Technically Precious with Merv

By: Merv Burak | Mon, Jan 14, 2008
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Well, gold has now made it to a new all time intra-day high. Again, so what? Momentum and volume activity are still lagging. Go with the flow but keep your protective options at the ready.

URANIUM

By all news accounts uranium is much in demand these days. In fact, uranium is supposed to be in greater and greater demand over the next many years as more and more nuclear plants in China and elsewhere come on steam. But it seems that after a sharp run-up over the past few years uranium and uranium stocks just can't seem to get any more steam for further advancement. Were they so overpriced that they are now destined not to go anywhere for some time, until the usage increases significantly?

There are two problems in this industry as far as investors are concerned. First, there is no active market for uranium, as there is for gold, and therefore one has difficulty getting a good sense as to where the price of uranium is and where it might be going. The standard source seems to be that established by The Ux Consulting Company, LLC (www.uxc.com). They publish a price for uranium only on a weekly basis. This price is also published on the Kitco Base Metals site (www.kitcometals.com).

The second problem has been the lack of an easily available Index of uranium stocks and a regular analysis of the performance of such Index, to assess how uranium stocks are performing. The metal may be doing one thing and the stocks another. One recently established blog that is dedicated to uranium and uranium stocks is TECHNICALLY URANIUM with MERV. The blog can be reached at www.techuranium.blogspot.com. For those interested in uranium stocks I recommend this blog, after all, I'm Merv. What more can I say.

After reaching their peak in April uranium stocks took a sharp plunge finally bottoming out in August after losing 50% of their value (based upon the performance of the Merv's Daily Uranium Index). A rally and then a normal reaction and uranium stocks just might be at a very early stage of their next bull market. A little more upside and the Index of 50 uranium stocks would break a third FAN trend line (readers of these commentaries should be familiar with my FAN trend lines) on the up side and a short term reverse head and shoulder pattern, both positive events should they happen. To be on top of this development one needs to check the blog site daily.

GOLD

Last week I showed the weekly chart of gold with a few very long term indicators. I mentioned that the momentum indicator was near its overbought line and that previous trips to that line resulted in a reversal of trend for a while. What I failed to point out at the same time was the negative divergence of the momentum indicator with the price action. The momentum indicator is still some distance from its 2006 peak while the gold price is making new highs. This is also an indication of a possible reversal of trend ahead. This reversal of trend HAS NOT yet started but if it should it could trend the price back to the level of the very long term moving average line, which is at the $712 level at the present time. That looks like a long ways down but no possibility should be overlooked of-hand. In the mean time one would go with the direction in progress.

As for the normal long term prognosis, things continue to look positive. The price of gold is far above its positive sloping moving average line. One starts to worry that the price has run up too far too fast and that a reaction back closer to the moving average line is around the corner. As for the momentum indicator, it too is giving us a negative divergence reading versus its May 2006 peak. It is, however, positive and pointing upward so until it reverses direction we have no worries of a gold collapse. The real worry is the volume indicator. Since reaching a new high in November it has not been able to recover from the subsequent reaction into December. Originally one could claim the holiday season for speculators not being in the market but what about the past week? Surely the speculators are back. Let's give it another week and see if things perk up on the upside volume.

In the mean time I'll stick with a BULLISH rating for the long term.

INTERMEDIATE TERM

Since reaching its peak in early 2006 and starting its decline Gold has only made one intermediate term reversal of trend on the intermediate term P&F chart. That reversal was to the up side in Oct of 2006 at $620. Since then it has not given any further reversal. It had crossed the up trend line once but did not activate my second criteria, i.e. moving below two previous lows. So here we are, far above the up trend line and far above any double lows. From the P&F chart we have a long way to go to get to a reversal of trend.

As for the charts and indicators, gold is moving higher and higher above its intermediate term moving average line. At some point it will reverse and move back towards the line but that has not yet started. Momentum is positive but it and the volume indicator are having a hard time to better their previous November peaks. Although we are at all time price highs it looks like we got there without any real strength or speculative interest behind the move. We'll have to see what this coming week brings but as of this moment one would still have to rate gold as BULLISH on the intermediate term.

SHORT TERM

This trend can't last much longer. It has been too strong for too long. However, there is no sign yet that the trend has started to reverse but there is some signs that it may be getting weaker. The aggressive Stochastic Oscillator (SO) had been getting slightly weaker last week but the Thursday's action gave is some more life, if only for a day. It seems to be once more slightly weakening but not yet to any great degree. The normal short term momentum is well inside its overbought zone ready for a reaction of some sorts. A crossing of the up trend line may be the first hint of trouble with a move back below its overbought line as further confirmation a move may be in progress. Let's wait for it. As for the moving average line, both the short and very short term lines are still quite positive. I would think that a move below $868 might be cause for short term concern.

NORTH AMERICAN GOLD INDICES

Today's Index for review is once again the S&P/TSX Global Gold Index. The past two weeks has seen a dramatic increase in the major North American Indices. The best of these was the S&P/TSX Global Gold Index. It has increased an average 9.6% per week for these two weeks while the other four Indices that I review here in rotation only averaged 5.6% per week. It could be that this S&P/TSX Index was just lagging and is now catching up or it could be currency fluctuations or it could be that the most heavily weighted stocks in this Index are different from the heavily weighted stocks of the other Indices. The interesting difference seems to be the extend of the move above its November high. The other Indices have barely exceeded their November high, and two have not yet. So what does this say for the gold stocks? The various charts seem to suggest that so far we are in a “quality” rally. This is not unusual near the start of new moves but must be followed by moves in the speculative section for the move to suggest longer term sustainability.

MERV'S PRECIOUS METALS INDICES

All of the Indices and components of the Composite Index of Precious Metals Indices were on the up side this past week, even the U.S. $ Index (which is a surprise as it usually moves in the opposite direction). The Composite Index is reaching into new all time highs while the average gold and silver stock has not yet moved into new highs. This reflects the initial bullishness of the various Indices composed of the quality stocks and with their Index values based upon a weighted system where the largest stocks have the most influence. The average performance of the universe of gold and silver stocks is reflected in the Merv's Gold & Silver 160 Index reviewed below.

MERV'S GOLD & SILVER 160 INDEX

While the S&P/TSX Global Gold Index gained 8.4% this past week and the other four major Indices gained 4.9% the average gain for the universe of 160 stocks gained only 2.8%. This poorer showing was primarily due to the weaker gains seen in the speculative section of the group versus a superior performance from the higher quality section. Since there are a lot more speculative stocks they have a greater influence on the overall average universe performance.

Despite the low % gain during the week there were still 2 stocks moving higher for every one stock moving lower. Although there were a fair number of double digit gainers during the week there was only one that made it into my arbitrary plus/minus 30% weekly movers category so overt speculation may not yet be on hand. As for the stock ratings, the summation of individual stock ratings for each time period is in the bullish camp. The short term has a BULL 74% rating, the intermediate term has a BULL 55% rating and the long term has a BULL 63% rating.

As for the charts and indicators, the Index is above both its intermediate and long term moving average lines and both lines are heading upward. The momentum indicators for both time periods are also in their positive zones and heading higher. The cautionary signs are the under performance of the momentum indicators versus that of the Index. Momentum (strength) of the move is lacking. In addition we have not yet moved into new highs. Despite these cautionary indications I must rate both the intermediate and long term as BULLISH.

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

Once again it's the highest quality, highest gain scenario. The Qual-Gold Index gained 5.7%, the Spec-Gold Index gained 3.2% and the Gamb-Gold Index gained 1.1%. If it wasn't for the performance of one stock in the Gamb-Gold Index the Index would have been in negative territory. This quality versus speculation performance extended to the breadth numbers. There were 27 winners (90%) and 10 losers (10%) in the Qual-Gold Index while the Spec-Gold had 21 winners (70%) and 9 losers (30%). At the bottom was the Gamb-Gold Index with only 14 winners (47%) and 14 losers (47%). As far as the summation of individual ratings were concerned, they stand like this:

Qual-Gold: Long term BULL 80%, intermediate term BULL 83% and short term BULL 88%.
Spec-Gold: Long term 58%, intermediate term BULL 65%, short term BULL 83%.
Gamb-Gold: Long term BULL 65%, intermediate term BEAR 52%, short term BULL 50%.

The Gamb-Gold Index is the only sector Index with a bearish rating, that for the intermediate term. The short term is also no great shakes with only a 50% bullish rating. The action is in the quality stocks for now.

As for the charts and indicators, they are all telling only one story, Index above a positive moving average line and momentum in the positive zone. This for both time periods. The only cautionary indication is from the momentum indicators which are all giving us a under performance message at this time. Maybe they will strengthen up in the coming weeks, we'll see.

All three Indices are therefore rated as BULLISH for both the long and intermediate term.

SILVER

Although silver seems to be back on track out performing gold it started from a lower level and has catching up to do. The Friday close is barely above its previous November high while gold is comfortably above its November high. From a Relative Strength (RS) standpoint silver has now moved ahead of gold in the short term standings. For the intermediate and long term gold still has a better performance but silver might catch up in a few more of these out performing weeks.

MERV'S QUAL-SILVER INDEX
MERV'S SPEC-SILVER INDEX

As with gold, the higher the quality the better the week's performance. The Qual-Silver gained 2.8% while the Spec-Silver gained only 1.1%. Although positive these gains are very low compared to the other, gold, Indices in the Table. As for winners and losers, the Qual-Silver Index had 8 winners (80%) and 2 losers (20%) while the Spec-Silver Index had 14 winners (56%) and 9 losers (36%). This week the summation of individual stock ratings looks like this:

Qual-Silver: Long term BULL 80%, intermediate term BULL 80% and short term BULL 90%.
Spec-Silver: Long term BULL 64%, intermediate term NEUTRAL and short term BULL 82%.

As with the Gamb-Gold Index the Spec-Silver Index has a problem for the intermediate term. As for the charts and indicators, with the Spec-Silver moving averages turning up this past week or two we now have the same situation as for the Gold Indices. The indicators are all positive although not necessarily very much so. The momentum indicators are still under performing the Index values. For now both Indices are rated as BULLISH for both time periods.

Merv's Precious Metals Indices Table


Larger Image

Note that the FTSE Indices prices are for the close on Thursday. The Friday close were not available at publication time.

Well, that's a wrap for another 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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