Technically Precious with Merv
All things considered, gold and North American Gold Indices went nowhere during the week. Where they were on Monday, they were on Friday. Time for a major move.
No long term chart this week. There has not been enough action to justify one. Looking at the long term P&F chart it barely budged, although it has added on another X to the chart. There is still nothing changed in the chart action. We are still under the spell of a bear signal and would need a move to at least the $675 level to turn around, at least based upon the present chart activity. Some additional lateral movement might bring that level down somewhat but at the present time that's what we've got. The down side projection still remains at $480.
The week's action continued below my weighted long term negatively sloping moving average line. It was also mostly below the more popular and still positive long term simple moving average line and closed just below that line. As for the strength of the price action, as represented by the momentum indicator, it is still slightly in the positive zone and moving in a basic horizontal direction, i.e. location positive, direction neutral. The long term volume indicator is once more in its positive zone with its moving average starting to perk up again.
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.
The chart suggests a large pennant pattern. If so, these are considered as bullish patterns especially after a significant advance. I would be a little bit careful in interpreting this as a bullish pennant. It just seems too large and has been forming for too long. If the indicators were more on the positive or at least the neutral side I may be more amiable to a bullish interpretation of the pattern but for now it needs to be confirmed. As they say, prove it.
The intermediate term P&F chart continues within its overall bearish trend although the more recent action might look more like a lateral trend. As mentioned, the P&F is still under the spell of the bear ever since making its decisive down side break in early Sept. Although it has toyed with the up side it just can't get the steam to make a confirmed upside move. That would need to take it to the $630 level for a confirmed reversal. Unless something tremendous should happen on the world political front or horrendous on the financial front we will probably wait for at least another week or two before we can expect that level to be reached.
Back to the chart, The price had just touched the intermediate term moving average line but on Friday closed lower. The line direction is still negative. Price momentum continues negative ever since early Sept although the recent rally has taken the momentum line close to its neutral level. Should the rally continue for another few more days then momentum might break into the positive zone but we'll have to wait for it. Although the daily volume action is very low the cumulative effect of continued upside action has the volume indicator showing a positive trend. It has been slightly stronger than the basic price trend and this would normally be a real positive. I would, however, like to see the volume action somewhat higher in daily activity for a while to get a little more enthused.
Since everything is still negative, despite the rally, I remain BEARISH based upon the intermediate term indicators. However the action is poised for a possible turn around with a few more days of positive action.
A down day here or there but in general the short term continues on its merry way. Unfortunately, there are becoming too many negative indications that the trend might not last much longer. The price continues above its positive moving average line (the red 15 DMAw) and momentum is still just slightly in the positive zone (13 Day RSI). However, the momentum just doesn't seem to have gained much strength and is pointing lower. Daily volume activity has been pretty low on the climb but perked up somewhat on Friday, which ended to be a down day. So far not much encouragement for longevity in the rally. I have my doubts if the price will even get to the down trend line before reacting. However, a technician stays with the trend in motion until the reversal is confirmed so, I must remain bullish on the short term. Should the price drop below $589 then that might change the prognosis as that would be below the recent support and channel lower up trend line.
Although the immediate trend is still positive the aggressive Stochastic Oscillator (SO) is almost at the point where the past few rallies have ended. A close at or below $590 may signal a reversal of the immediate term trend. Watch for it.
NORTH AMERICAN GOLD INDICES
It seems like just yesterday we looked in on the AMEX Gold BUGS Index but here it is time again (taking the 4 major North American Indices in turn). When last we looked HUI had just broken below that wedge up trend line. The plunge halted before making a new low and has been in a minor consolidation since. We still have that Head & Shoulder pattern that I have mentioned for this and the other Indices. The pattern has not yet been validated by a move below the H&S neckline. That is the blue support line shown although some might draw an almost horizontal support at the March and Oct lows neglecting the slightly lower low in June. Of a more immediate concern is that short term resistance at about the 310 level. If the Index cannot breach that resistance then we may really have a problem. If the action should break on the down side the H&S would then project the move to below the previous May 2005 low. Hang on.
MERV'S PRECIOUS METALS INDICES
Another reasonable week all around for the Merv's Indices although not great. All of the Indices were on the plus side (3 of the 4 North American majors were on the negative side). From the performances it was the turn for the speculative and gambling stocks to move with the Spec-Silver Index gaining a good 5.0%. Merv's overall Composite Index of Precious Metals Indices gained less than a % on the week by comparison.
The Composite Index continues to trade below its intermediate and long term moving average lines with both lines pointing lower. The long term momentum continues in the positive zone while the intermediate term momentum continues in the negative zone. One or the other has to cross, either both in the positive or both in the negative. That would give us much better information as to the direction of the market. This way we still are somewhat unsure if the market is only temporarily in the negative or if the market will go full bore bearish.
MERV'S GOLD & SILVER 160 INDEX
With the second best weekly gain of any of the North American Indices (only the Spec-Silver had a better one) the overall universe of 160 stocks gained an average of 2.7% on the week. The speculative stocks were on the move causing the gain. Despite the gain the Index still closed below its intermediate and long term moving average lines. Worse yet is that both lines are in negative trends. As for momentum, that is still negative on the intermediate term and positive on the long term. Shown this week in the subscribers section, Merv's Gold & Silver 160 Index Table, is the MACD indicator with the Index. Although not one of my favorites it is a very popular momentum indicator. It is just skirting its neutral line on the top side for a neutral reading. This is mid way between the intermediate and long term RSI readings. Unless we have another positive week the MACD is expected to drop into the negative next week.
As for the breadth of the market this past week, it was a little less positive than last week but still on the positive side. We had 61% gainers and 34% losers out of the universe of 160. As for the summation of individual ratings, these moved a little further towards the positive, but not that much. The short term was the best with a 58% BULL rating (NEUTRAL last week). On the intermediate term it is still a BEAR with 54% (62% BEAR last week) and on the long term we have a BEAR at 67% (70% BEAR last week). Slowly heading towards the bull ratings but slowly. Let's hope the short term is a harbinger of things to come.
The recent rally in the gold sector has been quite muted. There is still not the speculation one would like to see that suggests that the professionals are in general all go-go on the golds. During the week there were only two stocks in my arbitrary plus/minus over 30% performance category. Both had some significant news items to propel them. Even last week with a more positive overall week than this week there was only one stock in this category. Still not the time to be jumping in except for the few gambling stocks.
MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX
Still grouping the three gold sectors together as their trends are still very similar. Here we see the quality weakness and the speculative strength, at least for this week. The Qual-Gold closed only 0.4% higher on the week while the Spec-Gold closed 1.3% higher and the Gamb-Gold closed 2.6% higher. The weekly advancing and declining issues also suggests this disparity in this week's strength. For the Qual-Gold Index we had 47% advancing issues and 53% declining. For the Spec-Gold we had 57% advancing and 37% declining and for the Gamb-Gold the numbers were also 57% advancing but 40% declining.
As for where the Indices are in the overall trend, well the Qual-Gold Index still has its value below both of the moving average lines and both are still negative. As for momentum, we still have the long term positive and the intermediate term negative.. The Spec-Gold Index seems to be just a bit better with the Index still below its long term negative moving average but just above a horizontal intermediate term average. Momentum seems to be strengthening likewise with the long term remaining positive while the intermediate term now slipping into the positive. The Gamb-Gold Index seems to be somewhat in between these two. Its Index is still below both of its negative moving averages like the Qual and both momentum indicators are above their neutral lines like the Spec.
As for the overall BULL/BEAR ratings of the component stocks, that has barely changed since last week. Any change has been primarily towards the positive, but only minor.
All in all, nothing yet is at the level to get one enthusiastic to go out and RISK capital in gold stocks, except, of course, for those outright gambling ventures. But you know the risk.
Silver continues to out perform gold with a 2.4% advance versus gold's 0.6% advance, this past week. While gold is still struggling to breach its Sept high silver is already well above its high. As with gold stocks it was the turn of the speculative silver stocks to really move this week with a 5.0% gain for the Spec-Silver Index and only a 1.5% gain for the Qual-Silver Index.
What we see in the silver bullion chart is a very concentrated short term up trending channel that is about to butt heads with a 5 month intermediate term down trend line. As with gold we have a pennant pattern that has developed following a major run-up in price, from the $6.70 level in Aug of 2005. Again, as with gold I would be a little leery about the prospects of this becoming a new bull move although that is what the pennant would normally suggest. Let's wait and see if it can breach that down trend line as a start. Since the drop, the momentum or price strength has gone nowhere. One would like to see serious strengthening in momentum if it was going to break through into a new bull. Looking at the volume action, we have had very low volume activity for 6 months now, and especially during the past 2 months. This is also not reassuring. Despite the low daily volume activity, what activity we have had seems to be mostly directed to the up side as evidenced by the continuing up trend of the volume indicator.
MERV'S QUAL-SILVER INDEX
With a 70%/30% split between winners and losers the breadth was better than the Index would imply. The BULL/BEAR ratings have also moved slightly towards the positive but not to the extent of changing anything. As for the indicators, The Index is still below its negative long term moving average line but has just inched ahead of the intermediate term line. Intermediate term momentum has also just inched its way into the positive with the long term remaining positive as it has been for over a year now.
MERV'S SPEC-SILVER INDEX
With the best performing Index this week the Spec-Silver Index also had the best breadth in its advancing declining issues, with 72% advancing and only 24% declining. The ratings also improved but only a little.
As for the indicators, on the long term they are the same as for most other Indices, negative on the moving average side and positive on the momentum side. The intermediate term is the most interesting. Both the moving average info and momentum info are positive. One would normally jump at this and declare a bullish intermediate term but there is a serious resistance to an up trend at 8% above the present Index value. That level would need to be crossed to really get on the bullish band wagon.
MERV'S PRECIOUS METALS INDICES TABLE
I know, I know. You're just itching to get back into the game and start buying into the precious metals. It's often difficult to sit back and just relax until the environment becomes less risky.
There are two types of market players (well, maybe a lot more but I'll mention only two). There is the investor that waits for the risks to minimize (they will NEVER go to zero) before investing. He then holds the stock throughout its bull move and gets out near the top. He also protects his investment against surprises. This investor usually makes out the best in the market. There is the gambler who likes to gamble on quick short term moves. He is in the market anytime. He often makes good judgment moves and comes out smelling like a rose. Occasionally he loses, but that's part of the gambling game. This gambler tries to improve his performance by being in the market most of the time. Some of these gamblers make out quite well, others not so well. I don't think there is enough data to really know how well or how poorly this gambler does.
The investor should consider remaining out of the market just a little bit longer. Yes, you might enter at a slightly higher level but once the bull has been confirmed and is really on the march there will be plenty of gains still to be made, and at lower risk. Too many "investors" do not give the risk factor sufficient consideration in there market activities.
Lecture over, on to next week.