For week ending 10 Mar 2006
Golly-gee, what’s that? Five weeks in a row? Some lucky streak, eh? But can I keep it up? I can’t guarantee I can guess the next week right but there is one thing I can guarantee, sooner or later I’m going to be gosh-awful wrong.
I try not to show this long term P&F chart too often as it takes some time for any interesting pattern to show up on the chart. However, it does seem to be developing an interesting pattern so here it is. For a normal candlestick chart of daily activity I have a good one in my Non-Edible Futures Page which can be found in the Global Indices section of the www.themarkettraders.com web site front page. What we see here is a nice little “box” pattern. To get out of the box the price would have to hit $530 on a downside break or $580 on an upside break. Comes the question, which way is it most likely to break? Let’s go through our weekly technical look-see and see what we come up with.
The long term P&F chart is still bullish despite the box. To turn bearish it would have to break the box and ALSO break below the up trend line. Without any more lateral drift the break below the up trend line would not come until about the $500 level. So, we are still somewhat comfortable here.
Gold price is still above a positively sloping moving average line and price momentum, although breaking support levels, is still in the positive zone. The volume indicator is moving lower and is below its long term moving average line but the line is still slightly on the positive slope side.
All in all, the technical indicators still have us in a BULLISH long term position. So much for the present “position” but where are we going from here? That requires a look at the shorter time period information.
Well, the shorter the time period the worse the trend looks. As mentioned in previous issues gold has broken below our two P&F chart requirements for a trend reversal a few of weeks ago and we had an initial downside projection of $475. The recent rally broke the initial down trend line but not two previous highs before reversing and going into new reaction lows this week. That has given us another downside projection, this one to the $415 level which is a support from early last year. This P&F chart suggests that the trend is not about to halt and reverse itself. Lower levels are the trend of least resistance.
Getting to my FAN Principle, the action this past week has pushed the price through the second FAN trend line and now the price is in the wide area between FAN trend line 2 and FAN trend line 1. My expectation is that the price action will stay within this area for some time to come. It may not even get out of the area. The FAN trend line number 1 is about at the $500 level and gently rising. FAN trend line number 2 is at about the $560 area and rising moderately. The P&F notwithstanding, it is possible that gold may not break below the FAN trend line number 1 but hold above it. The longer it stays above, the higher the FAN trend line number 2 will get until it could be far enough away that breaking through the line might become a very, very slim possibility.
As for the usual indicators, gold is now below its moving average line while the line is in the process of going negative. It is right now in a horizontal trend ready to turn down. Price momentum keeps getting weaker and weaker, breaking support after support but still slightly in the positive zone. It can’t stay there much longer unless the price zooms up fast. As for the volume indicator, well it is moving lower and is below its intermediate term moving average line. The line is also sloping downward. Lastly, I mentioned the head and shoulder pattern two weeks ago. The action on Friday broke below the H&S neckline but bounced back above the line before the day was over. I expect a valid break to come any day now, one that closes below the neckline.
Putting all that together about the only positive indicator is momentum but even here it is heading lower fast. The present position of the gold market can only be classified as BEARISH for this time period. All indications are that the direction of motion will continue to the down side but let’s have the SHORT TERM and IMMEDIATE TERM analysis confirm that.
SHORT TERM and IMMEDIATE TERM
The short and immediate term analysis can be found in the subscriber’s section of Merv’s Precious Metals Central at www.themarkettraders.com.
MERV’S PRECIOUS METALS INDICES
It was one miserable week with gold, silver and all of the Indices taking a hell of a bounding. Despite being negative on the week the Merv’s Indices were less negative than any of the other Indices. Looking over the weekly information it is obvious that as far as the gold stocks were concerned, the higher the quality of stock the higher the weekly losses.
The silver stocks were a special situation. They were the real leaders on the way up so they were also the leaders on the way down, not as bad as the major Indices but worse than Merv’s Gold Indices.
Looking at the major Indices one would have the impression that all the gold stocks act alike. Those Indices basically tell you what the larger companies are doing. When speculating in the speculative gold stocks one would be more interested in knowing what those stocks were doing. There are various sectors in the gold industry and they all do not act together. That is why we have the various Merv’s Indices. We find out what the quality stocks are doing as well as the secondary issues and the outright gambles. Then one can be more comfortable speculating in whichever sector one wants. Let’s see what the various individual Indices are up (or down) to.
MERV’S GOLD & SILVER 160 INDEX
I always like to see first what my universe of 160 stocks is doing before getting into the different sectors. With an average loss on the week of 3.7% that looks bad but it was the second best performance this past week of all the Indices in my Gold Indices Table. Only the Gamb-Gold Index did better. From the table of technical information and ratings, this Index is still rated as POS for both the intermediate and long term and only starting to show weakness in the shorter term with a +N rating, that is between neutral and POS. The Index is well above a positive moving average line for both intermediate and long term. Momentum indicators are still quite positive however the intermediate term momentum has shown a negative divergence versus the recent Index high and is just above a momentum up trend line going back to the May low. So, technically this Index is still BULLISH but showing signs of weakness.
As for the weekly action, that was miserable with almost 5 times the declining issues as advancing issues. We still have overall BIULLISH ratings for the Index component stocks but they have dropped versus last week. They were BULLISH 71% and 88% for the intermediate and long term and are now 51% and 82% respectfully. On the short term the overall rating changed from a BULLISH 56% to a BEARISH 58%. Another negative week and we should see the intermediate term move into the bearish camp, while it would still take some time for the long term to do so. With this kind of weakening you can see why it is prudent not to be on the buy side right now and to be sure you have your stop loss prices active.
There was only one stock in my speculative category of plus or minus over 30% moves on the week. That was Sur American Gold Corp. with a 50% gain on the week. There was absolutely no technical evidence in the charts up to Monday close of any good news. On Tuesday the company issued a glowing report of drilling results in its Philippines venture and the stock took off. Their Philippines venture – hmmm – reminds one of Bre-X and their fabulous Philippines venture. Bre-X was a con, this just might be for real – but who knows? I’ll watch it for further evidence that there might be more to the up side.
I often hear that gold stocks are too speculative, too often manipulated and has too many con artists involved. I love when stocks are manipulated by con artists. Their trading shows up on the charts and it is easy to find good entry and exit points. The point about most of these cons is that for the con to work the con artists must sell their stocks and they do so near the top (since the con revolves about THEIR manipulation of the price). This selling is easily spotted on the charts and allows the technician to get out with them, near the top. With Bre-X, I got my subscribers (in a previous service) in at $0.31 and out at $23.00 (6 months before the collapse) purely by chart action. And boy was that a con and manipulative venture.
MERV’S QUAL-GOLD INDEX
This is my equivalent to the major North American Indices. It includes 30 of the largest North American trading gold and silver companies. On the week it lost an average 6.7%, bad but not as bad as the major Indices which lost in the neighborhood of 7.5%. It is the only Merv’s Index that is already rated as NEG in the Gold Tables for the intermediate term, although still POS for the long term. The reason for such rating, even though the moving average has not yet turned down, is the very poor performance of the momentum indicator in the table. As with the 160 Index, the intermediate term momentum had given us a negative divergence signal but has also broken its up trend line from the May low. The intermediate term moving average, although not yet negative, has turned towards the negative and is presently horizontal, ready to go negative. Unlike the major Indices, this Index has not yet broken below its support from the Feb action, but that is not far away.
Overall stock performances were pathetic. ALL 30 of the component stocks declined on the week. The intermediate term rating changed from a bullish 55% last week to a BEARISH 63% this week and the long term rating dropped from 90% last week to 70% this week, the poorest long term rating of any of the Merv’s Indices. This is where the action is most negative so far.
MERV’S SPEC-GOLD INDEX
These second tier of gold stocks, those itching to get into the “quality” category, had a drop of 4.6% on the week, about average for all the Merv’s Indices. It is still rated as POS for the intermediate and long term but is already rated as NEG on the short term. The Index is just coming off its recent all time high and is still above its positive intermediate term moving average line. As with all of the Merv’s Indices, intermediate term momentum has given a warning by its negative divergence but unlike the Qual-Gold Index, it is still above its up trend line from the May low. It is also still some distance above the previous Feb lows. All in all, showing weakness but not yet into the negative.
On the week we had 5 times the losers as gainers but still had gainers, 5 of them. The intermediate term rating dropped from a BULLISH 62% last week to a NEUTRAL 47% BULL, 40% BEAR ratings this week. On the long term the BULL rating dropped from 87% to 77%.
MERV’S GAMB-GOLD INDEX
My Index of 30 gambling stocks had the best performance of any of the Gold Indices in the Gold Indices Table with a loss of only 1.4%. It is still rated as POS for both the intermediate and long term periods but has moved into the + N rating for the short term. It is still way up there very close to its all time high and far from the Feb support. The intermediate term moving average line is aggressively pointing upward but still some distance below the Index. The momentum indicator has shown a negative divergence at the recent high but is still some distance from its up trend line from the May low. Warnings of possible trouble ahead but no actual trouble yet.
The Gamb-Gold Index had the best ratio of losers to gainers on the week with 10 gainers and 19 losers, almost a 2 to 1 ratio but far better than other Indices with their 5 to 1 ratio. The overall component ratings are still BULLISH in the intermediate and long term with BULL ratings of 58% and 95% versus 75% and 95% last week. Long term hasn’t budged, interesting.
Sur America (mentioned above) is in the list. So is Southern Star Res. Inc. with its 21.7% weekly gain.
Southern Star was included in our universe of 160 on 30 Sept 2005 at $1.20 and was already rated as POS. It has since gained over 200%. However, my technical program first showed it going POS on 22 July 2005 at $0.29 and has stayed POS ever since. It is now ahead 1159% since first going POS less than 8 months ago (see chart on next page).
THE SILVER INDICES
Well, we knew that sooner or later the silver stocks were going to get hit. They just couldn’t keep on advancing forever. Both of my Silver Indices were hit with upper 6% losses, still better than the losses in the AMEX or PHLX Indices. Although they had declines on the week both of the Silver Indices are still rated as POS for the short term, the only Indices rated POS on the short term in the Gold Tables.
MERV’S QUAL-SILVER INDEX
Although there are only 10 stocks in this Index, all were hit during the week for an average loss of 6.5%. This Index still has a very high performance rating being the third best Relative Strength (RS) performer of all the Indices in the Gold Tables with a third best rating. It was beat out by the Spec-Silver and Gamb-Gold Indices. It is rated as POS for all three time periods as far as technical rating is concerned. The Index is still above its positive moving average line. Momentum is also above its up trend line from the May low. Unlike most other Indices this momentum has not given us a negative divergence warning.
All 10 stocks in the Index declined on the week taking the short term rating down from a BULLISH 57% to a NEUTRAL BULL 45%, BEAR 45%. Both the intermediate and long term ratings stayed constant at 100%.
MERV’S SPEC-SILVER INDEX
Despite a 6.9% decline on the week the Spec-Silver Index remains the top rated Index of all the Indices in the Gold Indices Table, in Relative Strength performance for all three time periods. Its overall technical rating also remains POS for all three periods. Although still well above its intermediate term positive moving average line we do see a problem with the momentum. Despite the recent good performance the momentum indicator has dropped below its up trend line from the May low. This indicates that the strength of the recent action is starting to subside and danger may lie ahead.
As far as gainers and losers are concerned, we had almost the direct opposite of last week, with only 3 gainers and 21 losers. The previous 100% ratings for the intermediate and long term have now dropped to BULLISH 76% and 96% respectively. On the short term the previous BULL rating of 83% has now changed to a NEUTRAL 44% BULL, 34% BEAR.
Just a note about e-mail. I appreciate all the comments I get and read them all. However, please appreciate that due to time constraints I cannot possibly answer every one. I try but just keep getting further behind.
When sending an e-mail DO NOT include an attachment. E-Mails with attachments are always suspect and my software may automatically eliminate the e-mail before it gets to me.
Because my e-mail address is out there in cyberspace I inevitably get a lot of junk mail. Most is caught by my software and eliminated but a lot gets through. I spend a lot of time eliminating junk mail and in the process do accidentally eliminate some regular mail in the process. So, if you do not hear from me it could be due to time constraints or accidental deletion.
Well, that’s it for this week.
Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group for Merv’s Precious Metals Central
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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