it properly, at about the 240 level. In any case that would bring out the other interesting feature of the Index.

Shown on the chart are my Merv's FAN Principle trend lines. This is an example of a bearish accelerating FAN in that each succeeding FAN trend line is drawn from a new starting point and is more aggressive than the previous FAN trend line. The trend is accelerating at each succeeding FAN. As most of you know by now, the third FAN trend line in this configuration is often called the "blow-off stage" as it almost always indicates the final surge prior to a trend reversal. When we have a well drawn third FAN trend line in an accelerating pattern the crossing of this "blow-off" trend line IS the signal of a trend reversal (most other FAN configurations require breaking the second line for a reversal and the first for a confirmation). The other feature of these FAN trend lines is that as the trend reverses the earlier FAN trend lines now become support and resistance lines. We see how the second FAN trend line first was a support in mid-June and once breached, became a resistance since then. With these lines acting as support and resistance lines it is common for the subsequent action to stay trapped between the lines for some time. We now look forward to the breaking of the first FAN trend line for a final confirmation of a bear market. That would signal a possible return to the start of the first trend line, or to the 170 level.

As for the normal indicators, we still see the action below the intermediate and long term moving average lines with both lines still pointing downward. As for momentum, the intermediate term is still negative (shown on the chart) while the long term is still slightly positive. We are getting the same kind of mixed message that we have from gold itself. One will have to wait for further action to really get a firm confirmation as to the position of the Index, from these indicators.

MERV'S PRECIOUS METAL INDICES

Here we have a chart that combines the performance of all the Indices and metals that make up the Merv's Precious Metals Indices Table (see below). What relevance it has is still unknown but as a composite of 22 precious metal (and one currency) performance it must have SOME relevance. Here we see the neckline of an H&S pattern broken a couple of weeks ago but the Index has gone nowhere since. Some might say that we should wait for the lowest shoulder level to be broken. If so then we still have a little bit of space left. Otherwise we have an H&S projection to about the 175-176 level.

Other than the H&S we have the recent action in this composite Index taking place below its intermediate and long term moving average lines with both lines heading lower. We see the intermediate term momentum in the negative zone showing slightly greater weakness than the Index, having dropped below its previous June low while the Index stayed above its June low. The long term momentum has shown a similar weakness but has remained slightly in the positive zone.

Overall, if we are not already in a bear market the composite sure is heading in that direction.

As for the Merv's Indices themselves, the table of ratings shows all Indices NEG (or BEARISH) for all three time periods (except for the Merv's Spec-Silver intermediate term rating which is at a - N level).

MERV'S GOLD & SILVER 160 INDEX

A week ago the universe of 160 precious metal stocks closed decisively in new low territory, since reaching its all time high in May. This week it rallied somewhat but not yet decisively. The table tells us it's bearish for all three time periods. What does the chart tell us? Well, the Index is below its intermediate and long term moving average lines and both lines are heading lower. As for momentum, both time periods are showing a weakening momentum with the intermediate term already in the negative zone while the long term is still slightly in the positive zone. The chart is basically confirming the table rating although the long term might be classified as - N instead of all out bearish.

As for the breadth indicators, they improved a little during the week. We had more than a 2 to 1 ratio of advancing stocks to declining stocks. This is to be expected during a week where the Index advanced. However, for this breadth to mean anything other than a one week wonder we need a few weeks of such breadth before reading anything into it. More important is the overall summation of bullish to bearish stocks for each time period. Here, everything is still in the bearish side but the numbers have improved a little during the week. We are still 63% BEAR on the short term, 63% BEAR on the intermediate term and 74% BEAR on the long term. More positive weeks are required to get these numbers into the BULL range.

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

Still lumping these three sector Indices under one roof as their performances are not that different from one another. All three closed higher on the week at around the 3.0 % mark. Only the Qual-Gold closed some distance from there at a minus 2.1%. The Indices are all still above previous lows from the June-July action. They all are below their intermediate and long term moving average lines and the lines are sloping downward (except for the Gamb-Gold Index). The Gamb-Gold is still the one remaining Index with its long term moving average line still pointing upwards although it is turning towards the negative. As for momentum, I use a different momentum indicator for chart analysis. Here, the intermediate term momentum basically confirms the table while the long term is not quite as negative. The long term momentum, although all are heading lower, are still slightly inside their positive zones.

Although the table rates these Indices as NEG (or bearish) for both the intermediate and long term I would be inclined to rate them as - N on the long term due to the momentum still being in the positive zone.

As for the overall individual stock BULL/BEAR ratings, last week the ratings were all BEARISH for all three time periods. This week the ratings improved somewhat but all are still at the BEAR level so I wouldn't go into the details here. Once we start to get some noticeable changes I'll include the details.

SILVER

Although somewhat stronger than the gold action, the recent silver action seems to have had little impact upon the actions of the silver stocks.

MERV'S QUAL-SILVER INDEX

Although the best performer this past week with a 4.2% gain that still didn't get the Qual-Silver anywhere. It is still below both its moving average lines and the lines are still pointing lower. Momentum is the same as for most Indices, negative on the intermediate term and still slightly positive on the long term. However, out of 10 component stocks in the Index, 9 gained and only one lost on the week. That did affect the overall ratings but they still remain in the bearish camp with a BEAR 65% on the short term, BEAR 50% on the intermediate term and BEAR 55% on the long term. We could see these go into the positive with one more good week on the up side.

MERV'S SPEC-SILVER INDEX

From being the best performer only a few weeks ago to being the worst. Although all other Merv's Indices closed the week on the up side the Spec-Silver Index of 25 stocks closed down. It was only a loss of 0.2% but still down. The ratio of winners to losers was the weakest of any of the Indices this past week with a 50/50 split. As for the overall ratings, we have the only rating that increased its bearishness this past week in this group. The long term rating decreased further to a BEAR 78% (from a bearish 74% last week).

As far as the chart is concerned, we have the same story here as with the other Indices. Index below both moving averages, moving averages negative, intermediate term momentum negative while the long term is still slightly positive.

RECOMMENDATIONS

As you can see, the environment is still not conducive to jumping into the market with intermediate or long term investments. The risk is still too great. Any recommendations are still of the GAMBLING variety. Here, although the risks are high gamblers understand the risks and take their chances.

MERV'S PRECIOUS METALS INDICES TABLE


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MERV'S NON-EDIBLES FUTURES TABLE


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To view the Merv's Non-Edibles Futures Table as well as other North American and global markets and industries tables on a weekly basis go to the front page, Global Indices section, of the www.themarkettraders.com web site.

That's it for this week.

 


 

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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