Technically Speaking with Burak
Weekly Commentary
(For week ending 29 December 2006)
Mervyn Burak, CMT
It was up and up all week but really didn't go anywhere. Let's see where we are and what to expect ahead.
GOLD
LONG TERM and INTERMEDIATE TERM
The commentary this week again will be limited due to the holiday period but I will go through the routine without any extraneous commentaries (I hope).
The long term P&F chart has not moved for a month now so the previous analysis of that chart remains unchanged, i.e. still bearish. As for the intermediate term P&F, it has been in a bull move for about two months now and is performing okay on the chart. It has, however, moved into a zone of resistance between about $620 and $675 and it might take some work to get through this zone.
As for the usual indicators, gold is above both its long and intermediate term moving average lines and both lines are pointing upwards, although the long term line just barely so. Weakness in the long and intermediate term momentum indicators is noted with their lower lows in Oct versus June while gold remained above its June low. Both momentum indicators are clearly showing the basic lateral trend in gold since the June low. Things have to perk up here for gold to get any real traction. Any continuing gold up moves without a perk-up in momentum may be cause for concern. During lateral trends the volume indicator very often produces a slight up trend or down trend giving speculators a hint as to what might be happening under the radar screen. In the case of gold, the recent volume indicator activity is not giving us any hint this time. It is basically in a lateral trend although one might see signs of weakness recently. That may just be the lack of speculators in the market due to the holidays.
For now I will continue with my bullish position for both the long and intermediate term time periods but both need careful watching over the next few weeks.
SHORT and IMMEDIATE TERM
The past week was up and up every day but as one can see from the chart, it really hasn't gotten us anywhere. Gold is, however, above both its short and very short term moving average lines and the lines are both heading upwards. Short term momentum is in the positive zone and pointing upward while the aggressive Stochastic Oscillator (SO) is positive and has entered its overbought zone. There is no indication from either of these momentum indicators that a halt to the trend is ready to start. From this one might assume that the short term should see still higher prices and that the immediate action continues towards the up side.
YEARLY SUMMARIES
The following brief commentaries on the North American precious metals markets will have performance percentages as to how things fared during the year 2006. Unless specifically noted otherwise all the performance percentages are from the close in 2005 (30 Dec 2005) to the close in 2006 (29 Dec 2006).
For performance comparisons, gold gained 23.0% during the year while silver gained 45.5%.
NORTH AMERICAN GOLD INDICES
Over the past few months the North American Gold Indices have been moving in a basic lateral direction. As such, the various indicators have been in a bind not knowing which way to go and in the process causing whip-saw indications. We need to see some more concerted action to be able to better determine the best potential direction for the markets. For now I will rate these indices as being basically NEUTRAL.
The yearly performances of the four basic major North American Gold Indices are as follows:
PHLX Gold and Silver Sector Index: + 11.1%
AMEX Gold BUGS Index: + 22.1%
AMEX Gold Miners Index: + 21.9%
S&P/TSX Global Gold Index: + 29.2%
Note that with the addition of some U.S. stocks and some African stocks trading on the U.S. exchanges, the name of the S&P/TSX Index was changed near year end to the S&P/TSX Global Gold Index. The Index itself is a continuation of the previous S&P/TSX Capped Gold Index.
Just a comment but it is usual for the performance of the stocks to be GREATER than the performance of the metal itself. This was not so, at least as far as these North American Indices are concerned. Such increased performance is seen in the various Merv's Indices below.
MERV'S PRECIOUS METALS INDICES
All of the Merv's Precious Metals Indices have a similar story at this time. They are all in BULLISH long and intermediate term trends BUT all are showing serious signs of topping. They are all at potential DOUBLE TOP patterns, which is a bearish pattern. The next few weeks MUST show good upside moves or else the double tops may be validated suggesting considerable downside action. I'll have better analysis, hopefully next week with the major speculators, who drive the markets, back from vacation.. In the mean time the yearly performances of the various Merv's Indices are provided below.
Precious Metals Indices from the most conservative to the most aggressive.
Merv's Qual-Gold Index: + 34.7%
Merv's Spec-Gold Index: +46.7%
Merv's Gold & Silver 100 Index: + 47.8%
Merv's Gold & Silver 160 Index: + 58.7%
Merv's Gamb-Gold Index: +124.1%
Merv's Silver Indices
Merv's Qual-Silver Index: +70.5%
Merv's Spec-Silver Index: + 109.5%
I must emphasize a couple of points here.
First is the difference, as I have often noted, between the weighting method of calculating the Index value used by the major Indices versus the EQUAL performance method used to calculate the Merv's indices. For good or bad, the major Indices are very highly affected by the performance of their top few large companies. Again, for better or worse, the Merv's Indices reflect the AVERAGE weekly performance of ALL the component stocks in each Index. One might look at the universe of 160 stocks, the Merv's Gold & Silver 160 Index, and think that a 58.7% may not be such a hot performance but that is an average performance of all 160 stocks.
The other point to mention is the increasing performance of the Merv's Precious Metals Indices as we go from the highest "quality" Index to the lowest "quality" index. This is a normal occurrence within this industry. As trends get going (either up or down) the lowest "quality" stocks will, in the end, out perform the highest "quality" stocks. They may initially under perform as the new trend has not yet taken hold but once speculators are convinced of the new trend they head towards the speculative stocks.
More on speculative versus "quality" investing in a future commentary.
MAJOR MARKET INDICES
Just for performance comparisons, here are the yearly performances of the four major North American Market Indices plus the more speculative Vancouver market.
Dow Jones Industrial Index: + 16.3%
S&P 500 Composite Index: + 13.6%
NASDAQ Composite Index: + 9.5%
S&P/TSX Composite Index: + 14.5%
S&P/TSX Venture Composite Index: + 33.6%
MERV'S PRECIOUS METALS INDICES TABLE
Let's call it a year and see what transpires next week.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
1 January 2007
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 www.themarkettraders.com and click on Merv's Precious Metals Central. There you will find samples of the Indices plus other publications of interest to gold investors.
Before you invest, Always check your market timing with a
Qualified Professional Market Technician
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