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


Well, let’s get right into it and see if there is anything we can grab on to till the week-end. First, there has been nothing in the action of the first few days of the week to change my long and intermediate term prognosis so they remain unchanged from the week-end review. On the short term one might say the same thing but let’s see what has happened and then try to guess the likely direction for the rest of the week.

The action continues in an upward direction although there are indications that such direction is getting weaker and weaker. Gold breached that $430 resistance level but so far only gently. It remains above its short term up trend line and trend line with the trend line still pointing aggressively upwards. Price momentum remains positive but here too is starting to show signs of weakening in its trend. A note about the term “weakening”. In any trend, whether price or momentum, the line of action does not move straight up or down. It moves in a direction but with what one might call a small roller coaster effect with each subsequent peak and valley of the roller coaster reaching higher and higher (or in the case of a down trend, lower and lower) levels. It may show this roller coaster up and down shifts from the straight line many times before one of them takes hold and becomes a start of a reversal. These roller coaster movements are the start of a warning that one should watch but with no need to act upon until the warning becomes something more than serious. So a warning “weakening” view is only that with no reason yet to panic but to watch and see what happens next. Speculators must still be on vacation because the daily volume activity continues at a very low level. All in all, the short term trend is still bullish.

Looking at the aggressive Stochastic Oscillator for some hint of the immediate trend, one sees that it had peaked a week ago last Monday and has been weakening ever since. This suggests that the new rally highs seen in gold over the past few days has been on continuing weaker momentum. Although this very short term weakening can change in a day’s action it does suggest that the very recent trend has not had much enthusiasm behind it. Maybe it’s those speculators that have gone on vacation or something more serious but it does require caution over the next few days.


Wednesday we have seen a sharp drop in the price of the US$ Index. We have had these drops several times before and almost every time it was followed by several days of downward drift in the Index. These have not proved to be reversal drifts but just normal reactions after a significant rise. We might expect the same now. That third FAN trend line mentioned during the week-end review is now in the 88.0 to 88.5 area so this is an area to watch for a “blow-off” stage reversal signal. At the same time there still is a short term support at the 87.15 level which might give any down move some support. However, this support is sort of weak. The week-end review might prove to be very interesting for the US$ Index.


A quick look at Silver. A reader (yes, there seem to be a few) asked how it was that one day I may be talking about the need to break out of a resistance an then another day talking the same talk but with different numbers. There may be others out there that have the same curiosity but are too shy to ask so a little quick explanation follows. This explanation, using silver as the example, can apply equally to any security analysis. The thing investors should understand, but many particularly of the fundamental discipline do not, markets are fluid, they move, they change, they do not stand still. What may have been valid one day may change the next.

Looking at the short term P&F chart for silver, we have our first confirmed bull signal at the $7.30 level. This, after exceeding two previous highs and moving above the down trend line. At this point a P&F projection can be calculated to the $8.30 level. However, there is a resistance shown at the $7.30 level from previous activity. Upon breaking above this resistance a projection can now be calculated to the $9.30 level. But again, there is a new resistance ahead. The move must break through that new resistance to be able to continue. Unless a move is into all time new highs where it has never been before, there are always resistance levels ahead that have the potential of reversing the advance or at least halting it for a while. The next resistance to the trend was now at the $7.60 level, requiring $7.70 for a break-through. For now the trend was not able to break through THAT level and we have a reaction to the trend. Silver needed a little more strength building before its next attempt. Will it be successful? Only time will tell. As it now stands, all of the previous confirmed bullish breaks are valid so that the established short term trend, per the P&F chart, is bullish. As it stands right now, a move to $6.90 would be required to give us a reversal and confirmed bear signal, except that this is a very strong support level. It would be more appropriate to wait for $6.80 for the confirmation. A quick comment about P&F projections. My experience is that the INITIAL break-out projection is accurate most often, maybe about 80% of the time. Every subsequent higher projection, although valid, is more and more likely to not be met.


The AMEX Gold Miners Index shows the latest rally in this Index. It also shows well defined steps along the way. An Elliott Wave analyst should be able to tell you where the price will go next. For myself, I just follow and tell you the present direction and which way the odds favor. Right now the Index is on a tear and should still see higher levels. It is getting close to an area of activity (around the 650 level) where it had problems in the past. One might expect some rest period in the trend around there.

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.