The analysis presented is the view of a pure market technician. There is no attempt to present any fundamental data or information as this is not the expertise of the analyst.

The mid-week review lets us see if the actions foreseen during the week-end are performing as expected or if we need some refining or revision to the analysis. Unless there has been some significant change in the intermediate or long term prognosis this mid-week review will basically concentrate on the short term market action. The rest shall be covered during the week-end review.

GOLD

It looked like gold was going to drop to zero on Monday and Tuesday but on Wednesday it halted its plunge, well at least for now. For the past 6 months gold has been going up and down, up and down only to end back where it was 6 months ago, frustrating as H—, eh!

The latest move decisively broke the $432.40 support and took gold back below the third FAN trend line to once more negate Merv’s FAN Principle short term bull confirmation signal. I guess I could move that third FAN trend line to go through (just touching) the 26 April high so that I would not have all these back and forth crosses and signal changes but that line would then be too far out of the pattern of approximately equal angular spacing of trend lines. What one should be watching for now is whether that intermediate term support at $423.40 will be breached or if it will hold. On the up side, well it’s anyone’s guess. I would still watch that third FAN trend line for a next upside move. But let’s see where my conventional indicators are.

Monday gold once more dropped below its short term moving average line and the line turned down at the same time. This is still the situation at the Wednesday close. The price momentum again reversed but this time moved below its neutral line by a very small amount. On Wednesday it perked up a bit but still in the negative zone. The short term volume indicator is now negative as is the day to day volume action. In last week’s mid-week review I showed the short term P&F chart for gold. It showed a break above two previous highs for a bull signal but since I require the action to ALSO break above the down trend line, and it had not yet done so, I had to consider the P&F still bearish at the time. Well, the action just touched the down trend line without break through, and then reacted lower. Looking at the chart today it shows a pattern that might suggest the previous double high upside break might be nullified but that’s a P&F lesson for another time. Suffice it to say the P&F chart is still bearish at this time. So, overall I can only be bearish on the short term.

Now, looking at the more aggressive Stochastic Oscillator for a peak to see the more immediate trend, we see it inside its overbought zone but not yet in a reversal mode to indicate a reversal in progress. This, despite the positive close on Wednesday. This suggests that a reversal of the short term trend should not be the immediate conclusion without further market action confirming. That will have to wait for the Week-end Review.

U.S. DOLLAR INDEX

The US$ Index went back to playing its opposite action to gold game during the first part of the week. Up on Monday and Tuesday and down, down on Wednesday. The long term P&F chart is still very much intact on the bear side while on the short term side it is very much like the opposite to gold. It has been in a bull mode but had broken below two previous lows for a bear signal. However, this signal is unconfirmed due to the fact that the up trend line has not been breached for confirmation, so we are still in a short term bull on the P&F chart. As for the conventional indicators, the Index just crossed below its short term moving average line but the line is still pointing upward. The price momentum is sitting right on top of its neutral line but pointing lower. So, which do I go with, the P&F or the conventional indicators? Let’s call it a draw until further confirmation one way or the other.

GOLD INDICES

As mentioned before, many analysts look at the actions of the major gold stocks as a suggestion of what gold will do. Often the stocks are a leading indicator. Well, as the chart of the AMEX Gold Miners Index shows, the gold stocks started their rebound a day before gold itself did. In addition, although I showed the positive divergence between the short term RSI and the Index in the Week-end review I failed to mention it. This divergence, shown again today, is very often a good indicator of a reversal to come. We are still within a very negative pattern for the Index and for now the past few days may be seen as only a rally within a basic bear market so my view is not to go running out and spend a whole lot of capital buying stocks hoping to catch the “bottom”. Wait for confirmation and get in “near the bottom” but with lower risk of capital.

See you on Monday for the full week-end review.

Merv Burak, CMT
[email protected]


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.