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.

Energy seems to be cooling off a little and after 7 straight days of upside action, is gold also ready to take a rest?

GOLD

Looking first at a long term P&F chart shows us that gold is once more at a very interesting position. It’s right up there ready to break into new bull market highs, all it needs is $460 on the Dec. futures contract (although one might say the Oct. contract prices might be more legitimate). A break would give us an initial projection to $560 and then to $640. We still have that original projection to $580 from the 2001 break so it looks like the $560/$580 area is quite likely, should the break come. I have much higher projections from a very long term P&F chart but let’s not get too carried away.

A look at the bar chart suggests a weakness in the latest price run-up. First is the moving average line. Using the popular 40 WMA (200 DMA) although the price is above the moving average line the slope of the line continues to get weaker (more negative). This may or may not be a real problem because the slope is still very, very slightly negative but it could be serious if it continues. As for my more aggressive long term moving average line, the 30 WMAw line, it had turned up a few weeks ago and is still pointing upward for a positive sign. This suggests to me that the strength is towards the up side and the popular MA will quickly come around. Price momentum is still a little weak and underperforming the price. It has not yet exceeded its March high as the price has done. Although still positive the momentum of the latest move is weakening, although only slightly. On the long term weekly chart our volume indicator is quite positive but I prefer to not go by the long term volume information but rely on the more aggressive time periods.

For now I remain BULLISH on the long term.

Although the market was all on the up side during the week the intermediate term P&F chart was not able to chalk up an extra X on the up side. All the action did not get us much higher than the highest high of last week. So, we are just where we were last week with the P&F. It’s interesting to note that should gold break on the up side during this move the intermediate term projection would be to the $545 level. That $560 plus or minus $20 is getting quite crowded.

As for the basic indicators, well a look at the chart pretty well tells us everything. The trend has been basically a lateral trend with the price once more at the upper end of the volatility. The price is above a positively sloping moving average line. Of interest, whether it means anything I’m not sure, but the moving average line has been in a positive slope mode for longer than it has been since its peak in Dec. Although the price momentum is positive its action has not been overwhelmingly so. One might almost consider the momentum action as a neutral action, sort of staying with the price but not getting ahead (strength) or falling behind (weakness). Here I am inclined to start looking at the volume action. It is showing strength making new highs where the price action still has a little to go to do the same.

On the intermediate term I am still BULLISH.

NORTH AMERICAN GOLD INDICES

AMEX Gold Miners Index

Of all the major North American Gold Indices the one I am getting to like the best is the relatively new AMEX Gold Miners Index. It includes about 40 of the top Gold stocks in North America including some speculative secondary stocks. It is very much like a combination of my Merv’s Qual-Gold and Spec-Gold Indices. The Index is still, however, calculated on a weighting scale where some large companies represent most of the Index value. The top two companies (5% of the total) represent almost 25% of the index value. The top 7 companies (17.5% of the total) represent more than 50% of the Index value. The bottom 10 companies (25% of the total) represent only slightly more than 3% of the Index value. I wonder why they even bother having them in the Index. You could do away with 50% of the component stocks and have very little effect on the Index. I do not favor this type of Index calculation method but all of the major Indices are done this way. They may differ in some respects but all use some kind of weighting method. As so often mention, my Merv’s Indices give equal weight to all the Index component stocks.

As the chart shows, the Index is in a good uptrend making new rally highs. Momentum is starting to perk up and confirm the Index trend. Unlike gold, the Index still has not exceeded its March high but that seems to be just a matter of days. The Index is presently trapped inside a large wedge pattern (not shown) with the lower up trend line starting at the 2001 bottom and the upper resistance line starting from the late 2003 top. The rally would need to go through the 750 level to ensure a break above this wedge. We’ll be watching.

MERV’S PRECIOUS METALS INDICES

I should start calling them the Precious Metals Indices as that is what they are. It’ll take a little time converting as I have called them gold or gold and silver Indices for so long. This is where we get the “feel” for what the AVERAGE precious metals stock is doing, not just the heaviest weighted large stock.

It was another good week for the Indices and especially the “quality” Index. For some time now it has been the quality gold stocks that had been moving, as a general rule. The more speculative or gambling variety have not yet gotten on steam but that is good. There are a few that are starting to show their stuff. These are still very risky as the actions of St. Elias Mines (SLI) showed. SLI dropped 50% on Tuesday quickly activating our stop loss for a profit of 62% in 3 months versus 116% the day before. I have been unable to really find what the problem was to precipitate such a sudden drop but these things DO HAPPEN with these gambling variety stocks and that is why one must maintain a stop loss.

The gainers and losers on the week were interesting. In the overall universe of 160 stocks we had more than twice as many gainers on the week than losers. Looking at the specialty Indices the “quality” stocks had a 100% gainers and no loser while the gambling variety of stocks had 3 gainers for every two losers. As mentioned above, the action is still with the quality.

During the past week, in the overall universe of 160 we have had one loser with over a 30% loss, that was St. Elias, and two winners with over 30% gain, those were Cassidy Gold and RNC Gold. Very often these huge weekly winners are preceded by a POS(itive) or bullish rating in my individual tables the week before. In this case this did not happen which just goes to show that not always are the ratings ahead of the move, but in reviewing over time we find that most of the time the ratings, especially the short and intermediate term rating, are ahead of the major moves.

NON-EDIBLE FUTURES

METALS

Gold: See analysis above. .
Silver: After a few days of good upside moves it now looks like silver is topping out and once more going into a negative trend. The recent break through strong support is not likely to be negated very soon. It might take a general bullish precious metals environment to once more get silver on the up swing.
Palladium: Four weeks of lateral trend and no end in sight. During the earlier part of the sideways motion the volume was primarily on the down side. Since then it has dried up. Look for possible further downside action as the trend changes.
Platinum: Lateral volume trend as the price inches higher is not usually a good sign. Price and volume still positive but weakening.
Copper: Solid 160 support looks like it is going to be breached. Move could go down to 140 initially.

ENERGY

West Texas Light Sweet Crude: Trend might take a breather at the $63 level but technically looks to go much lower down.
Natural Gas: First is to move lower to “fill the gap” above the 10.1 level. After that we’ll see how it stands. Both momentum and volume are still strong and any drop may be short lived.
Heating Oil: It’s back within the FAN trend lines 2 and 3. Should it break the FAN trend line 3 at around the 1.83 level then a move to 160 possible.
Unleaded Gas: The “blow-off” came and the blow-off went. Now heading towards an up trend line situated at around the 185 level. Volume and momentum still very strong so final highs may not be over yet.

CURRENCY

Australian Dollar: Seems to be back on track with higher lows and highs. Upside volume action good as is the momentum. More upside ahead.
British Pound: A sharp upside action may now see some minor consolidation. However, more upside looks likely.
Canadian Dollar: With a boom in resources there seems to be no stopping the Cdn dollar. Both volume and momentum are confirming the upside direction. More to come.
European Euro: The turn around seems to be continuing in a grudgingly slow pace. Must stay above the up trend line which is presently at the 1.223 level. A very weak turn around so far.
Japanese Yen: Can’t seem to get through that .920 resistance level. Volume action neutral and not a help. Momentum still negative. Still a watch and wait situation.
Mexican Peso: Recent short term rally seems to be ending. Volume action okay but momentum underperforming.
Swiss Franc: Latest P&F chart projecting to the 0.89 level. Volume action okay but momentum could use more strengthening.
U.S. Dollar Index: Continues to head towards that 82.5 P&F projection. Nothing yet in the indicators to suggest a halt to the down trend.

INDICES

Dow Jones Industrial Average: Sharp rally on good volume encouraging but needs to break through that 10740 resistance level.
Nikkei 225 Index: Two days of heavy volume down side didn’t stop overall trend. Quick reversal and into new highs. Upside continues but I would watch that 12530 support level.
NASDAQ 100 Index: Good upside price action after bounce off up trend line but volume action too weak to carry rally much further.
Russell 2000 Index: Continues to rally but heavy downside volume day suggests caution.
S&P 500 Composite Index: Sharp rally has some nasty downside volume days. Move cannot last much longer. Upcoming rest or consolidation will suggest what’s in store next.

FINANCIAL

Eurodollar: Volatile action but looks to be heading for slightly higher ground.
Federal Funds 30-Day: Very volatile action with volume that appears to be primarily on the down side. Stand aside for now.
Treasury Notes 2-Year: A minor reaction but the trend appears to be towards higher levels.
Treasury Notes 5-Year: Same comment as for 2-Year.
Treasury Notes 10-Year: Minor reaction and must halt here or else momentum drops into the negative territory.
Treasury Bonds 30-Year: Reaction must halt here or else it might be back towards previous lows.

A free tutorial on getting the most from the Indices and futures tables can be found on the www.themarkettraders.com frond page in the Global Indices section.

Merv Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group

www.themarkettraders.com

[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.

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.


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