Well, okay. For a month gold was hitting its head against a $430 ceiling. Now it's stomping its foot on the $430 floor. I guess being above the support is still better than being below the resistance. So let's see how much better.
Getting right to the short term technicals, gold is above its short term $430 support and above its positive sloping short term moving average line. The short term price momentum is also positive. However, a still undecided short term indicator is the short term bullish Merv's FAN Principle trend lines (see chart). I had previously shown an intermediate term bearish Merv's FAN Principle trend lines (see archives Burak on Gold 05 February 2005) which at the present is still indicating a bear signal but not yet a full confirmation. The short term FAN trend lines is giving me just the opposite, a bullish signal but not yet fully confirmed. That will come with a move through that third FAN trend line drawn through the late February high. As the chart shows, expect gold to either break through this line this week or break below support. Short term volume action is a worry and may be the killer. It has been very weak and one would like to see volume strengthen on the up side to eliminate worries of the trend longevity. Go volume go. As for the short term point and figure chart, that is still bullish and would, at this time, require a close at or below $428 to change. So, from the short term perspective I am still bullish on gold (despite some lingering loose ends) and would remain so till at least the $428 level. After that, well I'll have to see the charts for the action at that time.
As for the intermediate and long term perspective, I can summarize quickly by just stating that for both time periods gold is above its positive sloping moving average lines with positive price momentum. Therefore I am still bullish on the long term and have also upgraded my intermediate term to bullish.
U.S. Dollar Index
When we talk about the US$ Index we are talking about the performance of the US$ versus a basket of 6 foreign currencies, calculated on a "trade weighted" basis. This basket is made up off 58% Euro, 14% Japanese Yen, 12% U.K. Pound, 9% Canadian Dollar, 4% Swedish Krona and 4% Swiss Franc. Now if only the Chinese would let their currency (the Renminbi) float versus the US$, then we will REALLY know what the US$ is worth. I have always been curious that Canada has such a huge trade with the US, going and coming, why is not the Canadian Dollar given a larger "trade weighting" towards the calculation of this Index? For now, let's see how the Index is doing.
The US$ Index tried to make a rally this week but effectively went nowhere. Friday's action brought it back to the low point of the past two weeks. Short term price momentum just got back up to its neutral line and POW, down it goes again. Although it tried to move above its moving average line, and did cross above the line a little, it is once more below the line and moving lower. The line had not changed its negative slope despite the short move by the Index above the line. All indications seem to point towards a continuation of the trend to lower levels. Will it go back to the Dec low? Will it make a bullish double bottom there? We don't know but will just follow the trend as we see it happening.
No change in my intermediate and long term prognosis, bearish for both. I'm still watching that long term price momentum to see if it continues to strengthen but that isn't going to change the prognosis quickly.
Gold Indices and Stocks
As a proxy for the major North American Gold Indices the AMEX Gold BUGS Index is as good as any. As with last weeks Merv's Qual-Gold Index, what we see in the chart is a major topping wedge pattern in the formation stage. This is a bearish wedge as it is developed following a long up trend. It still has a ways to go and it is not 100% guaranteed to reverse the trend but it is something one must keep in mind, until proven otherwise by a move into new highs. The dominant indicator is the long term up trend line. As long as the Index is above this line one can almost ignore all other indicators, except to get advance warning of a trend reversal. The long term price momentum (RSI) is giving us exactly this kind of warning. Unfortunately, the RSI does not give us a time to expect such reversal. One just has to watch and wait. In the meantime, enjoy whatever upside we continue.
As for this week's action, other than a few negatives most of the Indices closed up on the week, the Merv's Gamb-Gold Index outperforming them all again, by a factor of at least 2. The gambling stocks continue to move but they do not call them gambling stocks for nothing. Should a reversal occur, these are the stocks that are expected to drop the most, and the quickest. Go with the action but act fast to protect capital should the action reverse. I have put together a few charts of interesting stocks from the technical perspective for readers that had requested them (see below).
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
6 March 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.