Technically Precious with Merv
WOW! $1000 per oz. Where to from here? I still remember when the DOW first breached its 1000 mark. It was 10 years before it went anywhere after that. I don't see the same for gold, but who knows?
Well, it hasn't quite hit my long term P&F projection of $1020 but it got awfully close. Maybe this week. The next projection would then be $1125. The very long term $1600 projection is getting closer and closer.
The chart this week is a weekly chart with indicators and moving averages removed to simplify the picture. What we have here is a perfect example of my FAN PRINCIPLE bearish accelerating trend lines. On this long term chart the third FAN trend line is a blow-off stage. This stage is often the most volatile with a very rapid rise in price but a trend that is unsustainable. When it finally tops out and breaks the third FAN trend line THAT is the end of the bull market for some period of time. The steadily increasing volume action over the length of the FAN PRINCIPLE is also a confirmation feature of this PRINCIPLE. I have seen this PRINCIPLE work too often to ignore it. Of course, it is not perfect, no technique is. Also, there is no way of knowing when the price will finally top out, it could continue for some time yet. However, this chart is giving us a warning that despite what one may think of gold and its final potential, there may be a very rough period sometimes ahead which may result in a lot of bulls throwing in the towel. How low would such a reversal go? Well, at the present time that is anyone's guess but the second FAN trend line might be one target. The daily chart below shows this third FAN trend line more accurately.
Back to the immediate world, the long term action still keeps us in a bullish mood. The price is above a positive moving average line and the momentum indicator remains well inside its positive zone. Although the momentum indicator confirmed the price move into new highs the previous week it has not done so this week when the price was hitting the $1000 mark. This is just a warning that the move by the price into its $1000 range is on weaker strength than earlier. It is still not a serious worry but a warning none the less.
On the long term the rating remains BULLISH.
We see here more accurately the third FAN trend line shown in the weekly chart above. It doesn't look as threatening as the weekly chart does because it seems so far away from the price action. Usually the blow-off FAN trend line is a lot closer to the action. It is possible that a fourth FAN trend line may come into play as a more aggressive warning of a final blow-off. It happens, although it is relatively rare. It just might be the lower channel line shown in the daily chart but I'll hold off on pronouncing it as such awaiting better confirmation.
One normally thinks of the blow-off stage as being a far steeper price action than that shown on the daily chart. This is a visual problem. If one would change the horizontal scale so that the days are not as far apart one would then get a much steeper trend without any changes in the price action. Or one could expand the vertical scale and get the same effect. So, do not get too focused on the steepness of a particular chart trend.
The intermediate term momentum indicator shows the third trend a little better and it expected to be this momentum trend line that might give us that advance warning of a trend reversal ahead. Very often one gets a better trend definition from the momentum indicator than from the price itself.
As for the usual analysis, the price of gold remains above its positive sloping moving average line and the momentum indicator remains in its positive zone. As with the long term momentum, the intermediate term momentum indicator is showing signs of weakness entering into the price activity by not confirming the move into new highs. Just a warning at this point. Breaking through such widely followed barriers as a $1000 barrier is not necessarily the prelude to an explosive further upside move, although it could very easily be so. One should be on guard for sudden reversals after such a break BUT wait for it to occur. In the mean time follow the existing trend. As for the intermediate term rating, that is still BULLISH.
Hitting $1000 one can't complain too much. Everything "looks" great but are there any surprises around the corner? At the present time the only real worry, as it is at most times, is the strength of the recent price action as reflected by the momentum indicators. Both the short term RSI and the Stochastic Oscillator are not yet confirming the move into new highs. However, both are also moving into there overbought zones and that gives rise to the potential of a reversal of trend ahead. That reversal of short term trend would need the indicators to reverse and drop below their overbought lines although I would expect that they might stay in the overbought zones for a few days at least. Despite the caution there is still no reason to change my rating for the short term. The rating remains BULLISH.
Since their August lows silver has advanced 50% more than has gold. I guess one can expect silver to take a little rest while gold continues to head higher.
Back in the late 1950's there was a professional dancer who made a lot of money in the stock market and then wrote a book about how he did it. The book "How I Made $2,000,000 in the Stock Market" came out in 1960. It caused quite a stir in its day. I don't remember if he made more money with the book or in the market. His simple method was to wait until a stock was "boxed" in and then invest when the action moved out of the box.
We have a "box" in the silver action of late. Today we do not refer to it as a box but give it a slightly more nuanced name, a lateral channel. The upper and lower prices of this channel are $21.33 and $19.28. Whichever way the price next moves out of the box should tell us the next direction of the trend, if Nicolas Dravas (the author of the mentioned book) is correct. The action inside the box has only taken about two weeks so if the move outside the box occurs any time soon it could be viewed more as a short term move rather than a major new move.
From the indicators silver is still in a positive trend. It remains above its various moving average lines and they are all sloping upwards. As well, all three time period momentum indicators are in their positive zones but unlike gold they are not yet under performing the price action. For all three time periods the ratings are still BULLISH at this time.
As you might have noticed recently, I have been cutting down on my commentary in the sections beyond gold itself. Time constraints are causing a further elimination of comments. Those comments against stock Indices will be simplified into this one section and will be briefer than the gold commentaries. Subscribers to the Merv's Precious Metals Central weekly service may have additional stock Indices comments included in their weekly UPDATE section, as appropriate.
In the precious metal stocks it was really a two tier market this past week. The largest, highest "quality" stocks were making the moves while the general masses of stocks were going nowhere. This can be seen by the fact that the major North American Gold Indices made gains in the order of 5.7% while the universe of 160 gold and silver stocks averaged out a zero gain. This is not a bullish scenario. When the majority of investors/speculators become quite bullish on the market they gravitate towards the more speculative stocks where the gains could be multiple those of the quality stocks. Gravitating towards the "quality" is a defensive measure when investors are unsure of the road ahead. This may spell danger ahead if it continues.
Merv's Previous Metals Indices Table
That's it for another week.