BOOM Or BUST Ahead…Which Will It Be?

September 18, 2016

My long-term projection to the $2150 level is still operative. However, the short and intermediate-term look decidedly grim.  Unfortunately, gold will track up or down depending more on world politics than any fundamental considerations.  Trying to predict what’s going to happen in the MiddleEast, Europe, North America or wherever is a fool’s game.  So, let’s again just check where the precious metals and stocks are…rather than where they should be.        

Yes I know, I always claim to keep my charts uncluttered - and here I am, lines all over the place.  My only excuse is that each has a story to play towards understanding where we are.

Long-Term

We see three trend lines which are my FAN Principle trend lines.  This FAN is called a Decelerating BEAR FAN.  The breaking of the second FAN trend line usually signals the trend is ending while it’s the breaking of the third FAN trend line that confirms a trend reversal.  That event is coming closer and closer.  A little more downside in the price of gold and at least three things will be happening.  The third FAN trend line will be broken, The long-term moving average line will be crossed on the down side and the “box” pattern (slightly sloping) will be broken on the down side.   With so many negatives any such event will most likely see much, much lower prices.

As things stand at the Friday close, the price of gold remains above its moving average line - and the line slope is still comfortably positive.  The long-term momentum indicator (not shown) is still in its positive zone but below a negative sloping trigger line.  For now the long-term rating remains BULLISH.

Intermediate-Term

I consider the noted “box” pattern more of an intermediate-term pattern although I had mentioned it above in the long-term section.  As long as the price stays within this “box” one can have some encouragement that all is not lost.  Looking at the intermediate term momentum indicator one can only hope that the price of gold will go into a rally mode as it did in early June when the momentum indicator was about at the same level as it is now.  The short-term moving average is now below its intermediate-term moving average for a negative indication.  It remains to be seen if it quickly recovers as it did in late May early June or if it just continues to trend below the intermediate-term line.

From an intermediate-term standpoint, things continue to deteriorate.  The price of gold is below its intermediate-term moving average line and the line is now decidedly pointing downward.  The intermediate-term momentum indicator is very slightly still in its positive zone although below its negative trigger line.  Despite the slightly positive momentum the intermediate-term rating can only continue to be BEARISH.

Short-Term

On the short-term what can one say?  We can only hope for a rally from around here as noted above.  Otherwise, the trend remains in a negative direction.  The price of gold remains below its negative sloping moving average line and the momentum indicator remains in its negative zone below its negative sloping trigger line.  The short term rating therefore remains BEARISH.

Gold And Silver Stocks

It hasn’t been a good week for gold and silver stocks in general with all Indices closing the week on the down side with the Merv’s Penny Arcade Index for once showing the worst weekly performance.

The NYSE Arca Gold BUGS Index (HUI) closed the week with a decline of 1.9%.

The NYSE Arca Gold Miners Index (GDM) closed the week with a decline of 2.6%.

The PHLX Gold/Silver Sector Index (XAU) closed the week with a decline of 2.1%.

The average price of the 100 stocks in the Merv’s Gold & Silver 100 Index closed the week with a decline of 1.6%.  There were 33 winners, 64 losers and 3 stocks going nowhere.  The Index has just moved below a support level and is now in a downward trajectory.  The overall ratings for these 100 stocks look like this.  On the short term the BULL/BEAR rating stands at 22% positive and 70% negative.  On the intermediate-term the BULL/BEAR rating stands at 19% positive and 72% negative.  On the long-term the BULL/BEAR rating stands at 48% positive and 31% negative.  On the short and intermediate-term the overall group of 100 gold and silver stocks is definitely showing their bear side while the long-term is not quite there yet.  Although the bull side is now below the neutral 50% mark the bear side has not yet moved over the 50% threshold.  I guess we can rate this as long-term – NEUTRAL, one level above a full bear.

The 50 stocks in the Merv’s Penny Arcade 50 Index closed the week with a decline of 3.7%.  Although the decline a few weeks ago was larger (this being the second largest decline this year) it was the poorest performer of all North American Indices this week that I follow.  There were only 12 winners this week with 34 losers and 4 going nowhere.  As with the 100 Index this Index has just moved below a support point and is pointing lower.  The overall ratings for these 50 stocks look like this.  On the short-term the BULL/BEAR rating stands at 23% positive and 68% negative.  The intermediate-term BULL/BEAR rating stands at 35% positive and 55% negative.  The long-term BULL/BEAR rating stands at 57% positive and 32% negative.  So, the overall group can be rated as bearish on the short and intermediate-term but still bullish on the long-term.

Merv’s Silver 30 Index

Many speculators like to separate gold and silver as separate commodities, which they are.  Although in general they move somewhat together they are independent from each other and sometimes deviate in performance.  For this reason many years ago I developed two silver Indices, a “quality” and a speculative Index.  Since my retirement a few years ago I stopped with the speculative Index, but continued with the “quality” one.  That’s what you see here. 

Without going into the historical analysis The Merv’s Silver 30 Index started its latest move on the first week of February and has had a very good performance since.  However, the chart shows that there is trouble ahead.  The Index has broken below its intermediate-term moving average line with the line turning downward.  Looking at the long-term we still have a positive situation.  The Index remains above its long-term positive sloping moving average line.  The long-term momentum indicator remains in its positive zone but below a negative sloping trigger line.  The long-term rating at the Friday close is still BULLISH but that’s about all.  We have a few negatives that should not be ignored.  First, the Index has broken below a support level although not quite yet below its up trend line.  We see that the long-term momentum had shown a negative divergence (BAD) versus Index action during July and August resulting in the Index reversing into the down side.  The momentum was also in its overbought zone (the 70% level) and dropped below the overbought line with the turn of the Index.  For now things do not look good for silver stocks until the direction of the Index and indicators turn back to the up side.

As far as the 30 component stocks in the Index are concerned, the overall performance stands as follows: on the short-term the BULL/BEAR ratings stand at 13% positive and 78% negative, on the intermediate-term the BULL/BEAR ratings stand at 13% positive and 82% negative and on the long-term the BULL/BEAR ratings stand at 52% positive and 25% negative.  On the week there were 7 winners, 22 losers and 1 going nowhere.  So, we can say that this group of stocks are BEARISH on the short and intermediate-term but still BULLISH on the long-term.

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Readers are invited to view my Facebook page at https://facebook.com/merv.burak where I will be slowly posting commentaries explaining in more detail my various indicators and techniques. I also present from time to time some individual stocks that look as if they may be good speculations.  However, nothing I post is meant to be a recommendation to buy or sell.  One should check with their broker or investment advisor before acting.

Merv is a retired Aerospace Engineering consultant.  He is also a retired market technician with over 40 years of market experience and research.  Merv received his certification as a Chartered Market Technician (CMT) in 1992. Developer of many technical techniques and programs which he has been using in his previous Technically Speaking with Wil-Arm and Technically Precious with Merv commentaries posted throughout the globe.  Developer of several gold and silver Indices, Merv continues to update his Merv’s Gold & Silver 100 Index and Merv’s Penny Arcade 50 Index and reviews them during his periodic on-going Technically Precious commentaries. 

The 1849 Gold Rush sped up California's admission to the Union as the 31st state in that year.