Technically Precious with Merv

By: Merv Burak | Mon, Oct 9, 2006
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A Snippy Commentary

I just couldn't let this go without a snippy commentary. If you don't like snippy, go to the next section. All (well maybe not ALL) the media were a dizzy this past week about the fact that the DOW finally made a new all time high. One commentator even went so far as to claim that "investors have been waiting for 6 years to finally break-even".

Wait a minute, there are so many things wrong with this thinking that it boggles the mind.

First, this assumes that investors bought right at the top. Maybe the commentator did but most investors did not. Most investors bought at different times all over the time spectrum. Some are already well into the profit range while others are still waiting for their ship to come in.

The DOW is just 30 stocks, what about the other standard in the industry, the S&P 500 Composite Index? Here, investors are still waiting to "break even". If you don't have a chart then click on the AMERICAN INDICES in the Merv's Global Indices section of the www.themarkettraders.com web site. The S&P 500 still has another 13% to go for investors to "break-even".

Except for the ETF investors, most investors buy shares of individual companies. Taking a quick look through the 30 companies of the DOW, only 9 are ahead of where they were 6 years ago, 18 are still losers and 3 are at the break even point. So, only 30% of investors are showing a profit after 6 years??

I know that even in this age of enlightenment most investors still gravitate towards the fundamental market discipline. But gee wiz, you would think that even those investors would look at a chart every now and then and see that things are not going their way and get out to protect their investment capital. Once a particular stock has turned around one can then get back in, if their fundamentals agree. Regardless of fundamentals, one is taking great risks, even gambling, if one ignores what the charts may be telling him and invests against the charts. You are more likely to make money by buying and staying WITH a trend than buying or staying AGAINST a trend.

That's enough for a snippy commentary, now it's on to the gold commentary.

GOLD

LONG TERM

It's been another one of those weeks when investors/speculators scratch their heads and wonder "when will it end?" There has been a little movement in the long term P&F chart so I thought I'd show it this week. It does not give us great comfort that the end is near. Actually, P&F charts DO NOT tell us the end is near or has arrived, what they do tell us is confirmation of a new trend in motion, which may be some distance from the end of the previous trend. The P&F chart is telling us that the bear trend continues and is heading towards a possible new low. That's something to watch for. A new low would provide extra confirmation that the projection of $480 is likely to be met.

The price action took place below its long term moving average line, the 200 DMAw line. I use the weighted line as it gives me a little extra advance warning of trend changes. The action is also below the more popular simple 200 DMA line but this line is still pointing upwards while the weighted line has turned down. As for long term price momentum (strength), that is interesting. Both the weekly and daily versions show the indicator just touching its neutral line but the daily has shown a slight turn over the past two days and is pointing upward. As for the volume indicator, that also moved to the down side this past week after being positive for a few weeks.

From this I am inclined to maintain my previous MINUS NEUTRAL (- N) rating for another week. As mentioned last week, this rating reflects a trend that is not totally bearish but has not turned around enough to go bullish. It is three steps from bullish. These would be, in order, the NEUTRAL and then the PLUS NEUTRAL ratings before we get to the BULLISH. Should the action continue positive then we might get to bullish in steps or in one leap depending upon the action.

INTERMEDIATE TERM

With the two P&F charts together one can get a better feel for what they are telling us. Both are similar but yet different. The intermediate term chart took a lot longer to go bearish but in the end it did. Once it went bearish by crossing that long up trend line it has remained so. One can clearly see the recent action and how it is heading for a test of the previous June low. One may marvel at the amount of activity shown during the past year on both charts versus the amount of activity shown in 2000 through 2004. This is mostly a function of the units and unit reversal which is relatively small for the recent price range but is large for the earlier lower price range. It goes without saying that when we were in the lower range, in 2000 to 2004, we used different unit/reversal criteria, one that suited such lower range.

As for the usual suspects, the price continues below its moving average line with the line pointing lower. The weighted 65 DMAw line is my preference versus the more common simple 50 DMA. It tracks the simple line very closely but often gives a day or two advance warning of a change of trend versus the simple line. Both are pointing lower at the present time. As for price momentum, it went negative early in Sept and remains so. It is showing greater weakness that the price as it has already made new lows where the price has not. This may foretell the price making a new low shortly ahead. The volume indicator is just slightly below its moving average trigger line but the slope of the moving average is negative suggesting continuing weakness.

From all that I am turning BEARISH. There are just no positives to grab on to this week.

SHORT TERM

Well, we may be in for another rally this week. Although the price action is below its short term moving average line (15 DMAw) and the line is pointing downward the action the past two days has suggested a turn around in the works. Such two days of activity has been done within the boundaries of the previous day's (Wednesday) action. Neither the daily high nor low has exceeded that of Wednesday's high/low range. This suggests a halt in the plunge and possibly a reversal. The short term momentum (13 Day RSI) also halted on its oversold line and bounced up. However, even should a reversal occur it is not, at this time, expected to last long. The trend is still towards lower prices and recent daily volume action suggests that the dumping of contracts exceeds the accumulation of contracts, i.e. the volume pressure is to the down side. We had seen the highest volume activity in over two months during the Wednesday down side action. Looking over the action, the previous couple of highest volume action days during the past two months have also been on down days. There is at the present time just too much negative action to justify getting too enthusiastic even should the price move higher for a few days. So what I see is a short rally with a continuation of the down side following.

IMMEDIATE TERM

In addition to the prognosis just mentioned, the Stochastic Oscillator has entered its oversold zone and is in the process of moving back above its oversold line. It is not quite there yet but heading there. It is still below its trigger line so technically it is still negative but could turn positive within a day or two. For the immediate term, like Monday and Tuesday, I see positive days but that may be it.

NORTH AMERICAN GOLD INDICES

The downward sloping neckline of the H&S pattern was just touched during the week but not breached. We still have to wait for the breach of the neckline to say that the H&S has been validated. Once validated that would then project the trend down to the 65 level, give or take a point or two. That's below last year's May low which does not appear likely but that's the count.

The Index is once more below its 2006 entry level and is showing a loss on the year, unlike the Merv's Qual-Gold Index which is still 10% above its last year's closing price or the Merv's Gamb-Gold Index which is ahead 72% on the year. The trend is definitely towards the down side with the action below both its negatively sloping moving average lines. Both its intermediate and long term momentum indicators are also in the negative zone.

Nothing positive here so more downside is to be expected over the next weeks.

MERV'S PRECIOUS METALS INDICES

It's been another miserable week. All Merv's Indices and the major North American Indices closed lower on the week. Once again it seems that the higher the "quality" of the Index the lower its loss was. The Merv's Composite Index of Precious Metals Indices even closed at new bear market lows this week, and the bear continues. Looking over the Indices table all one seems to see is NEG ratings all over the table. The only POS is the US $ Index, which is understandable as it usually moves counter to gold. Silver is the only precious metal Index with a little life but it too is about to go negative. It is at a MINUS NEUTRAL rating which is just one step above BEARISH.

The H&S pattern was broken a few weeks back and confirmed again this week. The projection for the move, based upon the H&S, is to the previous Sept/Oct level of last year.

MERV'S GOLD & SILVER 160 INDEX

Well I hope that most of you have been taking my advice and staying out of the market (except for a few gambles). This is a time for relaxation, having that beer and enjoying life. The time WILL COME to get back into the market but not when everything seems to be moving lower. The universe of 160 stocks closed lower by 3.8% during the week. From the analysis of gold it looks like there may be a little rally this week but don't get too excited. It may not last. Even if it does you have plenty of time to get in when the reversal has been confirmed.

This Index was one of those making new bear market lows on the week. It closed below both the intermediate and long term moving average lines and both lines are unmistakably pointing lower. Although the intermediate term momentum indicator has been in the negative zone for a few weeks now, the long term momentum is still a hair above its neutral line put getting closer and closer to breaking below.

As for the overall market breadth, almost all on the down side. 76% of the stocks closed lower and only 20% closed higher. The overall stock ratings all moved lower and are all in the BEARISH side. On the short term we are now 78% BEAR, intermediate term at 74% BEAR and long term at 78% BEAR. Nothing pleasant here. Look for more downside in the coming weeks. However, should the Index reverse and confirms so, we will be there with recommendations.

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

As mentioned earlier, the higher the quality the lower the loss. The Qual-Gold Index lost 3.1% on the week, the Spec-Gold lost 4.3% and the Gamb-Gold lost 4.5%. The Qual & Spec Indices are still above their earlier lows but the Gamb-Gold Index is well into new bear market lows, confirming its bearish trend. The latest Index action is below the intermediate and long term moving average lines and the lines are all pointing lower. Even the Gamb-Gold long term moving average line has finally turned down this week. The intermediate term momentum indicators are negative for all three of the sector Indices. As for the long term, the Qual-Gold momentum has now moved into the negative zone but the other two are still above their neutral lines, but heading towards the negative. All sectors should be considered as BEARISH on the intermediate and long term.

The breadth of activity was all on the miserable side. 80% of the Qual stocks closed lower while 87% of the Spec stocks did likewise. For some reason the Gamb stocks did the best with only 70% closing lower. As for the overall stock ratings, they all moved lower. For the short, intermediate and long term they are, respectively, 85% BEAR, 88% BEAR and 92% BEAR for the Qual Index; 80% BEAR, 75% BEAR and 83% BEAR for the Spec Index and 80% BEAR, 78% BEAR and 83% BEAR for the Gamb Index.

SILVER

Although silver bullion had a smaller decline during the week then did gold, the stocks took a severe tumble declining more than the worst of the gold Indices.

The P&F chart shown on the following page can be considered an intermediate term chart. Silver had its ups and downs but is in one of its down periods now. It is still some distance from its previous low but as goes gold so in all likelihood goes silver. Looking over the bar chart of silver there is one silver lining on the chart. Although daily volume has been comparatively very low over the past few months it has been primarily on the up side activity. Even though the gentle rally since the May low ended considerably below its previous May high the volume indicator was making a new high. During the decline of the past month and a half the volume indicator stayed level. There seems to be strength here that is not noticeable with gold.

MERV'S QUAL-SILVER INDEX

With a 5.6% decline on the week that makes the Qual-Silver as the worst performer of the week. The breadth was even worse with 100% of the component stocks declining. The ratings were almost as bad, all moving lower with a 95% BEAR on the short term, 80% BEAR on the intermediate term and 85% BEAR on the long term. Despite such a poor showing the Qual-Silver Index is still the farthest away from its previous June low of any of the Indices. The Index is below its moving average lines and this week even its long term moving average turned down. Long term momentum is still slightly positive but moving lower while the intermediate term momentum is already negative. All in all, BEARISH on the intermediate and long term.

MERV'S SPEC-SILVER INDEX

This Index was the second worst of the week's performers with a loss of 4.8%. There were a few winners during the week but still 84% of the component stocks declined. As with all other Indices, the ratings all declined some more during the week. The short term is mow 90% BEAR, the intermediate is 74% BEAR and the long term is 82% BEAR. Also as with the other Indices the Index is below both moving average lines with both pointing lower. Intermediate term momentum is negative while the long term is still positive but pointing towards the down side. All in all, BEARISH on the intermediate and long term.

RECOMMENDATION

Continue taking a rest. It's not yet time for action. Today in the Individual Stock Review section I will be reviewing some of the previous short sell suggestions (they are doing fine) and maybe have time for one or two new ones. One such short suggestion was Newmont Mining (NEM on the NYSE). Although the potential profit was not expected to be that much (about 25%) my suggestion was to go for the put options for greater gains. Looking at the chart, so far, so good.

MERV'S PRECIOUS METALS INDICES TABLE


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That's it for now.

 


 

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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