The mid-week review lets us see if the actions foreseen during the week-end are performing as expected or if we need some refining or revision to the analysis.
Up, down, sideways, gold was all over the place this past week but in the end went nowhere. Is it about to do the same this week or will it decide to move?
Long Term: Other than the long term point and figure chart, which is still far from reversing direction, it is starting to get interesting here. The price has been below the long term moving average for almost three weeks now. The moving average line has now become horizontal, turning slightly higher or lower with the shift of each day’s gold price. It has not yet turned decisively downward but is very close. Again, as far as the price momentum indicators are concerned, it depends upon whether we use daily data or weekly data. One would think that the two should give the same answer, and they usually do, but during periods of transition the daily is the more accurate while the weekly has filtered out too much activity. Having said that, I have found that the weekly data has often given advance correct signals, but at times has been ahead of the game and gotten whipsawed. The daily data price momentum indicators are still positive on the long term, although heading in the downward direction. As for the important volume indicator, the best that can be said now is that it’s actions are neutral. All in all, still bullish on the long term.
Intermediate Term: The intermediate term prognosis is a great deal easier to determine. Gold is below its negative sloping moving average line with three price momentum indicators that are all negative. Volume can only be said to be neutral if not negative. The intermediate term point and figure chart still has as its last signal, a bear signal. What can I say other than bearish on the intermediate term.
Short Term: As for the short term, this is straight forward but very precarious and could change quickly. Despite the up and down and sideways movement during the week, gold price ended the week just slightly above its short term moving average line. However, the line is still sloping downward and has not turned yet. It is, however showing signs of turning and it would take very little additional upside action to change its direction. Short term price momentum indicators are also still negative but not that far in their negative zones. Volume action seems more negative than positive although the indicator suggests a neutral trend. As for the point and figure chart, it is still negative and some distance from reversing. On the short term I am still bearish but again, that could change quickly as it’s that close.
As for the very short term Stochastic Oscillator, it is in the positive zone and moving higher. One might expect at least another day of not negative activity. From the activity of the past several days we have a resistance level at the $431.40 level and a support at the $423.40 level. Before we can have a firm new trend one of these levels would need to be breached.
U.S. DOLLAR INDEX
The US$ Index did what it has been doing for some time, moving in opposition to that of gold. Instead of down, up and sideways the US$ Index moved up, down and sideways. Big difference! Like gold it ended the week about where it started.
Long Term: As with gold, the long term position of the US$ Index is getting interesting. The Index is now above a very slightly positive sloping moving average line. It is, however, still below a significant resistance level at 85.50, from the Feb high. Using daily data the price momentum indicators are still negative but moving towards their neutral lines. The point and figure chart, although still not reversed, could reverse once the Index hits 86.00. This would break two previous highs and a down trend line. This down trend line is a secondary line as the primary line is quite some distance away, in the 91.0 to 92.0 region. For now I remain bearish but things could change should the trend continue higher.
Intermediate Term: As the intermediate term point and figure chart shows, the US$ Index is just about to break that down trend line and move above two previous highs for a trend reversal signal to the up side. As for the other indicators, the Index is above its positive sloping moving average line with price momentum indicators that are positive. This is a tough call because even now I should go bullish on the intermediate term but for the P&F chart. I’ll move to the neutral rating for the intermediate term and shift to bullish should the trading close above the 85.50 level.
Short Term: On the short term the Index is still above its positive sloping moving average line and above a short term up trend line. Momentum indicators are still positive and pointing higher but with some indications of the start of a turn, nothing serious but could be starting. The P&F is positive but with a resistance just ahead. All in all, bullish on the short term. The aggressive Stochastic Oscillator, while still in the positive zone, has already started a downward trend suggesting the very short term trend of least resistance may be to the down side. This indicator does have a habit of reversing direction very quickly, one day up, the next day down.
GOLD & SILVER INDICES
With almost all the Gold and Silver Indices taking another hit this week, the Merv’s Gamb-Gold Index took the worst hit again. Over the past few weeks this Index of the gambling type of stocks has dropped 14% as opposed to the Merv’s Qual-Gold Index of the top “quality” stocks which only dropped 5% during the same time. However, another way of looking at this is a 60% gain for the Gamb-Gold Index over the past year versus a gain of 14% for the Qual-Gold Index. I guess it depends upon whether one wants to sleep at night but make only a nominal profit or if one can take the heat for the big bucks.
The AMEX Gold BUGS Index is at the point of having to make a major decision. It is sitting on top of a 3 year old up trend line. It must move higher from here or risk a down trend to possibly the previous 2004 low in the 160 to 170 level.
I have been reading so much about the great future for copper and other metals that I thought it would be instructive to take a look at a chart to tell me where it is headed. The chart shows a great bull market in copper with the trend continuing higher. In fact the price keeps climbing higher and higher into levels it has not seen for 16 years. Now, everyone knows the story here, the Chinese boom. I don’t pretend to understand the fundamentals of stocks or commodities, it’s just too time consuming but the chart is starting to give me the shivers.
After more than a 100% move in just over a year copper has only risen less than 10% in the past year (there was a reaction in early 2004), although the chart looks like an aggressive up trend. What we see from the action of the past year is a rising wedge pattern. This is usually a very bearish pattern after a bull market in a security. For this bearish pattern to be activated the price must drop below the blue support trend line. This should happen anytime from now to no later than two thirds of the way towards the wedge apex point, which would be sometime in late May or June. Any move later than that and the bear signal will be weaker and weaker, if at all. Of course the price could always continue climbing as everyone seems to expect, but the odds are that in not too distant future we could see a serious reversal of trend in copper, fundamentals or no fundamentals.
I haven’t done any survey of copper stocks but they might move ahead of a move in the commodity. This is not a prediction of things to come but just a technician’s warning of what might occur. It is always better to understand risks when one is investing and stay on top of what’s happening.
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.