Technically Precious with Merv

By: Merv Burak | Sun, Dec 3, 2006
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Gold keeps crawling higher and higher BUT the emphasis is on crawling. It is not a burst of enthusiasm but a slow and steady climb. The momentum of the move, however, leaves a lot to be desired.

GOLD

LONG TERM

It's been a few weeks since last I published a long term chart. The P&F chart clearly shows where the resistance levels are. Breaching the $660 level would reverse the existing bear signal but get us to the main resistance at the $675 level. We really need $690 before we get too enthusiastic from the long term P&F stand point. When looking at a long term chart such as this, one understands why one should never get too enthusiastic just because gold moves up (or down) for a few weeks. It is the resistance levels that need to be overcome to create that enthusiasm.

The normal long term indicators tell a different story from the P&F chart. The latest price action continues well above a positive sloping moving average line. The price momentum continues higher above in its positive zone. However, the momentum is moving on decreased momentum versus earlier periods and this continues to be a worry. The longevity of the rally is suspect as long as the momentum continues weak. Although more important for the intermediate and short term but the volume action seems to be focused more on the down side with the volume indicator sitting right on top of its long term moving average trigger line.

Putting everything together, I will continue with my BULLISH position with one eye continuing on the P&F chart.

INTERMEDIATE TERM

The P&F continues on its upward trek after breaking above two previous highs and above its down trend line (my 2 requirements for a trend reversal). The projection remains the $715 level, just shy of a new high. In the mean time it has those resistance levels shown on the long term P&F chart to overcome. With the past few weeks of rally the price of gold is far from its P&F up trend line so we need not worry about an actual reversal for a while.

The usual indicators are all primarily positive except for the volume indicator. The price is well above its positive moving average line and the momentum indicator is in its positive zone. The volume indicator has been bouncing up and down lately and once more is on one of its downward moves. It is below its intermediate term moving average trigger line and its latest peak, a week ago, is considerably lower than its peak in early Nov. The price is considerably higher for a negative volume divergence, not good.

Despite the warning from the volume activity I will remain with the established BULLISH trend until a reversal has been confirmed (or more serious negative indicators come up).

SHORT TERM

The short term continues to act well even though more days were downers than uppers. The trend remains inside its up trending channel and the moving average continues to point higher. The short term moving average line has remained positive ever since it turned up on the 13th of Oct at $592.70. Futures or options traders have probably been making a killing since then. Things will reverse but not yet. We have an interesting decelerating FAN Principle trend lines on the momentum indicator. I would be careful here. If that third FAN trend line should get broken I would be inclined to run for cover, short term wise. In the mean time, stick with a positive trend.

IMMEDIATE TERM

That Friday action almost suggests that we are in for a few days of negative action. Although the price is still above a positive short term moving average line, the Stochastic Oscillator (SO) is showing a negative divergence and has moved slightly below its trigger moving average line. It is still inside its overbought zone but it would not take much for it to drop below the overbought line. I would look at $630 as the support for any down days. Any further than that and we are probably in for more than a few days of down side.

NORTH AMERICAN GOLD INDICES

Well, here we are back looking at the most popular of the major Indices, the PHLX Gold and Silver Sector Index (XAU). If any gold Index can be considered the Index of the highest "quality" gold stocks it would most likely be this Index. With 16 component stocks in the Index just three of the stocks contribute to over 50% of the Index value, add the next two to get five of the sixteen making up over 70% of the Index value. I always wonder if the Index is calculated based upon a weighting system, why do they need those lesser component stocks since they don't make any difference to the Index value. Oh well, I guess it's just me.

First, we still see the continuation of the potential head and shoulder pattern but it is getting a little long on the right shoulder side, but still a valid potential. The latest action has breached through the upper trend line of a triangular pattern, which is encouraging. It is now heading towards new recent highs above the June/Sept highs. Will it make it? Well, a further encouragement is the recent momentum action. The recent action seems to be gaining strength with the momentum now ahead of the price action and moving above its June/Sept highs. From this one might be looking to see more upside action in this Index, but it may not all be go, go, go. Expect some minor downside action to go along with the upside.

MERV'S PRECIOUS METALS INDICES

I'm really falling behind in my weekly commentaries so I will keep it short this week. With such a positive market as we have been having lately there is very little new to write about anyway. The most interesting happening during the week was the performance of the Merv's Qual-Silver Index, with a 6.5% gain on the week. It has now moved into new ALL TIME highs having breached the previous high reached in April. One can only hope to see the other Indices follow suit very shortly. These Merv's Indices are all above their June/Sept highs unlike the majors which are not there yet (see the PHLX Index on the previous page).

One is always curious as to where these Indices are going as that tells them where the stocks are going. An interesting note is that although gold and silver are still not into new highs my Composite Index of Non-Edible Futures has just climbed into new all time highs, above its previous May high. The metals, energy and financial futures are all in up trends. Seems like an all around bull market on-going.

A simple analysis will cover all of the Merv's various Precious Metals Indices. They are all above their positive sloping intermediate and long term moving average lines. They all have positive intermediate and long term momentum. They are all BULLISH on the intermediate and long term.

RECOMMENDATION

Although we still have one more hurdle to overcome, the April/May high, it looks like we are back into a new solid bull market in the precious metal stocks so it's time to be getting back in. It looks like we may be in for a week or two of downside but this is not expected to be serious. Looking back at previous bull runs we get these short downside moves but they only propel the upside that much higher. Having said that, do not place your bets and go on vacation. One NEVER knows when things may turn around and surprise everyone. When investing or more appropriately, speculating, in precious metal stocks one should have their exit prices in hand BEFORE a purchase is made and modify it as appropriate and as the trend progresses. Getting in early on a new major move is great. Getting out early in a turn around is even better. Protect your capital.

MERV'S PRECIOUS METALS INDICES TABLE


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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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