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.

Unless these is some surprising market action that was not foreseen during the week-end reviews, these mid-week reviews only address the short term market action, primarily to carry us over to the next week-end review.

GOLD

Is it my imagination or is it becoming a regular feature of the gold market to basically go to sleep during the first few days of the week and then wake up as we get closer to the week-end? There was some interesting intra-day activity in gold but in the end, gold kept closing with a snooze. Has this changed anything in the charts or indicators? Does this tell us anything about what is to come? Let’s see.

As the chart shows, gold is still well above its short term moving average line, the line is still very much pointing in the upward direction and the price is also above its short term up trend line and all is well with the world — well maybe not. Looking at the short term price momentum one sees an indicator that had climbed into its overbought zone and has turned down, just inching below its overbought line for a very cautionary sign to watch for some downside action. As mentioned previously, if a strong new bull trend has started these weaknesses in momentum indicators (especially the Stochastic Oscillator which I will look at in a moment) can be misleading. But if we are not in a strong NEW bull market, then it’s a warning not to overlook. The On-Balance Volume indicator is still showing a bullish trend in the volume activity BUT the day to day volume is back to the pathetic range. The last confirmed signal given by my short term P&F chart was a bull signal. To reverse this trend gold would have to drop to the $426 level. So, all in all, on the short term I must remain bullish until verified otherwise.

Now for the aggressive Stochastic Oscillator. During this latest rally we have seen the SO move into its overbought zone, move back below the overbought line and by last week-end it was back above the line back in the overbought zone. Well it’s now back below the line and its own trigger line. As long as it stays below its trigger line and especially should it move below its low reached last week, we must assume a weakening situation and watch out for a price decline. Again, if we are in a strong NEW bull market in gold, then this indicator is very often misleading so for now it depends upon the bullishness of the recent rally. Are we in a NEW strong bull market? I would hope so but still need some extra convincing of the strength of this move.

U. S. DOLLAR INDEX

One of the reasons for concern about gold turning around is because of the strength in the U.S. $, however, it could be the other way around, the $ could reverse due to gold strength. Looking at the chart we see the US$ Index in a strong rally mode but starting to top out. One can almost expect a reversal of trend, although a short term reversal, at this time. Although still positive the price momentum has dropped sharply and is very close to its neutral line. If one wanted to push the envelop one might see a head and shoulder pattern forming with the right shoulder a little higher than the left shoulder. The neckline, at which a break down would be seen, is at about the 87.70 level. The Stochastic Oscillator is already in the negative zone but in a recovery mode ready to cross into the positive. All this confusion makes for difficult analysis. But not so difficult for this courageous analyst not to make a prediction and that is —wait for it — I predict that the US$ Index will move higher unless it drops lower. Bravery is my middle name. I guess we’ll have to wait for the week-end review to see if trends have firmed up.

METALS and ENERGY

Texas Light Sweet Crude oil had reached that break-out price of $60 thereby making a new break-out on the long term P&F chart with a new price projection to the $78 level. The caution here is that as new and higher projections can be calculated they now become less and less likely to be reached until finally one is not reached and a reversal occurs. Is this where we are? We can only wait and see. As for the latest action, well the break-out was good BUT we still have to keep a good eye open and beware of a false move. The short term price momentum had reached its overbought zone and has now reversed and dropped below the overbought line, foretelling a possible reversal of short term trend. Volume action on the break was not encouraging. One would have liked to see the volume increase greatly on the break and for at least the next few days. This did not happen suggesting a possible false break-out. Finally, the price just touched the upper channel trend line suggesting a possible move back to the lower line, at the least. All in all, although the action in the price of oil looks great, the action underneath the action suggests otherwise. Let’s see what it looks like on the week-end.

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.