Technically Speaking with Burak
Weekly Commentary
(For week ending 24 February 2006)
Mervyn Burak, CMT
Despite a few volatile days the four days of trading this past week were basically lateral. Unfortunately, we may be in for a period when sudden world events may command the attention of gold speculators so be prepared for possibly more than normal volatility.
GOLD
LONG TERM
Well, the sky still hasn't fallen so disaster is still not yet upon us, but who knows what tomorrow will bring. Looking at the long term charts of gold, P&F or the various bar charts, they all seem to look the same with barely any hint of trouble ahead. It's only when you look deeper that things start to get murky. The P&F chart is still far from any reversal point but also some distance from new highs. The trend may be more lateral for some time, within wide up and down yo-yo moves. Despite what I may think, we still have that very bullish momentum reading that has caused previous moves to come to an end and take several months before recovering. When will it really start its reaction period? All indications are that it has started but the charts are just not highlighting it yet. Things are more obvious on shorter term charts.
Since nothing much has really happened from the long term standpoint let's just cover the usual indicators and get on with the other time periods. Looking at a long term chart we can see that gold price is still some distance above a positively sloping moving average line. Momentum is also very positive, as mentioned earlier, and had just touched its overbought line a few weeks ago. At this level of a long term momentum, the price should have started its reaction but it is still trying to hold on to the upside. The volume indicator has crossed its long term moving average to the down side but the moving average itself is still in a slight positive slope, a mixed message at this time.
All in all, still BULLISH on the long term.
INTERMEDIATE TERM
First the P&F chart. During the latest week's action we had the P&F cross the down trend line for one reversal indication but it is still not above two previous highs for a final confirmation to the bull side. We are still in an intermediate term bear market per my intermediate term P&F chart. The intermediate term projection still stands at $475.
Looking at this week's chart there are some interesting things to watch out for. Brought to my attention by a reader, we are developing a head and shoulder top pattern. The blue support line is the neckline of the H&S. Breaking this neckline puts the trend into a negative trend with a projection to the $497 level. Is this pattern expected to break on the down side? Well a supporting indicator of a weakness in the present action is the momentum indicator (the 50 day RSI). Although the left and right shoulders (supports) are at approximately the same level the momentum has shown a very serious slippage in strength at this right shoulder versus the level of strength at the left shoulder. Despite the short term rally of late, the momentum is not really moving higher. This is something to analyze in more detail in the short term section. As long as we are on the momentum, we can easily see the negative divergence that this indicator gave us during the new highs in the price versus the previous high in early Dec. The volume indicator (The O-B-V) is also showing weakness having topped out before the price made its recent new highs. The indicator is still below its negatively sloping moving average line. And not to belabor the point, my FAN Principle bear signal of a few weeks back, right at the top, is still valid and has not been nullified by this past week's actions.
All in all, although there still are a few positive indicators, the price moving average being the most powerful, I remain BEARISH on the intermediate term. As mentioned earlier, world events just may destroy this neat analysis, but let's wait and see if it happens. No-one can predict world events, especially of the kind we have witnessed these past weeks.
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.
MOM(entum)
Just a quick few words about momentum as used in these commentaries and in the various tables. You might have noticed that on occasion my commentary momentum may not correspond to what one might see in the tables. The MOM(entum) in the tables is an indicator that I had developed over many years. It is a good indicators and easy to be used in a mathematical program. The momentum I use most often for my commentaries is the Relative Strength Index (RSI). This is also a very good momentum indicator, in my view one of the best. The two may not be in sync all the time and so we may, at times, differ between the tables and the commentary. A third indicator, the MACD, I very seldom use. It is probably the most popular indicator with technicians and particularly with non-technicians. I have found too many problems with its use and therefore rarely use it, but I do occasionally. There are other momentum indicators I sometimes look at for confirmation of the story provided by my primary indicator.
When using the RSI I use the following time periods for the indicator.
For short term I use the 13 Day RSI
For intermediate term I use either the 50 Day RSI or the 13 Week RSI.
For long term I use the 150 Day RSI or the 30 Week RSI. I may at times go to a 40 Week RSI also.
NORTH AMERICAN GOLD INDICES
Today we look in on the AMEX Gold BUGS Index. The BUGS in the Index stands for Basket of Unhedged Gold Stocks. However, their definition of "Unhedged" leaves something to be desired. The Index represents companies that do not hedge their gold production BEYOND ONE AND A HALF YEARS, rather than never. You could have a company continually hedging their total gold production but only for a year and a half each hedge.
We see on the chart the same accelerating FAN Principle trend lines as was shown for gold a few weeks back. The break below the third line came on the same day. The latest action is bouncing off the second FAN trend line. This is quite common. I expect that the Index will break below the second trend line and eventually head towards the first. The breaking of the second FAN trend line is a normal confirmation of a trend reversal. In addition, should the move occur then we have a similar head and shoulder pattern to that shown for gold. The projection on that break would be to the first FAN trend line.
In the mean time, however, the normal technical indicators have not yet reversed. With the Index above a positive sloping intermediate term moving average line and the momentum indicator still in the positive zone (although moving lower fast) the normal indicators are still BULLISH. Let's see how this plays itself out.
MERV'S PRECIOUS METALS INDICES
It was a great week for the various Merv's Indices. All were on the up side with gains ranging from 3.8% for the Qual-Gold Index to 15.4% for the Qual-Silver Index. Silver was the big winner with both silver Indices scoring double digit gains. Although the ratings for the Merv's Indices were all still POS for the intermediate and long term they were somewhat weaker on the short term. This week all short term ratings improved with both of the silver Indices back to POS and the gold & silver Indices moving from NEG to + N.(plus Neutral). It's interesting to note that of the 4 major North American Indices, where they were all still POS last week two of them have deteriorated to the + N level. These are the two highest quality Indices, the S&P/TSX and the PHLX.
MERV'S GOLD & SILVER 160 Index
Well, let's see how the gold universe did last week. A gain of 5.7% on the week puts it well above the major North American Indices but slightly below some of the specialty Merv's groups. With 118 gainers and 35 losers the gainers have it by a long shot. As for the overall BULL/BEAR ratings, as can be expected the short term was highly affected while the other time periods moved only slightly. The intermediate term is 71% bullish (65% last week) and the long term is 86% bullish (85% last week). The short term improved its ratings but still had not moved into the bullish level.
With the gain on the week this Index is back into new all time high ground, although just barely. Intermediate term momentum is inching back into its overbought zone for a warning of a potential reversal of trend ahead. Other than that all seems well with the universe.
There were 5 stocks that moved into our greater than plus/minus 30% speculative weekly move range this past week. The biggest gain was that of Quaterra Res. Ltd. with a weekly gain of 40.7%.
Quaterra last turned POS in our technical ratings on Nov 18, 2005 at $0.43. It is now up some 77% since going POS.
MERV'S QUAL-GOLD INDEX
The poorest performer of the Merv's Indices, the Qual-Gold Index gained 3.8% on the week. Poor by Merv's standard but still better than the major Indices who's best gain was 3.2%. Still, with 22 gainers and only 6 losers on the week it wasn't all that bad. However, the BULL/BEAR ratings were a surprise. On the intermediate term the BULL rating actually was reduced from 68% last week to 62% this week. The long term rating stayed constant at 92%. As in almost all cases where gold is concerned the real sticky point is the level of the momentum indicator. Shown this week in the Qual-Gold Page is an intermediate term RSI. This shows a high level equal to that of late 2003 when the Index reached a high and then went nowhere for almost two years. This will be something to continue monitoring.
MERV'S SPEC-GOLD INDEX
As a speculative or second tier Index the Spec-Gold Index had a good performance with a 5.8% gain on the week. This was some 2.6% better than the best the majors could do. The gainers and losers are a reflection of this performance with 25 gainers and only 5 losers on the week. The BULL/BEAR ratings improved as could be expected but the short term ratings still have not moved into the bullish range. On the intermediate term the bullish rating improved from 68% to 72% while on the long term it went from 85% to 87%. We have the same problem with the high momentum levels as with the other Indices. The last time the momentum was as high as it is was in late 2003 as the Index was in the process of topping out and not recovering for 2 years. Again, this needs to be watched.
MERV'S GAMB-GOLD INDEX
With a gain of 8.3% on the week the Gamb-Gold Index had an excellent week but still paled in comparison to the performance of the silver Indices (see below). Here still, although we had a sharp reversal of fortunes in the ratings the short term bullish rating still did not come up to the 50% level. The other time periods improved but were already in the bull area. On the intermediate term the rating improved from 60% bullish to 80% bullish. On the long term this moved from 93% to 95% bullish. The momentum here is into its overbought zone as with the others but the previous high reading in late 2003 was still a lot higher into the zone. So, maybe there is still some room for additional growth here.
MERV'S QUAL-SILVER INDEX
With a gain on the week of 15.4% (that's an average for the 10 component stocks) this Index was the winner hands down. All 10 component stocks gained on the week so we had no negatives to reduce the average performance with. The BULL/BEAR ratings were already pretty high but they still improved where they were not already 100% bullish. On the short term the bullish rating moved from 60% to 95% while on the intermediate term the rating went from 90% to 100%. On the long term the rating stayed constant at 100%. Can't get any more bullish than that. Unfortunately there is now only one way to go from here and that is lower. Speaking of momentum, it is at its highest level it has been at for many years. Again, only one way to go from here and that is down.
MERV'S SPEC-SILVER INDEX
A double digit top notch performance at 12.1%, the Spec-Silver Index was still second in Index performances not quite coming up to the Qual-Silver standard. With 22 gainers and 2 losers this was about the best ratio of the Indices except for, again, the Qual-Silver Index. The short term bullish rating of this group was below 50% last week but moved up quickly to the 78% level. The intermediate term moved up to 96% (from 84%) and the long term moved to 94% (from 92%). The Spec-Silver momentum is inside its overbought zone but still not as high inside as it was in late 2003. However, we should start watching for a serious topping action that might halt the advance for a some time to come.
IN THE NEWS
There were three merger/take-overs in the news this past week. Glamis acquiring Western Silver. Yamana acquiring Desert Sun and confirming its acquisition of RNC.
Western Silver last turned POS in our technical ratings on 11 Nov 2005 at $10.36 (see arrow in chart). It is now up 139% since turning POS.
Desert Sun last went POS in our technical ratings on 9 Sept 2005 at $2.04. It is now up 198% since going POS.
RNC last went POS in our technical ratings on 23 Sept 2005 at $0.61. It is up 100% since going POS.
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