Technically Speaking with Burak
Weekly Commentary
(For week ending 24 March 2006)
Mervyn Burak, CMT
It looked like things were progressively moving towards an intermediate term correction, then along came Friday. Was that a one day wonder or the start of a new bull move? Let's find out.
GOLD
NOTE: Any charts or tables mentioned in this commentary but missing can be found in Merv's Weekly Commentary at www.themarkettraders.com home page.
LONG TERM
First we look at the long term P&F chart to see if there was any new movement on that chart. NOPE, at least not anything important yet. We are getting some lateral drift on the chart but still no downside or new upside break. The levels to watch from the long term standpoint, per the P&F chart, would be the $580 level for a new upside bull break and $520 on the downside for the first long term bear signal since the bull move started a few years ago. As the P&F action continues in a lateral direction the lower bear signal level continues to move higher. With another down and up lateral drift the level could move still higher although at $520 that is already too close for comfort. Of course it is only one chart and technicians have many charts hidden under their beds to bring out when needed to prove a point.
Such a chart is this week's chart, or more specifically, indicator. This is the long term MOM(entum) indicator that you will find in my various tables of technical information except that the chart above is based upon daily action while the information in the tables are based upon weekly information (subscribers can find a daily version of my Intermediate Term MOM(entum) Indicator in the Qual-Gold Page). For this reason there might be a very slight delay in one or the other indicator. The two things that the indicator suggests is first, the crossing of the neutral line for a long term bull or bear signal. I have marked with arrows the locations on the price chart where such crossings of the indicator neutral line occurred. As you can see, it gave us a very good signal for the start of the long term bull market. It also gave us a false break in mid-2004 but as with most technical indicators, it quickly corrected itself. The second important feature is the indicator "trigger" line. This is a moving average of the indicator value. Although hard to see on the chart, it is the blue line on the indicator. What this trigger line suggests, again, from the long term standpoint, is whether the price action is weakening and one should refrain from new purchases (the indicator being below the trigger line) or if the price action is strengthening and one may consider purchases of stock (the indicator being above the trigger line). This is our (+ or -) (POS or NEG) information in the tables. The POS or NEG stating if the indicator is above or below the neutral line and the + or - indicating if the indicator is above or below its trigger line. What this indicator is telling us right now is that the long term momentum is still very POS(itive) but that the indicator has dropped below its trigger line on the daily chart for a cautionary warning that this may not be the right time for new long term purchases. In the tables, using the weekly data, it has been - for a couple of weeks but inched into the + this past week. It is still - using the daily chart so we should get a confirmation one way or the other next week. These are the things technicians look for to assess if one should be buying, selling or relaxing in the Bahamas.
A quick review of the normal long term indicators provides a positive moving average scenario along with a positive momentum. The volume indicator has been meandering above and below its moving average line and is now once more below.
All in all, I can only remain BULLISH on the long term.
INTERMEDIATE TERM
Well, that's the way the intermediate term P&F chart stacks up. We have had a bearish break with a $475 projection followed by a second break with a still further $415 projection. Although the rallies have broken through down trend lines the action has not yet broken above two previous highs for a new bull signal. Without any further lateral drift the move would require at least $575 to break on the up side. Friday's action may have been interesting but still not enough to change the intermediate term situation. Sure looks like an intermediate term topping action with the down side as the direction of least resistance.
As for the intermediate term Merv's FAN Principle trend lines (see the chart last week), there has been no change here. The action is still below line number 2 and Friday has not changed things. We are still in an intermediate term bear according to this indicator.
Before going to our normal indicators let's see what the Merv's Intermediate Term MOM(entum) indicator is telling us. After a few weeks below its trigger line (-) the indicator dropped below its neutral line on 24 Feb 2005. It remains - NEG but the daily chart shows the indicator just about to move above its trigger line for a change to +, but still in the NEG zone.
My preferred momentum indicator for the analysis on these pages is the Relative Strength Index (RSI) with the intermediate term version being the 50 day RSI. It is still in the positive zone although showing weakness and not far above its neutral line. Friday's action took the price above its moving average line and the line turned up (on a daily chart). Volume indicator has been showing weakness and is still below its negatively sloping moving average line.
We have too many mixed messages to go the positive route and although it is tempting to upgrade to bullish I will remain BEARISH for another week and review my rating next week.
SHORT TERM and IMMEDIATE TERM
Short and immediate term commentaries are available in the subscriber's section of Merv's Precious Metals Central.
NORTH AMERICAN GOLD INDICES
The AMEX Gold Miners Index, an Index of 45 stocks, is defined in the AMEX Web site as a "modified market capitalization weighted Index". Newmont Mining has a 13.7% weighting towards the Index value while Entrée Gold has only a 0.16% weighting. That's an 86 times difference in the two weightings. Why even bother having Entrée in the list, or a dozen other stocks.
The AMEX Gold Miners Index is typical of the major North American Indices. They all have gone through a lower low, lower high scenario and are in a possible rally mode after Friday's action. However, they are still a long way from their early February highs and still some distance from their recent highs. What a difference versus the various Merv's Indices, all of which in one degree or another are at new all time highs this past week.
Shown on this chart is the Merv's FAN Principle, common to almost all of the major Indices. As with gold itself, we are in an intermediate term bear move but in a short term rally. Momentum supports the rally by still being in the positive zone, but not by much. Let's see how this progresses over the next few days or weeks.
Are we in for the same rally as we had from the October low?
MERV'S PRECIOUS METALS INDICES
Looking through the Merv's Gold & Silver Indices table one can see the better average performance of the Merv's Indices versus the weighted performances of the other Indices. The performances of the Merv's Indices were somewhat surprising as all the primary gold based Indices performed almost identically. Usually we get different performances for the quality versus the gambling stocks but not this past week. There was a significant difference, however, between the gold based Indices versus the silver Indices. This can be linked to the better performance of silver versus gold as shown in the table. One can also note the magnification effect between the performance of the metal versus the performance of stocks. This is the reason I prefer investing in the stocks rather than the metal, but to each his own.
MERV'S GOLD & SILVER 160 INDEX
With the lowest of the Merv's Indices performances during the week this Index gained only 3.0%, but still better than all the majors except the AMEX Gold BUGS Index. The average performance of the universe of 160 stocks made a new all time high during the week. Although it continues to move higher with positive moving average lines (intermediate and long term) there continues to be a cautionary note from momentum. This new high is not being confirmed by a similar performance from momentum. In other words the climb by the Index is getting weaker as it gains altitude. Not yet a reversal of trend but a warning that a reversal is possible ahead.
With 103 gainers and 53 losers on the week one can see the reason for the weekly Index gain. Almost twice the gainers as losers. This ratio is approximated in the other Indices. The overall ratings for the group moved up just a notch with the intermediate term rating going from a BULLISH 53% to 56% and the long term from 82% to 83%. The short term ratings were more affected by the performance with the ratings going from a neutral level to a BULLISH 54%.
There was only one stock meeting my plus/minus over 30% weekly performance criteria. That stock was Northland Res. Inc. with a weekly gain of 30.9%. Northland turned POS in my weekly technical ratings table on 23 Dec 2005 at $0.62 and is now more than 100% ahead since turning POS.
MERV'S QUAL-GOLD INDEX
The Qual-Gold Index just inched into new all time high territory unlike the PHLX Gold/Silver Sector Index which is still some 17% below its recent high. Unlike the other Merv's Indices the Qual-Gold Index had closed below its intermediate term moving average line two weeks ago but the line remained in an upward trend. The Index is once more above this moving average line but not by much. If the Merv's Indices are going to reverse trend this is probably where we will see the reversal first. In the tables I have shown this Index with a Merv's Intermediate term momentum indicator. We see a weak indicator but still in the positive zone. The indicator does look like it is turning back to the up side but is still a little below its trigger line for a - POS rating.
The ratio of winners to losers was exactly 2 to 1 with 20 gainers and 10 losers on the week. As for the overall ratings for the Qual group, they improved a little during the week with the intermediate term rating improving from a bearish 50% to a neutral 47% bull and 40% bear. On the long term the bullish rating improved from 68% to 72%. The short term went from a neutral rating to a bullish 58%. Although the long term continues to remain bullish the ratings for the other time periods is nothing to cause smiles. They are still weak ratings.
MERV'S SPEC-GOLD INDEX
It's always difficult what to call this Index. The component stocks cannot be classified as "quality" but again, they are substantial companies and cannot be classified as outright speculations. They are the very top tier of our speculative stocks, the 30 largest companies after the Qual-Gold group. With a 3.9% gain on the week this Index was just about average of the Merv's Gold Indices. Like the Qual-Gold Index, the Spec-Gold Index is just inching into new all time high territory. It is doing so by barely staying ahead of its moving average line. Both the intermediate and long term momentum indicators are showing a significant weakening in the recent activity and this may lead to a trend reversal sometime ahead.
With 24 gaining issues versus only 6 losers one might have expected a better overall Index performance but most of the gains were of a single digit gain. Because of the low level of individual performances the overall ratings changed very little but did improve. The intermediate term moved from a bullish 52% to 55% while the long term moved from a bullish 80% to 82%. On the short term a 53% bearish rating changed to a 57% bullish one.
MERV'S GAMB-GOLD INDEX
Of the primary gold based Indices the Gamb-Gold Index usually provides us with the best performance. This week it is just average with a 3.8% gain on the week. The Gamb-Gold Index continues to move ever higher into no man's land, the area never reached before. It is doing so with more vigor than the other gold indices but still with a slight diminishing strength (momentum). Although slightly lower in momentum than the move of a few weeks back the momentum indicator still is pushing its way into the overbought zone. One can expect a reaction to the downside in the not too distant future so watch for it. Whether such reaction will be a buying opportunity remains to be seen.
As with the Spec-Gold Index we had a good ration on the winners side with 20 gaining issues to 8 losing issues. It's interesting to note that although the intermediate term overall ratings improved from a bullish 58% to 62% the long term rating dropped from a bullish 95% to 93%. A small drop and it was so high that a small change might not matter much.
MERV'S SILVER INDICES
This is what an intermediate term P&F chart (next page) looks like for silver. Silver seems to be going its merry old way departing from the trend in gold. Is this purely due to the upcoming silver ETF or are there other reasons for the silver bull? The present intermediate term projection for silver is to the $12.20 level although I do have a longer term projection into the $16 range.
The silver Indices continue to be the top performing Indices with Relative Strength ratings at the very top of the scale. The two silver Indices have been in two of the top 3 RS ratings for many months now (the only other Index giving them competition is the Gamb-Gold Index), and continue to be. They are the only Indices not to show negative divergence in the momentum versus price moves.
MERV'S QUAL-SILVER INDEX
The best performer of the Merv's Indices this past week the Qual-Silver Index gained 8.9% as half of the component stocks made double digit moves. As can be expected the Index zoomed into new all time highs well above both of its moving averages. Momentum is very positive and just about to enter the overbought zone for a warning that it is too positive.
With both intermediate and long term overall ratings already at 100% bullish where can they go. Well the intermediate term did drop to 95% bullish. Short term, was a different story. The ratings were at a neutral level last week but improved to a bullish 75% for a good jump.
MERV'S SPEC-GOLD INDEX
Not quite as good as the Qual-Gold Index this past week but still better than the gold based Indices, the Spec-Gold Index gained 5.4% on the week to continue its rise to new heights. Momentum continues to trend laterally inside the overbought zone, as it has been doing for several weeks now. Maybe time to move lower.
Despite the good weekly performance we still had 8 losers on the week, with 17 gainers. The ratings, as one might expect, improved just a bit in the intermediate term (from 80% bullish to 82%) and long term (from 92% bullish to 96%). Short term, however, moved up nicely from a bullish 54% to 70%.
Well, that's about it for this week.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
27 March 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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