Gold moved quite rapidly through that $430 resistance level but then stopped on a dime. This is not encouraging action. Volume at the break was also not all that great. Unless gold makes a new spurt towards the $450 level very, very soon one must start to suspect this latest move as a false break with new lows to come. If one was a conspiracy theorist one might think that futures traders, looking at that $430 resistance, had stop buy orders just above it. Other traders knowing this, pushed the price through resistance causing the stop buy orders to be activated and sold into this buying. One can always concoct these conspiracy theories. Who knows, maybe one of them may turn out to be true.
Whatever the reason for the move, one must go with the trend as best one can and keep his exit strategies very tight. All short term indicators are positive although the aggressive Stochastic Oscillator is in a topping mode inside its overbought zone. Once through the overbought line and gold moving below the short term moving average line, exit fast. In fact a close below the previous resistance level would be a negative as far as the short term trend is concerned.
This week's move has made the intermediate term a little better looking but still not perfect. I still have a conflict between a couple of my price momentum indicators that needs to be resolved for a more comfortable feeling. The P&F chart continues to move higher after bouncing off a support level. I remain neutral as far as the intermediate term is concerned.
Long term I am still bullish. The table is starting to strengthen towards that same judgment although not fully there yet. Price momentum is the bug-a-boo here.
To summarize, bullish long term, neutral intermediate term and confused short term (but bullish until proven otherwise).
U.S. Dollar Index
As goes gold, so does not go the US$. The US$ Index broke below its $0.83 support and like gold, stopped on a dime. It is starting to give some indications of wanting to move back up. In this case the aggressive Stochastic Oscillator has just inched above its oversold line suggesting a few days of upside (or sideways) action. Where from there is ??
The recent action has taken the US$ Index below its intermediate and long term moving average lines. Worse still, these lines are now both pointing lower. A move back to the $0.84 level would turn the intermediate term average back into a positive slope but there is no hope for any early turn in the long term average.
Long term bear, intermediate term neutral and short term confused (but bearish until proven otherwise).
Gold Indices and Stocks
The various Indices followed the action of gold itself but of course in a magnified scale. The latest move has further strengthened the recent trend in these Indices towards the positive. More and more are moving into the POS (bullish) rating in all time periods.
The Merv's Qual-Gold Index shown this week represents the action of the average performance of 30 "quality" gold and silver stocks. It is not that much out of line with the charts of the major Indices such as the AMEX Gold BUGS Index (HUI) or the PHLX Gold/Silver Sector Index (XAU). The two important features of this Index is the 4 year long bull market indicated by the Index remaining above its up trend line and the continuing weakening of the price momentum, represented here by the 30 week RSI indicator. These two features cannot continue in their present state. Either the upside momentum of the price action must improve or the Index will break below that trend line for a nasty prediction of things ahead. Stay tuned.
The other chart shown this week is my Merv's Gamb-Gold Index, an Index representing the average performance of 30 "gambling" gold and silver stocks. The interesting feature here is the new all time high being made by this Index. This is where the money is made (and lost). Over the past four years, as the AMEX Gold BUGS Index gained 280% and the Merv's Qual-Gold Index gained 290%, the Merv's Gamb-Gold Index gained 1550% and this is an average gain of 30 stocks in the Index (i.e. taking the very bad with the very good). As of Friday, the bullish rating for these gambling stocks is 92% bullish short term, 83% bullish intermediate term and 83% bullish long term These are very bullish ratings, so much so that there is little extra room on the up side suggesting that maybe some kind of rest period is in order for these stocks. If you are into the more aggressive (gambling) gold stocks you should be on the look out for a surprise ahead and be prepared.
Reading the Info table
The intermediate and long term technical information table provides the latest weighted moving average (MA), price momentum (MOM), relative strength (RS) and an overall technical rating (RATE) of each component. A + or - symbol is provided to indicate if the indicator is gaining strength or losing strength.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
merv.burak@hudsonaero.com
27 February 2005
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.
Although not normally available to the public, to obtain a copy of the latest weekly technical information on the component stocks of the various Merv's Gold indices, e-mail a request mentioning this Gold-Eagle offer. PLEASE provide at least your full name and home town.