Technically Speaking with Burak
Mervyn Burak, CMT
GOLD
Despite the somewhat volatile action on Thursday gold remains within that tight zone between $432.40 on the top and $423.4 at the bottom. It can't keep up this tight lateral trend for much longer. Sooner, rather than later, it will move one way or the other. The question is, which way?
The chart shows the long term trend which confirms my long term point and figure (P&F) chart. We are still in a long term bull market in gold. There is a major support and up trend line just above the $410 level on the chart that would have to be breached before a change in direction could be contemplated, technical-wise. At the present time the P&F chart, however, needs to break below the May 2004 low before turning bearish. I say "at the present time" because subsequent market action could change this requirement to some higher level. The chart shows the popular moving average line, the one most used in the industry. This is the 200 day simple moving average (40 week simple moving average). It is still positive with gold still above the line. I prefer to use a more aggressive moving average for my work and therefore most of the time I would get a signal earlier, although with greater risk of being whipsawed, i.e. greater chance of error.
The intermediate term is all bearish but not yet drastically so.
The latest short term action still suggests weakness in the gold trend with most indicators being negative. Daily volume action suggests traders are not partaking in the recent action. The volume levels are very low, not encouraging. Even the aggressive Stochastic Oscillator is not giving us any encouragement at this time. By all accounts be prepared for a break below the lower support level. However, at this point, one should wait for either the upper or the lower levels to be decisively broken before acting further. Go with the trend BUT wait for an established trend first.
U.S. Dollar Index
Although everything still looks rosy for the US$ Index, the action over the past week or two does have the look of a topping process. What would change that feeling would be a decisive move through the 86 level. This would give a bull signal on the long term P&F chart as well as the intermediate term P&F chart. The short term P&F chart is already bullish but could use this move as well. Should the Index close below the 84 level that could end the rally and we might be back to a bear trend.
Gold Indices and Stocks
The major North American Gold Indices took a big hit this past week. Most had their major up trend lines breached while their moving averages turned down with a vengeance. The next support level to watch would be the lows from action a year ago.
Merv's Indices took a hit with the rest. Despite the huge loss in the Merv's Gamb-Gold Index it is still the only one that has not yet broken below its recent Feb lows. It is also the only one with the long term momentum indicator still above its neutral line, however, the trend is aggressively downward and the neutral line might be broken next week.
It is quite likely that this recent trend in the gold stock Indices could still go a lot further providing another enormous opportunity for huge gains in times ahead. What one does not want to do is ride the trend down and then up for a no gainer. If a stock declines 50% (very likely) it would then need a 100% advance just to break even. Think about it. A move from $2.00 to $1.00 is a 50% decline. Now to get back up, a move from $1.00 back to $2.00 is a 100% advance.
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
16 April 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.
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