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.
Well that was one interesting week. Gold and oil heading higher while silver, which so many think should be more bullish than gold, moved lower. If things were easy it would be no fun.
Looking at the long term P&F chart of gold we see that it was a close call for a while with the price hovering at a serious break down point. However, all is forgiven and gold has reconfirmed the long term bull. A close at $460 would be a nice extra confirmation since we have that previous high sitting there. Should gold trade at or above $460 the continuation projection would then be to $600. Depending upon the continuing plot of activity, the long term up trend line may be moved over to the right to account for the recent activity on the right side of the line. This is similar to what happened in 2000 during the down trend.
Just to remind readers, I use the daily futures activity for my daily data. The contract month I use is (almost) always the month with the highest open interest. When the time comes for a change in months due to a change in open interest data, I may go through a couple of days of a song and dance routine before getting back on track. Otherwise, on the day that I would have changed contract months one might see a significant change in gold price activity which is not really the case. I have changed to the Dec. contract month data in the past few days. There is still an Oct. contract month that is active but the trading volume in Dec. is 50 times the volume in Oct and therefore the data can be better trusted. I have also been asked the question as to why I do not use the London gold fix prices instead of the COMEX trading data. Just for that reason, one is fixed by a committee and the other is a result of actual trading. Always trust the prices devolved from actual trading by hundreds or thousands of speculators.
As for the usual long term indicators, gold is above both positively sloping moving averages, the popular 200 DMA and my more aggressive 150 DMAw. Long term price momentum is very positive although it is a little lagging the performance of the price. It has not quite exceeded its march high while the price has. The difference I do not yet consider significant, especially since the price had been upgraded a little due to the change in contract month used for the data.
So, I continue to be long term BULLISH.
As with the long term, the intermediate term P&F chart has issued a confirmed intermediate term bull. Depending upon one’s interpretation of the previous up trend line this is a new bull or a reconfirmation of an old bull. Which one it is matters not at this point. The intermediate term projection has gold going to at least $525.
From a bar chart (not shown) one can see the importance of that $460 price. That would constitute a new bull market high which usually results is even higher levels, confirming the P&F projections. The fact that gold has broken its cycle of lower highs and higher lows on the up side is also important. Gold is now comfortably above its intermediate term positive sloping moving average line. As for the price momentum, it is comfortably inside its positive zone and unlike the long term momentum, the intermediate term momentum is above the March high confirming the break in the price. This is another reason to give the long term momentum some room. The volume indicator is into new highs, even higher than the Dec high for a very positive intermediate term volume reading.
I am back to being intermediate term BULLISH.
NORTH AMERICAN GOLD INDICES
The North American Indices had a field day this past week. They all closed comfortably higher on the week. It seems that the ones with the largest quality companies did the best. Among those is the PHLX Gold/Silver Sector Index.
PHLX GOLD/SILVER INDEX
Looking at a long term chart of the Index what you see is an Index that is in a long term bull trend but a very shallow trend. This can be seen by the slop of the long term up trend line. We also see on the chart a long term price momentum that has been in a basic decline for over a year and a half. It looks like the indicator is about to break its down trend line, which would be good, but we’ll wait for it.
All in all it looks like the long term trend is back in motion.
The Chart this week is a short term chart of the Index. There are several interesting features on this chart. The most interesting one is the action on Thursday which just touched the second of Merv’s FAN Principle trend lines followed by a halt to the move. Once developed these FAN trend lines have a habit of being serious support or resistance lines to further action. In this case it seems to be a resistance. What one can expect, if the scenario follows the FAN Principle, is for the action to halt, move sideways or lower, possibly touching the third FAN trend line again. Should the action move decisively above the second FAN trend line then we might expect it to stay above for some time. The only difficulty with the FAN lines as drawn is the first FAN trend line. This line is a little questionable at this time but I’ll still go with it for now.
The MACD shows the short term momentum of the action. It has stayed above its neutral line throughout the past few weeks of weak markets. It’s on the rise again. This chart suggests more good things ahead so most likely the second FAN trend line will be breached on the up side. However, should it not I just go where the Index goes, I try not to tell it where it should go.
MERV’S PRECIOUS METALS INDICES
The various Merv’s Indices had a good week but not as good as most of the major North American Indices had. The difference is, of course, the way the Indices are calculated. Although the “quality” PHLX Gold/Silver Index gained 5.4% on the week the Merv’s Qual-Gold Index gained only 4%. Despite the PHLX Index performance the AVERAGE quality stock advanced by only 4.0%.
In looking over my universe of 160 precious metal stocks that make up the Merv’s Gold & Silver 160 Index and checking against the performance of the group stocks (quality, speculative and gambling) what we see is that it is the quality stocks that are the primary movers at this time. The quality group has a BULLISH rating of 90% for the intermediate term (my primary focus time period) while the speculative group has a reasonable 77% BULLISH rating. The gambling stocks are still holding back and only have a 50% BULLISH rating.
I have noticed that the vast majority of stocks in the 160 universe had a bear trend in the first few months of the year. They bottomed out at the end of May and many have been on a roll ever since. The quality group has had the best moves while the gambling stocks, on the average, have so far had the minimal moves. However, within the gambling group of stocks there have been some that have already made significant moves. Some are Bravo Venture from $0.11 to $0.46, Silvercorp from $0.90 to $4.00, St. Elias from $0.12 to $0.50, Entrée from $0.25 to $1.00 and many more. These are only moves in this year and they are not yet over.
Although the focus is on the quality issues with their 35% performance this year (and they could easily do another 35% before the end of the year) the speculative and gambling issues are setting up serious reversal patterns, ready to break and move. These stocks, as shown, move in 100’s of percentages when they move and as mentioned, they are setting up the patterns to get going soon (and as mentioned earlier, some have already moved).
To get in on the coming bull market in precious metals stocks consult your broker or your favorite trusted analyst. The best advice I can give investors or speculators is to trust the message from the charts. They may, at times, prove wrong (nothing is perfect) but investing or speculating counter to the message of the charts is just adding more risk to your investment or speculation that you don’t need.
METALS, ENERGY and CURRENCY
As you can see, I have expanded the Futures table and comments to now include currency futures. Over time I hope to include additional currencies as well as Financial futures and Indices futures. Whether these will all be in one table or multiple tables has not been decided. As this section continues to expand I will be reducing my detailed gold commentary due to time constraints. The gold commentary focusing on the individual time periods (long, intermediate, short and immediate term) are still being produced but available to subscribers of my weekly Merv’s Precious Metals Central service (see below).
Gold: See analysis above.
Silver: Continues to track sideways within that $6.90 to $7.60 horizontal channel. A short term P&F upside break has not yet materialized a move. Projections for it are through the upper channel resistance so it needs watching. The P&F had set up a support at the $7.00 level so a trade at the $6.95 level would negate the break and set the short term back to the negative. Action needs watching.
Palladium: A short term P&F upside break in July is having problems. A very strong support is established at the 188 level so a move to 186 would once more result in a downside break. Volume, although relatively light, has been mostly on the up side but the price momentum has already broken into the negative. Watch that 186 level.
Platinum: Continues to move higher and higher like there’s no tomorrow. However, the recent move has been labored and upside volume has been unimpressive. The move may not have much to go.
Copper: Moving into new highs but without volume or momentum confirmation. Stay with the trend but do not be surprised if it should turn around soon. A good support at the 160 level.
West Texas Light Sweet Crude: Continues higher and higher and unfortunately for motorists the strength continues on the up side. In other words the final highs have not yet been seen. Latest P&F break-out projects to the $74/$76 area. Price momentum is strong and volume is reaching new highs.
Natural Gas: Boy, a three week move of over 30%. Someone out there quick, calculator, what is that in % profits on a futures contract? Volume action is still okay but price momentum has gone into the overbought zone and a breather is expected any day. Where that breather will go is ??
Heating Oil: It seems that with the energies you can throw darts and still hit a winner. HO continues into new highs but with underwhelming support from volume action and momentum action. We have a well defined short tern FAN trend lines. HO is butting up against the number 2 FAN and may breach it on the up side negating a previous short term unconfirmed bear signal. Action looks strong but is worrying.
Unleaded Gas: Guess what? Another energy, another future going through the roof. Volume and momentum look pretty strong but are not up to previous strength. However, you don’t need excessive strength all the time to move. Watch out for a surprise on the down side. The energies are just too strong to last.
Australian Dollar: Basically moving sideways. Needs to break 0.78 to look good.
British Pound: Bouncing off a bottom and in a nice short term bull trend. May hit some resistance around the 1.82/1.83 level.
Canadian Dollar: P&F chart shows strong resistance at the 83 cent level. Once it hits 84 cents, and that looks very likely any day now, the projection would be to the 99 cent level, almost at par with the US$.
European Euro: Broke through a nice saucer reversal pattern and on its way. Volume and momentum are confirming the bullish view. P&F chart is projecting the move back to the Dec high at 1.35.
Japanese Yen: Broke through short term resistance at .915 but still not too strong. Volume action is neutral while momentum is still negative but heading towards the neutral line. P&F chart not yet positive. It needs .92 trade to then project to the .965 level.
Mexican Peso:M Up, up and away. The peso has been on a tear for over a year now and unless one does not look too carefully, it would seem there is no end in sight. However, we have developing a negative divergence between the momentum indicator and price. New recent highs in the price have not been confirmed by price momentum. Something to keep an eye on.
Swiss Franc: Made a recent bottom and appears on a reversal track, to the up side. Volume is very heavy on the up side suggesting the move is in its early stage. P&F chart is projecting this move to the .85 level but the volume action suggests that may not be the end of it.
U.S. Dollar Index: Down and down and down it goes. Where it will stop nobody knows. Momentum has just broken into the negative zone while volume action has been heavily on the down side. Latest P&F chart suggests the move should go to at least the 82.5 level. But it wouldn’t all be in one continuing drop.
Merv Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
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.
To find out more about Merv’s various Gold Indices and component stocks, please visit Merv’s Precious Metals Central. There you will find samples of the Indices plus other publications of interest to precious metals investors.
NEWS YOU CAN USE…
Interested in gold and silver exploration investing? Read an in-depth profile on ROYAL STANDARD MINERALS.