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.
We see him here, we see him there, we see him everywhere. It’s a bird, it’s a plane, it’s the Scarlet Pimper—–, sorry, I’m getting my stories mixed up. Let’s start again. He may have died years ago, but his presence is still felt. Many claim to have seen him. No, it’s not Elvis, it’s Michael de Guzman.
You know, the architect of the Bre-X fraud. For you youngsters, that was the $6,000,000,000.00 gold scam of a few years back that made fools of many of North America’s best (fundamental) analysts. I know of no analyst, using the technical concepts, who was left holding Bre-X stock as it plunged from the $20s down to zero. The reason I bring this up is twofold.
First, it is a very interesting story, although only one story, that suggests the never-ending excitement that is the gold industry.
The other is that today, we get news that Mr. de Guzman may in fact still be alive. His wife-well, one of his wives-claimed to have received a check from Michael from somewhere in Brazil. As we all know, he was supposed to have committed suicide by jumping out of a helicopter while being escorted by the Indonesian military to the gold site. OR was he helped out the door by his military escorts, who were reputed to be part of a notorious squad that specialized in throwing prisoners out of high-flying helicopters (after all, he had annoyed the ruling Suharto family)? His body was never found, well, not that anyone has been able to identify. They eventually found some body, but it was so ravaged by wild boors, no one could identify it.
Is he really alive or is he dead as a door nail? There may be more news on this in the days ahead.
There seemed to be very little happening in the gold business these past few days of the week, but let’s check in anyway, otherwise I could just go back to bed. Looking at the chart, one just might get the impression that the down moves are petering out and gold just might be preparing for a thrust to the upside. There is some hint of this, but let’s go through the motions and see if that is what the indicators are reflecting.
First the trend. Gold is still below its short-term moving average line, and the line is still sloping very sharply lower. It would take a move to somewhere above the $420 level, at this time, before the moving average might change slope. In addition, the price activity is still within that down-trending channel shown in the previous mid-week review. To top it off, the activity has established somewhat of a short-term resistance at the $423.30 level. From a purely trend standpoint, gold has been only flirting with your emotions up to this point. Looking at the price momentum, it too is still very much inside its negative zone, but does show some initial signs of flattening out and possibly getting ready for a reversal. At this point, it is just flirting. As for the volume action, this is where we do have some encouragement. We had very high volume on Tuesday, halting the slide and finishing slightly on the upside. We would need another day or two to confirm that this is for real and not just a one-day phenomenon, but for now one can start looking at a possible reversal based upon this one day’s volume action. I, however, will wait for further confirmation of the volume interest and trend change. So, for now the short term is still in a bearish mode, but has the potential of changing within the next few days if the activity continues on the upside with improved volume.
Now, what is the aggressive Stochastic Oscillator telling us about the immediate trend? We see an indicator that is still, once more, below its oversold line and starting to try and move out of the zone. The latest bottom has been very slightly above the previous bottom for a very mild positive divergence-versus-price action. It has also developed two trend lines, a lower support and an upper resistance. Because of these trend lines, I will wait for the upper line to be breached and then review the indicators and trend for a new message. For now, this indicator is giving me a more neutral message tilted slightly towards the positive. The indicators and charts aren’t ALWAYS giving us a bull or bear sign. Sometimes, in fact very often, they are giving us a neutral sign while taking a rest. That’s what we might have here.
U.S. DOLLAR INDEX
Now let’s take a quick look at the actions of the US$ Index. Many believe that the actions of the dollar are what triggers the actions of gold. In a nutshell, everything here is the direct opposite of gold, except that the Stochastic Oscillator is giving us a slightly different (but opposite) story. So let’s just zero in on the Oscillator. It had been inside its overbought zone and has recently moved below the overbought line and continues lower (but still above the neutral line). It had also established an up-trend line that was broken a day or so ago. So, from a short term standpoint everything is still bullish, but from an immediate standpoint it looks like the positive trend may have halted and may even come back down to the latest short-term support at the 85.75 level.
METALS and ENERGY
A quickie look at the metals and energy shows copper in a rally mode along with oil, while silver seems to be stuck in its lateral trend.
A quick look at the various gold Indices (AMEX Gold Miners Index shown) suggests a rally in progress, BUT a possible halt directly ahead. The Stochastic Oscillator has already entered its overbought zone and may be causing the price to simmer down a bit. Although the Index shown has broken above its upper channel line, it has not done so with vigor. A reversal is possible and should not be unexpected.
See you on Monday for the full weekend review.
Merv Burak, CMT
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.