Technically Speaking with Burak
Weekly Commentary
(For week ending 23 January 2006)
Mervyn Burak, CMT
What a wild week this has been. Up $10, Down $10 (or more) sometimes all in the same day. People running around in shock, Screams of "Valium, Valium, where is that Darn Valium". Through it all your trusty market technician was calmly reviewing his charts, a good Scotch on the Rocks in hand (it's better than a Valium) and the Stones playing Honky Tonk Woman in the background, all calm and relaxed (not the Stones but the technician). You see, when one is mainly concerned with the primary trend these volatile days are usually of little concern. But let's see what kind of damage this action of the past week might have done.
GOLD
LONG TERM
After all the volatility during the week the long term P&F (not shown here) chart barely moved. When reviewing the latest chart versus the one published last week all we see is an extra X in the $560 level (note that on these P&F charts the unit price is the price at the top of the X or O plot, weird I know but that's the software). Now one would think that we should have had more Xs or Os plotted after all that volatility but with the unit price at $10 and a 2 unit reversal, that's the way the cookie crumbles. The $560 price was reached on Tuesday. We almost had a reversal on Thursday when the price dropped to $540.50 before recovering and closing at $559.00 (quite a reversal, eh). We were only 50 cents away from being able to plot a 2 unit reversal but again, in P&F that's the way the cookie crumbles (okay, okay, I wouldn't mention THAT saying again). On the long term P&F chart nothing has changed throughout all that volatility.
What about our usual suspects, the trusty indicators? First, gold price is far above its positively sloping moving average line. Second, the long term momentum is well into its positive zone and still very near its highest level reached over the past many years. And as for volume, although volume is often a lagging indicator at bull market tops it still is a good confirmation indicator of a bull trend, and that is what it is telling us, that the bull trend continues with the volume indicator still well above its positive sloping long term moving average line.
Putting it all together I am still BULLISH on the long term.
INTERMEDIATE TERM
There has been a little more action in the intermediate term P&F chart but nothing too significant. The most significant chart event was that after all that volatility we do have a new intermediate term support, the breaking of which might reflect an intermediate term bear move BUT that support is still some distance away at the $525 level. For now the P&F is still not indicating any concern, intermediate term wise.
As for the usual suspects, as one can see on this weeks chart the price action is still some distance above the positive sloping moving average line. Readers will note that I have been changing the intermediate term moving average line from 50 DMAw to 65 DMAw. This really is not all that significant when plotted on a chart but the 65 DMAw line does track almost exactly the popular 50 DMA line except that the 65 DMAw line may, at limes, give us that reversal notice slightly earlier. The lower case "w" indicates the "weighted" method of calculating the moving average, giving more weight to recent price data and lesser weight to the earlier price data. During a continuing long term bull market one is less likely to get "whipsawed" with the 65 DMAw than with the 50 DMAw, in the intermediate term period. The action in early Nov was a good example. The 50 DMAw had turned negative for a few days giving a bearish trend indication while the 65 DMAw did not. To conform closer to the popular long term 200 DMA I have also changed my charts to show a 200 DMAw line.
The worrying indicator, as far as what to expect sometimes ahead, is the price momentum indicator, the 50 Day RSI shown on the chart. We are seeing a definite negative divergence in this indicator versus the price action. All that recent price action, at new high levels, has not been confirmed by a similar action at new high levels in the momentum. Momentum during this period has been less than previous, showing a reduction in strength in the recent price activity. Momentum DOES NOT signal a reversal of price trend BUT IT DOES warn of a potential ahead. This must be watched carefully over the next days or weeks to see what transpires. A warning is just that, a warning and not a prediction of change.
As for the volume activity, our volume indicator (not shown) is still positive but showing some hint of weakness. The daily volume activity is only at normal levels that it has been at over the past several months. To show a more bullish activity I would still like to see it significantly higher. However, there is one thing you have to watch out for, that is high volume days, after a significant rally, but on little price movement. That is a top indication. We still do not have that action showing up yet. It doesn't always happen at tops but is a dead give-away when it does happen.
Drawn on the intermediate term chart is a very troubling BEARISH accelerating FAN Trend lines. The third line has already been formed and is often considered a "blow-off" stage. It was almost breached on Thursday but the price did not close below it due to the intra-day rally. This indicator is telling me we are very, very close to an intermediate term bear trend. Looking at this potential from an aggressive side I would say that a close below $545 would place us in an intermediate bear trend even though we do have a support at the $540 level.
For now, putting everything together, I am still BULLISH on the intermediate term but very, very watchful of that FAN "blow-off" reversal potential.
SHORT TERM and IMMEDIATE TERM
Very interesting short and immediate term action but such commentary can only be found in the Merv's Precious Metals Central subscriber's section.
NORTH AMERICAN GOLD INDICES
All of the major North American gold Indices closed down, anywhere from minus 1.3% to minus 2.2%. The Dow and S&P gold Indices lost in the order of 5 % or more but with only one to three stocks in the Indices I do not consider them "major" Indices. All four of the major Indices that I follow appear to be in topping mode, although not yet at the reversal stage. The stage is set for a reversal and a move below recent support levels will do it.
With Canadian elections tomorrow (Monday), and being a political junkie, I'm trying to get back to surfing the "bloggers" to see what's happening. For those that may not have heard about our elections here, they have really been something this time around. I'll be back with a review of one of the major Indices again next week.
MERV'S PRECIOUS METALS INDICES
Well, we finally had a bummer of a week. Although the AVERAGE precious metal stock did not move lower to the extent that the North American major Indices did they still closed lower. So, let's check the various Indices one at a time.
MERV'S GOLD & SILVER 160 INDEX
The overall universe of 160 stocks closed lower, but only by 0.1%. You might almost say that it was a draw this week. However, there were about 50% more losers than gainers on the week (60 gainers and 95 losers) but the losers were minor in nature overall. There was only one mover in the over 30% range and 4 in the over 20% range, all on the up side. One such 20% plus winner this week was Bravo Venture Group (V/BVG) which is now up 200% since first recommended by Merv's Precious Metals Central less than 2 months ago. We were expecting a negative week after the action over the past few months. Expect even more negative weeks but as yet there is no hint that such negative action will generate into an overall trend reversal.
MERV'S QUAL-GOLD INDEX
Well, we know which group was hit the hardest during the week. The quality stocks had the worst showing with an average loss of 2.0 % on the week. With better than a 2 to 1 ratio of losers versus gainers (9 gainers and 21 losers) it was bound to finally happen. Don't get discouraged, these down weeks always are present in any bull market. It's when they generate into a bear market that one starts to worry but of course, being technicians we will be out before they drop too far. So stay tuned.
MERV'S SPEC-GOLD INDEX
The second tier of quality stocks (or the first tier of speculative stocks) represented in the Spec-Gold Index barely moved on the week. With a loss of 0.2% one would hardly notice it except for the fact that there were much more stocks on the down side than the up side. With 10 gainers and 19 losers it's a wonder that the average loss was only 0.2% but the losers were minor while the gainers were still reasonable, % wise. Nothing yet to worry about so let's go on to next week and see what transpires. With the prognosis of a possible down gold move we might see larger stock losses ahead but let's see.
MERV'S GAMB-GOLD INDEX
So, during this week of downers how did the bottom rung of speculative stocks do, you know the kind, the gambling stocks. Well, on average they were up 0.3%. That's barely a ripple but when all else are negative this is not too shabby.
Although there were slightly more losers than gainers (13 gainers and 15 losers) the ration was far better than any other group. Expect this group to have its bad weeks but they are on the move and as such they will end up far higher in the end than the other groups. One just has to be far quicker on their feet in getting out than, say, the quality issues.
Well, that's it for this week.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
23 January 2006
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.
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