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.

For a while there it looked like a real rally going on but then it stalled. Energy is still where the action is but let’s go through the routine and see what’s really what.

GOLD

The first few days looked great. Too bad it didn’t end that way. Despite the up tick on Friday, Wednesday remained the high for the week.

Long Term: Long term there is no change in my position on gold. The point and figure chart dictates a bullish stand. However, the rest of the normal indicators are now back supporting that stand. Gold is above a once more up sloping (even if just slightly) moving average line with a price momentum that is positive. My volume indicator continues to show positive but the day to day action (see the short term comments) is not impressive. I’m still bullish on the long term.

Intermediate Term: As mentioned in the mid-week review, gold is once more above a positively sloping moving average line with a price momentum that is also positive. As with the long term, volume is still the problem. Although my indicator is positive the action leaves much to be desired. The point and figure chart, although still with a bearish signal and needing $450 to reverse, can be though to be false. Having gone back to the bullish side here I remain so.

Short Term: The short term has a tendency to change often and despite the stall in the rally I am still positive, with some reservations, towards the short term. Having gone through that $432.40 resistance on Tuesday, it now becomes a support level. Gold is still above its positively sloping moving average line. All three of my price momentum indicators are now positive. There are, however, a few problem areas. Volume is a problem. I like to see volume improve as the price moves higher. Yes, I know it has improved but I look at these improvements different from most analysts. It is not absolute improvement that I am looking for but relative improvement. Let me explain. Investors are propagandized that one should look for an increase in volume. However, investors are also conditioned to buy when they see prices move higher and to hold when prices decline. This gives us a norm, increased volume on up moves and decreased volume on down moves. This norm does not imply bullishness or bearishness, just the norm. I look for upside volume to be somewhat greater than this norm to imply more than normal activity. This would be bullish. This norm activity is different for each stock, Index or commodity and even worse, could change over time with the same security. So it is nothing one can state as a firm number. For gold at this time I would like to see volume go through the 65,000 level and even higher. Over the past several days the volume almost got to the 60,000 mark on two occasions, one was on the down side and one on the up side. Not a strong message since any increase in volume on the down side is out of the norm and a negative. The other problem area is the point and figure chart shown in the mid-week review. It still needs a move to the $438 level to confirm a short term bull. Along with the P&F is the Merv’s FAN Principle. We seem to have a short term FAN decelerating trend lines. This requires a move through that third FAN trend line to confirm a reversal of trend. That also should occur on a move to the $438 level, confirming the P&F. So, although the trend is bullish from several standpoints it still requires an additional move to confirm, but I will remain bullish anyway. A move below the support ($432.40) would change my mind.

U.S. DOLLAR INDEX

Long Term: The long term direction of the US$ Index remains bearish based upon the long term point and figure chart. In addition, the Index, although slightly above its moving average, the moving average line is still very slightly pointing lower. Price momentum is also negative.

Intermediate Term: The Index moved just below its moving average line and the line itself is just starting to slope downwards. Price momentum has gone negative and is pointing lower. The P&F chart shows a break above two previous highs, which should be positive, but still requires a break above its down trend line. Both are required for a reversal signal. That reversal signal requires a move to the .855 level. So I will remain bearish on the intermediate term until then.

Short Term: On the short term the down move appears to have halted but the damage was done. The Index is below its negatively sloping moving average line with a price momentum that is also negative. The move could easily continue to the .813 level but could also have some rallies along the way. The more aggressive Stochastic Oscillator is inside its oversold zone and appears to be wanting to turn around for a rally of sorts. Let’s wait and see. For now I have to remain bearish on the short term.

GOLD & SILVER INDICES

Gold and silver stocks are not having a good time lately. My overall Merv’s Gold & Silver 160 Index of 160 gold and silver stocks shows over 80% are bearish from the intermediate term. Only 11 % are bullish. With numbers like that one is cautioned about any investing against the trend. Wait for the odds to be on your side.

Shown this week is the collapse of the AMEX Gold Miners Index. This is important as this Index represents 40 gold mining companies, and not the little guys. I think that, over time, this Index will become the principle Gold Index in North America due to the large number of companies represented in the Index. As I said, the chart shows the collapse of this Index, at this time. It’s not a pretty picture.

METALS and ENERGY

The energy sectors are still the ones with the best upside action. Unleaded gas had a great week with oil not far behind. I guess we can expect some more upside movement in gasoline prices at the pump. Silver is still stronger than gold, if one were to differentiate between the two. I often forget they are two different commodities but they appear together in my Indices. Maybe one of these days I’ll set up a separate Merv’s Silver Index.

West Texas Crude bounced off its intermediate term up trend line, which is also the third FAN trend line of that accelerating Merv’s FAN Principle shown last week. The long term price momentum shown last week and the intermediate term one shown this week both suggests that momentum is just not keeping up with the price rallies. This might also suggest that we are more likely to see the up trend line breached than to see new highs in the price of this commodity. New highs with a continued weakness in the price momentum would be one way to spell disaster.

Mid-Week Review: See you on Thursday for a review of the first few days of trading during the week.

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.