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.

Gold broke support, copper broke trend, US dollar climbing, but silver and oil holding; is there a trend here? Doesn’t look like it, except for a general breakdown of the commodities, with some worse than others. Let’s look at some in detail.

GOLD

Gold is nicely nestled inside a 4-week down-trend channel. The latest action so far looks like nothing other than a reaction from the lower channel line heading back towards the upper line. Sooner or later it will break one or the other line, these closed channels do not last for long. With a downward slope such as we have here, the most likely break should be to the upside. The more interesting question is, for how long would the breakout go? Follow the trend and stay on its side for however long.

Looking at the technical indicators, the picture is still not all that bright, regardless of the positive couple of days’ activity. Gold is still below its negatively sloping, short-term moving average line with a price momentum well inside its negative zone. The momentum had not yet moved below its oversold level so that there is still more downside possible and not be a surprise. A few high-volume days on the downside over the past week or so do not improve the situation. Volume is a negative. With the action moving basically lower, one might now look for very heavy volume with little or no downside price movement. That might indicate a serious end of the down trend. This is one time when high volume on a down trend is a positive rather than a negative, but we still do not have such action. The action over the past few days has been relatively tight. The P&F chart shown in the weekend review has not changed, and we still have a bear P&F chart with projections to $400 and $392. All in all, on the short term I am still bearish.

Looking at the more aggressive short term activity, the Stochastic Oscillator has once more moved inside its oversold zone and bounced right out of the zone. Although still very much deep inside its negative zone, it is showing that a very short-term rally is in progress as the indicator is above its “trigger” line, but the caution is that this is a very short-term indicator and as one can see from the chart, is prone to sudden reversals. We look at this indicator to give us that day or two warning of a potential change of trend ahead, then wait for the short-term indicators to confirm a trend really in progress.

Just a quick few words on the Stochastic Oscillator (SO). Looking at the chart, we see solid lines at the 80% and 20% levels. These are the overbought and oversold lines so often referred to in these commentaries. A move above the overbought (80%) line suggests too positive too fast in the price action while a move below the oversold (20%) line suggests too negative too fast. In both cases, when the indicator reverses and breaks the line, it suggests a potential short-term reversal of trend.

U.S. DOLLAR INDEX

The US$ Index continues to act bullish after its first long-term P&F upside break in 3 years (see the week-end review). The chart today shows all three moving average lines (short, intermediate and long term) and all are pointing upward. The intermediate-term RSI shows a price momentum that continues to move higher with no sign of any serious weakness. The short-term price momentum has, however, shown a potential reversal of trend. It had entered its overbought zone and is now back below the overbought line. This move back below the overbought line often warns of a reaction in progress. The important question is for how long such reaction will go. One could very easily expect the reaction to go to at least to the 85 level where support should be met.

METALS and ENERGY

In the metals section, we have a quick look at the actions of silver today. Although the last confirmed signal given by this short term P&F chart is a bearish one, the chart shows the support that the silver activity has encountered recently. We would need a move to $6.80 to confirm the bear or $7.40 to confirm a bull reversal. The actions early this week suggest that silver might be on its way to breaking on the upside, but volume is still a little low and needs to improve to provide that extra strength. In addition, a move above $7.25 would break a down-trend line from the Dec high on the bar chart, so action today or tomorrow might be very important towards the direction of the trend.

See you on Monday for the full weekend 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.