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.

The nation was in mourning and that is why Tuesday and Wednesday were not so hot for gold. However, Danica will come back in the next race and this time will take first. In the meantime let’s see where that precious yellow stuff is heading.

GOLD

LONG TERM

First there is the P&F chart. It is still bullish with no real end in sight. It hasn’t budged from its last week’s position. The next P&F projection remains at $580, give or take a few $.

As for the usual indicators, gold is below both my more aggressive long term moving average line and below the more common 200 day moving average line. The difference between the two is my aggressive line is already sloping downwards while the 200 DMA line is still sloping upwards. Both are located just below the $430 level. Should gold move above that level this would activate a continuation buy signal for those adherents of the 200 DMA methodology. For me, I need to also look at the other indicators for confirmation of the move. Here, the price momentum represented by the 30 week RSI is important. It has just touched its neutral line and is bouncing upwards continuing inside the positive zone. As for volume, well it too has been upgraded recently and is showing a positive trend. All in all, I am neutral at this point but would go bullish on a close above the $430 level.

INTERMEDIATE TERM

The intermediate term P&F chart has not changed and is still technically bearish. Due to the subsequent sideways movement since the bear confirmation the P&F chart is considered neutral and requires $410 to reconfirm the bear or $450 to confirm a reversal to the bull.

Gold has just crossed above its intermediate term moving average line with the line in the process of turning up, but not quite there yet. Another day or two of positive price action would probably reverse the line slope to upwards. The price momentum is still within its negative zone but rapidly heading towards that neutral line. Here too, another day or two of positive price action and the momentum would probably go positive. Volume is the very bright light after so long in the dark. Looking at the simplest of volume indicators, the On-Balance Volume (OBV), it is at its highest level since the top last Dec. However, looking at the daily volume data one is cautioned to note that most of the highest volume days occurred during minimal upside price movement. The past couple of days of large price movement were performed with a greatly diminished volume. So, we’ll just have to see how this volume plays itself out. For now I am upgrading the intermediate term rating to neutral while awaiting better price and momentum values, hopefully in the next couple of days.

SHORT TERM

The short term P&F chart is little changed from last week. It has moved up during the week but still has not broken above 2 previous highs or crossed above the down trend line. For now this chart is still rated as bearish.

As for the usual indicators, gold has moved well above its moving average with the average in a well defined up trend. Price momentum has moved sharply into the positive zone but not yet overbought. There is still upside room before the indicator goes overbought. As for volume, this is a two story indicator. The simple On-Balance Volume (OBV) is gung-ho positive lately while the daily volume is a mystery. The OBV is almost at the level it was at during the Dec highs while the price still has far to go. This is usually a good indicator as volume should normally be ahead of price, sort of predicting which way price is going to go. On the other hand most of the heaviest volume days occurred a week ago with little price movement while this past few days of large price movement say a significant volume decline. This is often very positive however one must always keep his mind open. Manipulation (overt or unintentional) does occur and one must always be prepared for surprises. Anyway, with the indicators as positive as they are (except for the P&F) I am bullish on the short term.

Now for that immediate trend as represented by the Stochastic Oscillator, it is up, up and away. Well in the positive zone (but not yet into the overbought zone) and pointing upwards, this indicator is still suggesting there may be more upside days ahead.

U. S. DOLLAR INDEX

Since the US$ Index seems to lead gold prices it is instructive to quickly look in on this Index. Long and intermediate term can be quickly summarized as bullish with all indicators and P&F charts confirming. It’s the short term that is most interesting. With the actions of the recent few weeks one might expect that a rest period or even a trend reversal should lie somewhere ahead. This is what the charts are indicating. The short term price momentum has moved into its overbought zone where it has not been since the highs of Aug 2003. At that time the US$ Index plunged from 99 to 85 before it had any significant reversal. I don’t expect the same plunge but do expect a period of possibly sideways movement, or maybe even some minor downside before any further significant upside continues. Why do I think there is still more upside ahead for the US$ Index? It’s the weak Euro. What does this foretell about the price of gold? It could foretell continued upside in gold to go with the normal gold/$ opposite movement criteria.

GOLD & SILVER INDICES

The various gold and silver Indices continue to move higher except for the FTSE Gold Mines AUSTRALASIA Index. I’m not sure what the problem here would be other than currency differences or a single, highly weighted Index stock declining sharply. As for the North American Indices one can see that the average stock performance was better than that of “weighted” Indices. The Merv’s Indices seemed to have outperformed the other North American Indices by one or two percentage points.

A look at the major Indices gives us a uniform picture of their activities. They all have zoomed above their intermediate term moving average lines but the slope of the lines has not yet fully reversed. The Indices are still below their long term negative moving average lines. As for price momentum, on the intermediate term all have their momentum lines pointing up but are still below their neutral levels in the negative zones. More upside action is required before these Indices can be reversed on the intermediate or long term.

Looking briefly at the Merv’s Indices, although the quality Index, Merv’s Qual-Gold Index, had a good week it was the gambling stocks that are starting to flex their muscle. The Merv’s Gamb-Gold Index had the second best performance this past week while the overall Merv’s Gold & Silver 160 Index had the best. It should be noted that after you take away the 60 stocks represented in the Qual & Spec Indices the remaining 100 stocks in this 160 Index are outright speculations or gambling stocks. So the average performance of the Merv’s Gold & Silver 160 Index reflects, to a great extent, the average performance of the speculative sector of the industry. Although I’ve tried to separate the more aggressive of the speculative stocks into their own gambling section, the Merv’s Gamb-Gold Index, it’s difficult to always include the new upcoming movers but the performance of the Gamb-Gold Index over the years suggests a reasonably good performance (30 stock average up 1967% since Dec/2000).

METALS and ENERGY

Looking over the table one notices that both the metals and energies have had a good week, some much better than others. Only Palladium closed lower but not by much.

I have read some concern about Heating Oil but looking at the chart, it is not showing any concern yet for the price stumbling or even moving sideways. Up seems to be the firm direction for now.

Silver continues to butt up against that $7.60 resistance level. Although bullish from an earlier break one could sure want to see it hit $7.70 and break through this resistance. The $9.30 projection could then be increased to $10.30.

Texas Light Sweet Crude seems to be stalling out and just may come barreling down again. Although the action looks positive it could be nothing other than a bounce after the reaction from breaking that third accelerating Merv’s FAN trend line (which is often considered as a blow-off line). The downside breaking of this blow-off third FAN trend line is serious especially so when we also had a serious negative divergence shown on the long term price momentum. At this time I don’t see this bounce as the beginnings of a new long term bull move but only a sharp bounce to be followed by more downside.

Now for Copper. There is a curiosity as to why that wedge break on the down side seems to have been a false one. The plunge resulted in all of our indicators going negative with a long term P&F chart that broke both the up trend line and at least two previous lows.

I can see a scenario where large traders, understanding the seriousness of breaking the wedge trend might have manipulated the price by selling so that the wedge was broken. In the ensuing panic by technicians, and others, to sell they were picking up contracts at what would seem a very low price. Once the panic stopped and there was no more selling, the price had no place to go but up. Although this scenario just might be true it is too comfortable. Let’s not blame others. The charts (and subsequent analysis) goofed on this one and that’s the way it is.

There are lessons to be learned from the actions of copper but too many to go into them here today. But let’s look at this recent action. Although the price shot up and broke into new highs, it did so with two disturbing indicators. First, the price momentum suggests that this move had lower than previous momentum behind it. Second, the daily volume during this zoom to new highs has been lower than one would like to see. Only in the past day or so has volume started to increase but after a significant move such as copper has had, sharp volume increase suggests a top rather than a trend continuation. We’ll just have to wait and see.

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.