Technically Precious with Merv

By: Merv Burak | Mon, Nov 6, 2006
Print Email

The gains just keep on coming. It's getting harder and harder to remain cautious in this market but sometimes that may be the best option.

GOLD

LONG TERM

Here we see the full history of this past several years of a gold bull market, but before getting into it let's take a look at where we are with the long term P&F chart. The long term P&F chart is still not doing much. It has added another X in its upward direction but still needs to make it to $675 before it provides a reversal signal to the bull. Even then the $675 level is a strong resistance level so that $690 would be a more powerful reversal signal. We are yet some distance from those levels so from the P&F stand point the bear continues but with a positive reaction in progress.

As for the bar or candlestick charts, the above chart tells the tale. We have the multi-year move within a very tight slight upward sloping channel. We have that sharp rise from mid last year to early this year during which time we could actually draw our three accelerating FAN trend lines (only the FAN trend line number one is shown). Since the top we have been going through a consolidation period which may be in the process of breaking on the up side. All this being validated by the strength (momentum) of the price movement being consistently in its positive zone (except for a very short minor period in early 2004). The present momentum seems to be in the process of strengthening off its neutral line, as it has done several times before. Shown is the popular 200 DMA line (40 WMA) which has remained in a positive direction throughout the bull to the present. The weighted version of this moving average line is the one I like to use and it has turned negative some time back but has once more turned to the positive side on Wednesday. Not shown but the volume indicator continues to move higher above its trigger moving average line.

All in all, the normal indicators can only be classified as BULLISH but I still have some caution due to the lag in the P&F chart.

INTERMEDIATE TERM

Well, the intermediate term P&F chart has shown a reversal in progress. It has broken its down trend line and has moved above two previous lows so we have an intermediate term BULL here. The consolidation prior to the break would give us an upside projection to $715. Unfortunately, that is still below the previous high. We'll see how it handles itself as it moves higher.

As for the normal indicators, here everything is also in the positive. The price is above its intermediate term moving average line and the line has turned to the up side. The price is also above the popular 50 DMA line. Here, however, the line has not yet turned up but is horizontal, ready to turn. Momentum has moved into the positive zone and is looking good. Volume is also looking okay being above its trigger moving average line. However, the daily volume action could improve somewhat for a better indication of professional speculative interest.

All in all, I can only go to the BULL camp this week.

SHORT TERM

Well, it was four up and one down again this past week. We shouldn't get too used to it. Ahead is probably four downs with only one up. But that is getting ahead of ourselves. Let's see what is happening now.

From the short term trend standpoint all is honey and roses. The price continues upward ahead of a positive short term moving average line and within a tight upward sloping channel. Momentum is positive and just touching its overbought line but not yet above it. There might be at least another day or so of upside before we get into the overbought zone on a short term basis. Momentum is actually showing some strength being at about the same level that it was when it made the high in July. Although still low, the daily volume action seems to be perking up a bit as the price moves higher. This is a good sign especially if it continues.

For the short term I see more upside ahead, but not every day, all the time. For a reversal of the short term trend a move to the $600 level may be required, although that number would rise as days go by.

IMMEDIATE TERM

Trying to guess what to expect on Monday and Tuesday is really no better than flipping a coin and having a 50/50 chance of guessing right. Who knows what really is going on during the week-end to move markets on Monday. One can only go by what one has up to the close on Friday and assess that information. The most important concept here is the continuation of an established trend unless there are events to nullify.

The established trend is most definitely to the up side with the price still roaring ahead of the very short term moving average line. The aggressive momentum indicator, the Stochastic Oscillator, is very positive but has entered its overbought zone. It has done so aggressively so that one might expect that it is most likely to meander inside its overbought zone for a while rather than to reverse immediately. From this I would expect the immediate future still to the up side. Should the price close $15 below its highest previous close then one might consider the downside taking over.

NORTH AMERICAN GOLD INDICES

Today it is the turn of PHLX Gold/Silver Sector Index (XAU) to be given a look. Although all four of the major North American gold Indices advanced, the XAU advanced the least with only a 4.8% gain on the week. The S&P/TSX Gold Index made it to the 6.8% mark. Looking at the four major Indices they all have a feature that is different from that of all of the Merv's Indices. NONE of these major Indices has broken through their down trend line drawn from the May high. On the other hand ALL of the Merv's Indices have now broken above their down trend lines. Is this a significant difference? I'm not sure but I am most likely to go with the Merv's Indices as leading indicators of what's to come.

In my table of Precious Metals Indices there are many more than four Gold Indices (other than the Merv's Indices). One may wonder why I do not comment on some of these others. Well, most are minor Indices with very few component stocks (even less than the Merv's Qual-Silver Index with its 10 component stocks). Others are foreign Indices and currency movements come into play, and I'm not into getting too elaborate. Besides, these four that I look at in rotation each week are probably the Indices followed by 99.99% of the gold public.

I still consider the XAU as still having a valid head and shoulder pattern although the right shoulder is getting somewhat elongated and with multiple shoulders (not that unusual). Here you see the down trend line mentioned previously. All of the Merv's Indices have already penetrated their respective lines. Although the Index is now above its positive intermediate term moving average line and above the long term line, the long term line has not yet turned up. Although the long term momentum has now crossed into the positive zone it is lagging in performance versus the Merv's Indices. Maybe the next few weeks will see improved performance here.

Despite the Index move one suspects that the whole activity since about January has been a major topping activity. The one bright sport is the Merv's Indices which seem to be giving us a somewhat brighter picture. If they continue higher then the XAU and the other major Indices will follow.

MERV'S PRECIOUS METALS INDICES

It was a very good week for the Merv's Indices with gains ranging from a low of 4.3% to a high of 8.0%. The best gains were in the more gambling type of stocks with the Spec-Silver getting the 8.0% gain and the Gamb-Gold just below it with a 7.1% gain. ALL of the Indices, including the Composite Index, have now moved through the down trend line for a trend break-out. In the table we have all of the Indices with POS ratings for all time periods, except for the long term Gamb-Gold rating which is still at a + N rating. It seems like good times may be here again but before getting too exuberant let's see what's going on, technically.

The Composite Index of Precious Metals Indices is easy. Above both of its positive moving averages with momentum indicators all in the positive zone. In addition, as mentioned above, the Index has now broken through its down trend line. This line was the upper part of a pennant pattern for extra emphasis. So, bullish all around.

MERV'S GOLD & SILVER 160 INDEX

Our universe of 160 stocks had a decent average weekly gain of 6.2%. Looking at the sectors it was the quality and secondary stocks that held back the gains while the more speculative or gambling stocks had the better performance. It is not yet time for outright greedy speculation as we had only three stocks in our plus/minus over 30% mover's category. When we get to a half dozen or more we then know things are really percolating.

As for the normal technical indicators. They are the same for ALL Indices so I will only say it once and you will note that it applies to all of the other Indices.

Price above both positive moving average lines. Price above the down trend line breaking on the up side for the respective pattern. Momentum in positive zone and moving higher. Prognosis is BULLISH for both intermediate and long term.

As for the breadth indicators, these vary somewhat but in general are also the same for all Indices. All of the ratings improved during the week. The short and intermediate term ratings are all well into their BULL territory. The long term ratings vary somewhat with some in the bull camp and some not. To summarize, the BULL camp is populated by the Qual-Gold, Spec-Gold, Qual-Silver and Spec-Silver. The 160 and Gamb-Gold are classified as NEUTRAL with neither in the bull nor bear camp.

As for the weekly gainers and losers in each Index they are as follows: 160 Index, 79% gainers and 20% losers. Qual-Gold, 100% gainers, Spec-Gold, 77% gainers and 20% losers. Gamb-Gold, 63% gainers and 37% losers. Qual-Silver, 90% gainers and 10% losers. Spec-Silver, 76% gainers and 24% losers.

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

See the analysis in the above Merv's Gold & Silver 160 Index for the lazy person's weekly analysis.

SILVER

Silver retains its increased strength versus gold and continues to perform well. At the present time the P&F chart is projecting a move to the $14.75 level. As with gold, this is to the upper part of the previous bull but not quite into new all time highs. Again, as with gold, we will just have to watch the action as it develops.

RECOMMENDATIONS

With the more positive market action I am back to the recommendation side. In the Weekly Stock Review section you will find 6 stocks that either have just started their new moves or are about to. The early part of any recommendation is always the most risky, until profits have developed, so heed the stop loss recommendations just in case of surprise reversals. I had been hesitating providing specific recommendations, other than gambles, until the environment improved. It seems to have done so and time to act. Once a move has been confirmed there is plenty of upside ahead, as the various Indices charts show in the past.

In addition to the 6 weekly stocks in review, as I have been promising, in the Review Update section you will now find a list of those stocks that have, during the week, reversed their INTERMEDIATE TERM RATING from a previous NEG to a now POS. These stocks may now be starting their bullish climb and very often I have found that future stocks that end up in the plus/minus 30% weekly gainers category had first gone through this event.

Despite the volatility of the precious metals market there still are great opportunities for profits. AfriOre Ltd. has been a consistent mover regardless of what gold (or platinum) was doing. In our tables of technical information and ratings published for subscribers each week, AFO rating went POS for the intermediate term on 30 Sept 2005 at $1.45 and for the long term on 4 Nov 2005 at $1.79. Looking through the universe of 160 there are many similar plays which are closer to the start of new trends than being a year or more into one. Greatest profits are made speculating at the $1.45 level than getting in later at the $8.00 level.

MERV'S PRECIOUS METALS INDICES TABLE


Click to open larger image in new window.

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.

Copyright © 2006-2011 Merv Burak

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com