For week ending 30 Dec 2005

Well, it’s still the Christmas/New Year holiday period and just like last week, this week’s commentary will be somewhat simplified. I will be back to regular commentaries next week.

GOLD

The long term prognosis can be gotten rid of real fast. There is nothing immediate that is threatening the bullish long term picture. Price above a positive moving average line, momentum well in the positive zone, P&F continues in a bullish trend, and on and on. No use wasting too much time today. Maybe next week I can come up with a lot more information on the long term but for now let’s just leave it as BULLISH.

The chart above is an intermediate term P&F chart. Always keep in mind that on my P&F charts the blue lines are support or bullish tend lines while red lines are resistance or bearish trend lines. The red up trending lines on the chart may be confused as bullish up trend lines but are really resistance lines. Once a trend starts, say an up trend, one can often draw a parallel up trend resistance line suggesting where one MIGHT expect the trend to hit resistance and react lower, if only temporarily. To draw these lines one would go to the top resistance break-out X, move sideways to the left until one comes up against a wall of Os and draw your resistance line from there. One can sometimes draw an intermediate line or play other games with the chart. I’m not a great one for following these trend lines as they do not signify any serious change of trend. What they do, and what is often benefitial, is understanding when a reaction might be expected and stay away from any new purchases at such time.

We presently have a head and shoulder pattern showing up on the P&F chart. The neckline is at the $495 level. A move to $490 would break this pattern and suggest a move to the $450 level. Should such a break occur we would be able to draw a down trending support line, shown as a blue dashed line since it is not yet in play.

The price is still above a positive intermediate term moving average line, the momentum is still quite positive and the volume indicator is above its positive intermediate term moving average line. All in all, still BULLISH on the intermediate term.

Where the long and intermediate term picture was relatively clear cut the short term is a little more difficult (see chart in Futures section). We are in a short term rally with the price above its short term positive moving average line (15 DMAw) with a momentum indicator (13 Day RSI) inside its positive zone. On the immediate term we are also in a rally mode with the price above the very short term moving average line (8 DMAw) and with an aggressive Stochastic Oscillator (SO) that is moving higher, above its trigger line but still without confirmation by moving above the neutral line (the 50% line). However, with the SO one is more likely to look if the indicator is above or below its trigger line. All seems well and good EXCEPT. On the last three trading days the daily high has had a problem. The high of $520.20 reached on Wednesday has not been exceeded or even reached on the following two days. The action is looking like a topping action. It is very important that the price closes above this level within the next day, two at the most, or else we are into a top. If the price should close below the very short term moving average line then the immediate and short term direction would have changed to the negative.

NORTH AMERICAN GOLD INDICES

The major North American gold Indices had another positive week with gains in the order of 2.2% to 3.2%. This is equaling the performances of gold and silver which gained in the 2.7% area. Nothing spectacular but just a bull trend continuation. I will be looking more in depth at one of the major Indices starting next week, after the holidays.

MERV’S PRECIOUS METALS INDICES

As mentioned last week, I am now finished with my end of year review of all the Merv’s Indices and can say that the weeks and months ahead are looking very, very interesting. There is going to be a lot of money made in the precious metal stocks over the coming months (BUT ALSO a lot of money LOST by those who do not understand that things CAN go wrong and protect their capital). Although the Indices are meant to represent all variety of precious metal stocks with an overall universe of 160 individual stocks, I had a very tough time in sorting out what stocks to include into the universe and into the separate groups. After all, I have over 700 precious metal stocks to choose from in my computer files and that results in many, many stocks being left out. Out of the 160 universe I have included the 100 largest market capitalization stocks traded on the North American exchanges. There might, however, be a few missing at the lower end of the valuation list. For the remaining 60 I had tried to include all variety of mining, exploration and development stocks so that we have that wide representation. Included in the list are also the precious metal Exchange Traded Funds (or Trust Funds). So there is something for everyone in this list.

MERV’S GOLD & SILVER 160 INDEX

We had a good week for the overall universe with an average gain of 4.0%. The activity is still not what one would consider overly speculative since there was only one stock with a gain of over 30%. When the speculative fever really gets going we often have a half dozen or more with such gains. The fever is yet to come.

MERV’S QUAL-GOLD INDEX

The average quality stock gained 2.3% on the week, within the lower performance of the major Indices. In general these stocks perform similarly to the performance of the major North American gold Indices although over time it has shown somewhat better long term performance.

MERV’S SPEC-GOLD INDEX

With an average performance of 4.4% the second tier of precious metal stocks did considerably better this week than did the primary tier. These are the 30 next largest companies after the Qual-Gold companies. For the first time this Index has now exceeded its previous 2004 high and is on the move.

MERV’S GAMB-GOLD INDEX

Last week I mentioned that this week the Merv’s Gamb-Gold Index will be updated and should provide better performance than it had been doing over the past few months. I had been disappointed in the performance of this Index and couldn’t quite put my finger on why. After recently completing the silver Indices and checking the performance of the Spec-Silver Index (shown last week) I was more curious than ever. Why was the Spec-Silver Index so much more aggressive than the Gamb-Gold Index when they had basically the same caliber of stocks as component members?

The problem apparently was in my maintaining stocks in this Gamb-Gold Index for just too long. New companies entered the game but were not included in the Index because of my maintenance of the old stocks. Following input from professionals in the precious metals industry, during the week a complete review and thorough change took place within this Index. It now far more fully represents the stocks that are truly the gambling stocks and all are from the bottom 60 of the overall universe of 160 stocks (as mentioned last week). Many of these new stocks are reviewed this week in the Individual Stock Reviews in the Subscriber’s section.

As an exercise I thought I’d see how the Index performance would have been if I had performed this revision a few months back. The chart above shows the Index as it might have looked if the present component stocks had been in place at the bottom of the market in May. WOW! Now that’s what I was expecting from the gambling stocks. In the past 4 months alone, since the turning of the intermediate term moving average line to the up side, this Index has advanced some 87%. The chart compares very favorably with the performance of the Spec-Silver Index and shows the gambling stocks ARE on the move. I wish I could continue with this chart as THE Gamb-Gold Index chart but it was just a comparative check on the missed performance and would not be legitimate regardless of how great it looks. The real Gamb-Gold Index can be seen in the Gamb-Gold Page and will continue from where it was last week but with the continuing performance of the new components.

FUTURES COMMENTARY

METALS

Gold: Watch that $520.20 level. Gold must go through there in the next day or two or else this may be a topping action.

Silver: As with gold, silver must move higher over the next day or two otherwise we may be looking at a top with downside for a while..

Palladium: Looking very much like a head and shoulder top. A move to $246 would project down to the $188 level.

Platinum: Holding above a 6 month up trend line but the action leaves a lot to be desired..

Copper: It needs to stay above $200 or else it will break below support and a 4 month up trend line.

ENERGY

West Texas Light Sweet Crude: Recent strength not impressive. Must go through $63.00 to look good.

Natural Gas: Sitting on top of strong $11.00 support but momentum has broken into the negative zone and support not expected to hold.

Heating Oil: A nice double bottom support at $1.65 but needs $1.90 close to look good.

Unleaded Gas: Higher high rally looking good but could use better upside volume action to confirm.

CURRENCY

Australian Dollar: Made a new low but quickly recovered. We might just be ready for a trend reversal.

British Pound: Support at $1.705 holding but we may be into a lateral move for a while.

Canadian Dollar: Needs to move higher soon or else it may drop to test $0.835 support.

European Euro: Down side is looking weaker and weaker. We just might be in for a rally soon.

Japanese Yen: Sharp rally but doesn’t seem to be going anywhere. Still needs to prove itself.

Mexican Peso: Support just below $0.092. Recent rally still not interesting.

Swiss Franc: Looks like support at $0.755 may be tested soon.

U.S. Dollar Index: Support at $89.00 must hold or else more downside probable.

INDICES

It should be noted that the comments in this section are based upon the actions of the Indices futures market and not upon the actions of the respective Indices themselves.

Dow Jones Industrial Average: Double top pattern. All indications are for more downside action.

Nikkei 225 Index: Price continues to move higher and higher but danger signs are becoming evident. Negative divergence in momentum action. Volume action weak. Trend still positive but beware.

NASDAQ 100 Index: Has already made its downside break and the trend is now towards lower prices.

Russell 2000 Index: Just about ready to follow the lead of NASDAQ 100.

S&P 500 Composite Index: Momentum broke support. Volume weak. Trend seems to be towards the down side.

FINANCIALS

Eurodollar: Stabilizing around the $95.25 level.

Federal Funds 30-Day: Stabilizing around the $95.525 level.

Treasury Notes 2-Year: Two month lateral trend should end soon. Good support at the $102.40 level.

Treasury Notes 5-Year: Stabilizing for two months. Now needs $106.80 to break on the up side.

Treasury Notes 10-Year: Bullish action over past few weeks but still needs sone more upside with increasing volume to confirm.

Treasury Bonds 30-Year: The most positive of the financials. On its way towards the $118.00 level.

That’s it for this week.

Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group for Merv’s Precious Metals Central 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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