Technically Precious with Merv
It's so easy to get all excited that a new bull has arrived, until you look at the charts. Is it the start or just another fake-out?
Despite some positive action during the week nothing much has changed in the long term status of gold bullion. The long term P&F chart has not shown any movement during the week and requires a move to the $600 level just to reverse its plotting direction, least of all its bear status. To reverse to a bull status would take a move, with the present chart, to the $690 level to confirm. That is not in the cards for at least some days yet, but who knows? Another bomb that doesn't bomb out like the one several days ago and gold could hit the $690 mark in a day. For now the long term P&F chart remains in a bear mode.
As for the usual suspects, well the recent action, however encouraging, has all taken place below the long term moving average line, the weighted 200 DMA line, and the line continues to point towards the down side. The action is also below the popular simple 200 DMA line but that line has still not reversed its direction to the down side for some minor encouragement. We'll see which moving average has been giving us the best information as time goes by. Using the daily chart, the long term momentum is still slightly inside its positive zone. It just touched its neutral line the previous week and has been perking up since but not in a very strong way. It needs much more strong upside action to discourage the weakness it has been showing for these past several weeks. The long term volume indicator, although not necessarily one of my primary considerations for long term analysis, had gone negative the previous week but bounced back above its moving average trigger line. Of greater concern, the moving average line had turned towards the negative slope and continues to point lower.
All in all, although there is a good case for being bearish overall on the long term I will remain with a MINUS NEUTRAL (- N) rating due to the reluctance of the momentum to go negative.
First, a quick look at the intermediate term P&F chart. Although the direction of plotting has reversed to the up side there has not been enough upside action for the chart to break above any previous highs nor to break above the down trend line (shown on the P&F chart last week). As far as the P&F chart is concerned we are still in an intermediate term bear market.
The intermediate term candlestick chart this week has a couple of items that should be looked at for consideration. There are the usual suspects (indicators) and there is that potential head and shoulder pattern. Let's look at the H&S pattern first.
When analyzing a potential H&S pattern the first thing I like to see is a momentum that has shown a negative divergence versus the price action at the head position. This would indicate a serious weakening of the price as it headed into its final (?) highs. We do not have this situation here. We do, however, see weakening subsequent to that high. The right shoulder momentum low in June was lower than the left shoulder low in March, while the price was higher. The recent low in early October, of an elongated right shoulder, was lower than the original right shoulder low, again while the price moved higher. So we do have a suggestion of continuing weakening momentum as the price tries to stabilize and try for a reversal of trend but the odds are it will not succeed. Should the price drop decisively below the support/neckline of the H&S pattern then the conventional projection from such a break would mean a move to the $375 level. For my money I would go more with the P&F projection to the $480 level as a guide.
So, we have a bearish intermediate term P&F chart and a potentially serious H&S pattern. What are the usual suspects telling us? As with the long term, the week's action has taken place below the intermediate term moving average line and the line is pointing lower. The intermediate term momentum is in its negative zone although showing some perking up. The volume indicator has moved above its moving average line and the line is turning up.
I am still bearish on the intermediate term but do realize that there is some positive action happening that could turn that prognosis around in the next week or two.
Well we have a small rally in progress the longevity of which is still in doubt. We've seen many of these rallies lately and they all seem to have petered out. Friday's action has taken the price above its short term moving average line with the line slope in the turning process but not quite fully turned. Short term momentum is bouncing off its oversold line and has just inched into the positive zone by a fraction of a fraction of a %. Unfortunately, the daily volume action is pathetically low. This does not provide the strength behind the action that is needed to propel the price into new recent highs. Maybe Friday's volume was more positive but we will not know that till Monday. Getting back to momentum, this is one slight bright spot on the technical end. The recent new low in the price action was not confirmed by the momentum, which stayed above its previous low. With one more day of positive price action the short term momentum will then reach a higher high versus its late Sept high. So, although the price and volume action, to this date, do not look all that promising the momentum is suggesting better strength behind the action. We'll just have to see how this develops. I would expect another positive week ahead.
So, what's in store for Monday? It does look like more upside in the next day or two. The trend is in that direction and the very short term moving average line has turned up. Only the aggressive Stochastic Oscillator is holding back and that is a concern. Usually the SO would be confirming any new short trend but it is not yet. It had, however, confirmed the bottom by moving into and then out of the oversold zone two weeks ago but it has not yet entered its positive zone above the neutral line. I'll stick with the possible upside Monday and Tuesday for now. World events can, of course, throw all the analysis out of kilter on a moments notice.
NORTH AMERICAN GOLD INDICES
It's time to be looking in on the AMEX Gold Miners Index this week. It is the more extensive of the four major Indices that I look at in rotation each week but still uses the "weighted" method of calculating its Index value making the smaller stocks useless in the calculation.
As shown here on the AMEX Gold Miners Index, the various stock Indices have shown a negative divergence at the head location of their H&S patterns. This to me suggests that the pattern will be confirmed at some point in time. That time should not be far away. The chart suggests a neckline at the 885 level although a purest technician might require the neckline to be located where the dash line is, i.e. touching the left and right shoulder lows. I would be inclined to accept a move into new lows, below the June low, as confirmation of an H&S break.
Apart from the H&S, the chart shows that the Index continues to move below both of its negatively sloping moving average lines with a momentum in its negative zone. The momentum IS showing some strengthening by not making a new low versus its June low and therefore not confirming the Index low. How potentially strong this is will remain to be seen. Maybe this week will further confirm such strengthening or dispel it. In the mean time we are still under the influence of an intermediate term bear market in the major Indices.
MERV'S PRECIOUS METAL INDICES
It's been a good week all around. Gold moved higher, the major North American Indices moved higher and all of the Merv's Indices moved higher. What more can we ask for? Once again, as shown by the performance of the various Merv's Indices it was the quality with the best performance and the speculative with the worst, the difference being a good 2%.
MERV'S GOLD & SILVER 160 INDEX
The average performance of the universe of 160 stocks was a gain of 3.0%. This was the lowest of the Merv's Indices with the gambling Index, the Gamb-Gold Index, right behind with 3.1%. The most speculative of the precious metals is just not moving and holding back the 160 Index. This is an indication that, although the action seems to be towards the up side it is not with gusto. When speculators are not convinced that a turn around is in the cards they go towards the quality for their action. Only when the speculators are more sure of the future do they then go for the speculative stocks, and do so with a vengeance. That time is yet to come.
The Index is nestled in the middle of a down trending channel. The action, although on the up side, is still well below both of its moving average lines and most importantly, the average lines are sloping negatively. Intermediate term momentum is in the negative zone while the long term momentum is still slightly in its positive zone. We had an almost reverse breadth performance this week versus last week. 69% of the component stocks advanced while 28% declined. More important was how this affected the summation of individual ratings. On the short term we are now in a neutral rating with neither bull nor bear having the upper hand. On the intermediate term the overall rating moved to a BEAR 62% from last week's bear of 74%. On the long term the move was likewise towards improvement but not as much. A 78% bear rating from last week has improved to a BEAR of 70%. Although the Index had not climbed back to the level of two weeks ago the ratings have done slightly better than two weeks ago. The improvement in the ratings is going in the right direction.
MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX
The sector Indices is where we separate the men from the boys, and the men seem still to be the quality type. The week saw advances in all three sectors with the Qual-Gold gaining 5.5%, the Spec-Gold gaining 5.1% and the Gamb-Gold gaining 3.1%. All three Indices are still below their negatively sloping moving average lines. Long term momentum indicators are all still positive while only the Spec-Gold momentum is positive on the intermediate term. Although the intermediate term momentum are negative for the other two Indices they are very, very close to breaking through their neutral lines.
On the breadth of the market, both the Qual and Spec had 90% of their component stocks advancing and only 10% declining. The Gamb-Gold Index was not as good with only 67% on the advancing side and 33% on the decline. The % BULL/BEAR ratings for the three Indices have all improved but still showing the ratings in the BEAR side for the intermediate and long term. On the short term only the Gamb-Gold Index is still not in the BULL side but has moved into the NEUTRAL, ready to go bullish.
Although acting somewhat better than gold, silver still is not going anywhere. After the sharp drop in May/June it has been a sideways trend since. The momentum indicator shows this by its holding on to the neutral line and not moving much in either direction. The volume action is about the most encouraging. As with gold, the daily volume action is very low but the accumulation as shown in the indicator seems to be mostly on the up side. We should see over the next week or two what the future holds for silver.
MERV'S QUAL-SILVER INDEX
With a gain of 5.6% the Qual-Silver Index was the best performer of all the North American Indices. However, with only 10 component stocks in the index it only takes a good performance by one or two stocks to show a great performance. With a 12.0% gain by Gammon Gold, this one stock moved the whole Index by over 1% by itself. Other than the fact that with so few component stocks this Index is far more volatile, up and down, than the other Indices the on-going performance is not much different than that of the primarily gold based Indices. There were 9 winners and one loser this past week. As for the ratings, those improved but still bearish on the intermediate and long term.
MERV'S SPEC-SILVER INDEX
In the middle of the pack as far as this week's performance is concerned the Spec Index gained 4.5% on the week. Along with the Gamb-Gold sector this Index had the worst breadth performance on the week with only 68% of the component stocks advancing and 32% declining. The ratings improved but on all periods still ended the week in the BEAR camp.
MERV'S PRECIOUS METALS INDICES TABLE
Well, I'm calling it quits for this week. Be back next week, same time, same place.