Technically Speaking with Burak
Mervyn Burak, CMT
GOLD
How often do you hear (or read) that gold moved up or down because the US$ moved down or up. Such commentaries continue to suggest that the two move opposite to each other and that the US$, by suggestion, is the driving force. Well things do usually turn out that way but this past week we saw both moving together on the up side for three of the five trading days. Is there a fundamental change in this US$/Gold relationship? I don't know but have been warning readers in the past that this relationship is not something that one can bet his life savings upon. You just might be wrong at the most inopportune time.
Gold had its ups and downs during the week, finally ending just a hair above its previous week's close. On the other hand, silver was a real bummer losing 4.6% on the week with no real end in sight. Silver is sitting on top of a support level but unless it rallies strongly from here, much lower prices may lie ahead. But this is about gold, so let's see where it is going.
There is no real news on my long or intermediate term prognosis. For both time periods I am still bullish. It's the short term that is the question mark. Gold tried to rally in the early part of the week but the volume (it's always that volume) just did not suggest any speculative interest in the move and gold dropped for two days before recovering on Friday. It's not you or me that moves these markets, it's the large speculators and traders. They may move the price for a day or two but if they do not see that speculative interest come running in, they get out, take their lumps and wait for the next opportunity. This seems to be what might have happened in the early part of the week. Gold moved sharply through very recent highs, into new rally highs, but reversed the next day. The follow through by speculators or the masses might just not have been what the large traders were hoping for. The volume was low. They have no problem reversing their trades fast, unlike most of the masses who, once they make a trade, hang on for dear life no matter what. By the end of the week gold was still above its short term positively sloping moving average line. The short term price momentum indicator just touched its neutral line on Thursday and reversed on Friday, still within its positive zone. Volume, well my volume indicator is still positive but that daily volume activity still needs to perk up. The short term point and figure chart (P&F) shown this week is interesting. It has given a bull signal by moving above two previous highs but has not yet moved through the down trend line. In my P&F technique I require both to occur before confirming a reversal of trend. So, technically this chart is still bearish although very close to confirming a reversal. All it now needs is a move to $440. Having said all that, I will maintain my short term bullish stand until a clear move below $$432.40 takes place.
Looking at the Stochastic Oscillator one might see weakness in the immediate future. Do not be surprised with a downer on Monday.
U.S. Dollar Index
It was up, up all week long for the US$ Index. The Index is now above all its moving averages and the averages are all pointing upward. As for the price momentum indicators, only the long term indicator is still in the negative zone. For the US$ Index it is a relatively easy call this week. Bullish on the short and intermediate term and still bearish on the long term.
As for the aggressive Stochastic Oscillator, it has now climbed into the overbought zone but with no signs of a reversal at hand. One might still expect a day or more of upside before this indicator starts to show weakness.
Gold Indices and Stocks
The widely followed PHLX Gold & Silver Sector Index is shown today. One can see it plunging but it is one of the few that has not yet gone through its long term up trend line, as the AMEX Gold BUGS and Gold Miners Indices have done. I know there are many stock investors who are looking for a bottom. I am not one to predict a bottom ahead of time. From the charts I may see areas where moves may take a halt but to declare a bottom, that comes after the fact once the indicators and price action has actually reversed. Many years ago, while living in the L.A. area, I used to listen to an "oldies but goodies" radio station. They had a motto, "First with the hits of yesterday, last with the hits of today". I sometimes feel that way because I am often the last to declare a reversal while I wait for the charts and indicators to confirm. Having said that, the ratings for all North American Gold & Silver stock Indices are negative (BEARISH) for all three time periods, even the short term which is not shown in the published table. The metals themselves are not as bearish but not pretty either. As far as what the average gold/silver stock is doing, well for the intermediate and long term time frames my Indices are, except for the Merv's Gamb-Gold Index, ALL more than 87% BEARISH. The quality stocks represented by the Merv's Qual-Gold Index is 97% BEARISH for both time periods. As for the gambling stocks, my Merv's Gamb-Gold Index stocks are only 52% BEARISH on the long term but already 87% BEARISH on the intermediate term. Although it is possible that we could be close to the bottom with these kinds of numbers, I would be more willing to wait until the reversal has started and reduce risk.
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
3 May 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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