20% PROFIT
I know investors that would be very happy with a yearly profit of 20% on their investments. They are the conservative type. In my view if you are risking your investment capital in the stock market you should be aiming for something substantially higher. As the old saying goes "I'd rather aim to double my money in a year and fall short by 20% rather than aim to gain 20% and make it".
But what about 20% in a week? Yes, there are many individual stocks that do that on the occasion.
Now what about a group of 30 stocks with an average gain of 20% on a week, now THAT'S an accomplishment. This past week the Merv's Gamb-Gold Index (see the MERV'S PRECIOUS METALS INDICES below) of 30 stocks gained 21.3%. That's an average weekly performance of 30 component stocks, with the best stock gaining 47.5% and two stocks actually losing money.
PLUS/MINUS over 30% WEEKLY MOVES
As readers have noticed I mention each week the stocks from the Merv's Gold & Silver 160 Index, a universe of 160 stocks, those that have either gained or lost more than 30% on the week. This week there were 12 such stocks with weekly gains between 30.5% and 47.5%. I have been told that this "historical" news is useless since it has already happened and an investor has missed the boat. Well, these stocks did not just appear out of thin air this past week. They have been around for a while.
Eleven out of the twelve had previously been rated as POS(itive) in my tables of technical information and ratings and had not reversed to NEG(ative). In other words they were already rated as BULLISH long before this past week. The one that was not previously POS was an actual individual recommendation in my Weekly Stock Review section. Eight of these twelve stocks have multiple 100% gains since going POS, the best having a hefty gain of 535%. For more, see the MERV'S PRECIOUS METALS INDICES section below.
LONG TERM
Well there you have it, new highs in the price of gold, clearly shown on the P&F chart. To see a weekly candlestick chart of this same period activity go to www.themarkettraders.com and click on the Non-Edibles Futures link in the Merv's Global Indices section on the web site front page. So, what do we make of this activity?
From the long term standpoint this break just confirms the existing direction of the major trend. Although I have long term projections for the price of gold to the $1075 level and then to the $1575 level (using a very long term P&F chart) this continuation break projects a move to the $680 level, so that might be our next long term level to watch. Of course we still have that $600 projection from the original reversal but that's almost upon us.
Several weeks ago I wrote a short article for Casey Research that looked at the activity during the 1976 -1980 bull market and how things might be similar to the present bull. Without re-writing the article one interesting feature was the occurrence of 4 periods when the long term momentum indicator touched or exceeded a certain level followed by a gold price drop of at least 10%. In the earlier period, after the fourth such occurrence, the price took off into the stratosphere. We have had 4 similar periods in the latest bull market and the price is not unlike what the earlier period looked like just before take off. Are we ready for take-off? Maybe it's time to take a more detailed look at that previous analysis and see if it needs any revising or updating. An update article will be posted on the www.themarkettraders.com front page sometimes during the coming week.
Looking at the normal indicators, the price continues to move far above its positive moving average line. This wide gap between the two is going to close at some point, the two can't stay this far apart for ever. But in the mean time they are far apart and seem to be getting even further. Price momentum is positive BUT continues to show signs of weakening. It is moving higher with the price but not with any gusto. One likes to see the volume activity confirm the price moves. The daily volume has been very heavy on the up side but unfortunately the volume indicator is still not confirming the new price high. This is a little worrying. Although the volume indicator is not all that relevant for long term analysis (although sometimes it is very relevant) one at least wants to see it confirming the price trend.
Putting everything together I can only remain BULLISH on the long term.
INTERMEDIATE TERM
It looks like the intermediate term bear break ended up to be a lateral drift rather than a downside plunge. After one failed attempt at a rally the latest move did the trick and the P&F chart is once more in the bullish camp. This lateral period has given us a projection count that takes us above the $700 level, actually to $705. With the long term continuation break projecting to $680 we are in the same ball park, even playing the same game but not quite focused at the same score.
My short term prognosis last week was right on and even a little conservative. The action turned the intermediate term around so that one cannot ignore the trend. The action even nullified my FAN Principle intermediate term bear signal by breaking above the FAN trend line number 2 and moving into new highs. The price is comfortably above its positively sloping moving average line although the upward slope is just in its early stage and not too aggressive, i.e. it could change quite quickly. Price momentum is positive and moving higher but as with the long term, it is showing signs of weakness. It is some distance below its level at the previous price high in early Feb. With the daily volume at very high levels the volume indicator is moving higher with the price. It is, however, still underperforming and not confirming the price new high. Maybe with another day or two of upside action this will change but for now volume is a mixed message, i.e. very high daily volume on up days but the indicator still under performing.
On the intermediate term, with the P&F now bullish and the FAN Principle nullified I cannot ignore the new bull any longer and have gone over to the BULLISH camp.
SHORT TERM and IMMEDIATE TERM
The short term and immediate term commentary can be found in the subscriber's section of Merv's Precious Metals Central at www.themarkettraders.com.
Today we look in on one of the more aggressive of the major North American Gold Indices. The AMEX Gold BUGS Index (chart on next page) had the best performance of the majors since the bull market started a few years back. I have placed the Index values in the four locations where my other gold Indices have them, for direct comparison of performances during specific trend periods. The first period for comparison was the period from the Index bull market start to the latest close. The other period for comparison is the existing period from the May bottom. The top during late 2003 - early 2004 is also noted for information.
The AMEX Gold BUGS Index is often referred to as a more aggressive Index than the "quality" PHLX (XAU) Index. It can therefore be compared with the Merv's Spec-Gold Index of secondary quality stocks. Looking at the period from the start of the bull to the 2003 top, the AMEX Index gained 602% (The Spec-Gold Index gained 2311%). In this latest period the AMEX Index gained 100% (the Spec-Gold Index gained 91%). What does this tell us? Nothing much except that a comparison of similar Indices can sometimes give you a real shock.
It was some week for the Merv's Indices with weekly performances anywhere from a plus 2.5% to a whopping 21.6%. The higher performance was in the Gamb-Gold Index as I upgraded the Index, taking out some under performers and including new up and comers. The Indices this week had a perfect record of following the speculative fever. The higher the quality of the Index the lower was its weekly performance. This is the norm during a speculative binge. It seems we are back into one again. Even should the market take a breather this suggests that next time the market moves the speculative or gambling stocks will be the bigger movers.
MERV'S GOLD & SILVER 160 INDEX
Being the second most speculative of the gold Indices (after the Gamb-Gold Index) the 160 Index was also the second best gold Index performer with an average increase of 9.8% on the week. Not bad for an AVERAGE of 160 stocks. This Index has now gained 5279% since hitting its bottom back in late 1998. The speculative stocks got their start early and this Index was already ahead by about 150% before gold started its move. As for its performance since the May bottom, it has gained 132%.
On the week we had 134 winners and 23 losers for a very lopsided ratio. The overall ratings continue to climb with the intermediate term rating going from a BULL 56% to 74% and the long term from 83% to 89%. On the short term the BULL rating went from 54% to 84%.
As mentioned at the beginning of this commentary, there were 12 stocks in my speculative plus/minus over 30% weekly move category. The best gainer was Coral Gold Res. Ltd. with a weekly gain of 47.5%. Coral last turned POS in my technical ratings on 18 Nov 2005 at $1.23. It is now ahead 395% since going POS. U.S. Gold was another big gainer on the week with a 38.6% gain. U.S. Gold turned POS in the technical ratings on 5 Aug 2005 at $1.43. It is now ahead 535% since going POS. These are just two of the twelve that are part of this group. Only one stock had not already been rated as POS before this past week's action.
MERV'S QUAL-GOLD INDEX
The highest "quality" of my Indices also has the lowest weekly performance of the gold based Indices (the Qual-Silver is lower) with a gain of 5.6%. The comparable major Index would be the PHLX Gold/Silver Sector Index (XAU). As the chart in the Qual-Gold Page shows, this Index has gained 509% since the start of the bull market and 97% since the May bottom. Comparatively, the XAU gained 253% and 87% in the same periods.
It was almost a rout with 26 gainers and only 4 losers this past week. With such a ratio one might have expected a slightly better performance but there were few real big winners. The overall ratings improved nicely with the intermediate term going from a neutral rating to a BULL 65% while the long term moved from a 72% BULL to 83%. The short term bullish rating jumped from 58% to 92%. Little room left for growth.
MERV'S SPEC-GOLD INDEX
These stocks being the next thing to "quality" the performance of the Index was not far off from the Qual-Gold with a gain on the week of 6.3%. Since the start of the bull market this Index has gained 3139% while since the May bottom it gained 115%. The AMEX Gold BUGS Index is probably the equivalent major Index. It had a gain of 824% since the bull started and 100% since the May low.
All of the Indices had a lopsided ratio of gains to losses on the week. The Spec-Gold Index came in with 25 gainers and 4 losers. As can be expected, the overall ratings moved up nicely. The intermediate term rating improved from a bullish 55% to 70% while the long term moved from a bullish 82% to 90%. The short term bull also gained from 57% to 82%.
MERV'S GAMB-GOLD INDEX
Well, this is where the performance really took off with a weekly gain of 21.6%. Much of that was due to an Index update with poorer performers removed and new stocks which appear to be better gambles added. Those stocks deleted can still be found in the overall universe table of 160 stocks. As for performance since the gold bull market started, this Index is up 5226% while from the May low it is up 177%. There is no comparable major Index for comparative performance. The performance here would have been even higher if the alternate Index was use, the one where the December Index changes were taken as applied in May. That would have given us an overall performance of 7597% since the start of the bull market and 300% since May.
Winners and losers come out as 28 and 2 while the overall ratings in all time periods are into the 90% level.
As far as the silver stocks were concerned one would not have wanted to be in the "quality" group. That group had a miserable performance this week, comparatively speaking. The speculative (and gambling) stocks did quite well. Let's take a quick look at each.
MERV'S QUAL-SILVER INDEX
The Qual-Silver Index gained only 2.5% on the week. Now, normally this would not be something to complain about but when all others around you are gaining in the 6 to 20% range, 2.5% is a little pathetic. Losses in Apex Silver and Silver Wheaton did the trick. However, the overall performance of this Index has not been all that bad. It has gained 1339% since the start of the bull market and 136% since the May bottom.
With the poor weekly performance comes the poorest weekly ratio of winners and losers with 5 winners and 4 losers. The overall ratings changed very little but they were already in the 100% category, or close.
MERV'S SPEC-SILVER INDEX
The Spec-Silver Index is made up off both second tier and gambling quality stocks. It is therefore no surprise that its performance has been pretty good but not quite up to the Gamb-Gold level. This Index gained 13.0% on the week. This is a relatively new Index with data going back only to the start of 2003 so I do not have any comparative performance from the start of the bull market, only from the May low. It has gained 270% since the May low for the best performance during that period.
I am running out of time this week so will end here.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
3 April 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.