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.

The U.S. dollar has moved up sharply and so has gold – again. What’s happening here? The two are not supposed to move together. Maybe they’re moving for different reasons, would you think? Let’s not worry and just see what each are doing and go from there.

GOLD

Other than Monday, it was a good week for gold, although not a great week. I guess being up 1.1% on the week is okay. If it did that every week, gold would be in the mid-$700 area within a year, but this is only games people play with numbers and statistics. To get real, no security goes up or down in a steady, never-ending manner. They all have their ups and downs, the trick is to stay away from the downs and hop on board the ups.

Long Term: The long-term perspective has still changed little. Gold is still below its long-term moving average line and the line is still sloping downwards. However, when we change to the more common long-term moving average line, the 200-day moving average, gold is below that line, but the line has not yet turned downwards for some small mercies. As for the price momentum, the table momentum (MOM) is negative, but looking at the chart and using daily data to derive a slightly more meaningful long-term momentum value, it is still just above its neutral line for a positive reading, but pointing lower. Volume, although a weak indicator up until now, has perked up this past week and is rated positive. And there is that (very) long-term P&F chart, which is still positive. All in all, I am still bullish on the long term, although maybe a neutral rating might be more appropriate until gold moves back above my more aggressive moving average line.

Intermediate Term: Shown this week is my intermediate-term P&F chart. It shows gold in somewhat of a stalemate since about Nov. The last confirmed signal that this chart has given us was a bear signal as it moved below the uptrend (dashed) line and below two previous lows (at $415). However, it did hit a support right at the breakdown point and has since tried to rally and reverse, but could not. It is still below its downtrend line (now the dashed red one) but also above that now well-established support at the $415 level. This chart needs $410 to reconfirm the bear or $450 to confirm a new bull. Otherwise, although technically bearish, I would be more inclined to consider this chart neutral until one or the other of the above moves takes place.

Just a note about the P&F charts shown in these commentaries. Some readers have been confused about how to read the price. Each X or O has only one value and it increases or decreases in terms of the UNIT value assigned (see the info block in the chart). The value of an X or O in the chart is designated by the price that would run horizontally through the top of the X or O. As an example, the highest X on the chart is at $455 while the lowest O on the chart is at $375 because the TOPS of these Xs and Os are at that level. It’s sometimes confusing, but that’s the commercial software program I use.

As for the normal indicators, gold is still below its negatively sloping moving average line with a price momentum that is negative (but heading upward). Volume is now a plus. All in all, I still rate the intermediate term as bearish.

Short Term: Now for the short term. After action such as we have had this past week, one would almost assume that the short term has gone positive. Looking at the chart, we see that gold has moved above its short-term moving average line and the line slope is changing fast, but it has not quite turned up. Maybe another day will do it. As for price momentum, it is still inside its negative zone, below the neutral line, but heading upwards towards the line. Here too, maybe another day or two will see this indicator go positive, for now it is still negative. Volume is now our best positive indicator after a long time of being negative. There is still that short-term resistance at the $423.30 level and once through there, gold should be on its way back to previous highs. For now, I will rate it as neutral pending the resistance break.

The aggressive Stochastic Oscillator quickly broke above its upper resistance trend line (see the previous Mid-Week review) and is now inside its positive zone and pointing aggressively upward. There seems to be no hint of a reversal in the immediate future but as so often mentioned, this is an aggressive indicator and could turn on a dime.

U.S. DOLLAR INDEX

Long Term: I had mentioned the long-term strengthening in the US$ Index several months ago (against the then overwhelming negative opinion) and since then it has been on a roller coaster ride but continually peaking higher and higher. Since going bullish, the long-term P&F chart has remained so with no sign of reversing. All the indicators are positive, so without belaboring the fact, I remain bullish on the long-term US$ Index.

Intermediate Term: Despite a very minor drop in the US$ Index this past week, the Index is still on the move upward. It is well above its positive moving average line with a price momentum that continually moves higher inside its positive zone. For now, there is nothing hindering a continual rating as bullish.

Short Term: Friday’s action was somewhat of a bummer for the US$ Index, but it had not changed any of the short term indicators, yet. However, the price momentum has been oscillating slightly above to slightly below the overbought line and is now once more below the line. It is suggesting a rest period is in order for the Index, or maybe even a short-term reversal of trend. Only time will tell. For now, I am still bullish but edging towards the neutral.

As for the aggressive Stochastic Oscillator, it had broken below its overbought line several days ago and the subsequent action has not halted its continued slide downward. It is still inside its positive zone but heading towards the negative fast. Another day or two of downside action, and this indicator will go negative.

GOLD & SILVER INDICES

One week does not make a trend, but boy, what a week. Most North American Indices had a very good week, one of their best in a long time. Although the longer-term ratings have not changed much (they take time), the short-term ratings turned around more quickly than I can remember them doing for a very long time. Looking at the various components of the Merv’s Indices, we see the overall short-term ratings change from overall 70% bearish last week to almost 70% bullish this week. It will still be another week or more before this kind of action is adequately represented in the intermediate term numbers, but that will come if the trend continues.

Shown this week is a weekly chart of Merv’s Gamb-Gold Index. From 15 to 200 in only 3 ½ years, and that’s after the slide of the past few months. Not too bad for an AVERAGE performance of 30 stocks. That is the kind of performance these gambling stocks provide. However, they do not always outperform the market. This week, they were among the poorer performing group. However, this is encouraging. In the early stages of a new bull market, the “quality” stocks move first. After a while, as the masses get more comfortable, the gambling stocks start their moves and very quickly outperform all other stocks. One just has to know which gambling stocks are moving up and which are moving down. There could always be another Bre-X wannabe in the bunch.

METALS and ENERGY

In keeping with the week, the major metals and energies moved nicely higher on the week. Copper moved back above its previous support trend line to put it back inside the “wedge”, while silver continued higher but still within that lateral pattern. On the short-term P&F chart of silver, we need a move to the $7.40 level for an upside break and new bull. That would then project to the $9.30 level for a very nice move. But it must first get to $7.40.

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.