Technically Speaking with Burak
Mervyn Burak, CMT
GOLD
Gold seems to be once more flirting with that $423.40 support level (see chart) and this time it just might go through. Should that happen then maybe even the next support at the previous Feb level may not hold. What are the odds of this happening?
We had been given a warning late last year when gold was making a new bull market high above $450. At that time the long term price momentum indicator was flashing a negative divergence warning that the momentum of that latest move was winding down. Decreased price momentum on the up side does not bode well for continued upside action, especially when such decrease in momentum comes from a long term indicator. Since then gold has been basically weak but has had a few moments. The long term rating for gold is still bullish based upon my long term point and figure (P&F) chart although the table had gone bearish using somewhat more aggressive long term indicators. I will stick with the P&F for now but would not recommend investors make any long term commitments at this time.
My intermediate term indicators have once more turned bearish. However, with the price so close to the $423.40 support I will only drop my rating to a neutral one pending breaching of that support. If the breach does not come, I will probably revert back to the bull side but let's wait for the action.
On the short term, all my indicators have gone bearish except for the volume indicator. Volume data is, of course, a day behind the price data so I do not have the Friday info but even so, the indicator might still show a positive. Having said that, the daily volume action suggests caution. As with the intermediate term, due to the proximity of the $423.40 support I will go neutral pending the support break. If that support was not there I would have been bearish.
As the chart shows, the aggressive Stochastic Oscillator had dropped below its oversold line, had reversed and is now above the line. This usually indicates a short term reversal of trend or more likely a change into a lateral trend. Immediate plunge through that support is therefore not expected but as for a rally, that is a ??
U.S. Dollar Index
In the past I had mentioned the long term positive divergence that the long term price momentum was giving me as the US$ Index was making its new lows late last year (at the same time as gold was making that negative divergence and new highs). Since then the US$ Index has acted well and not made any new lows but has not yet totally reversed to the bull side. On the long term it needs to move to at least the 86 level for the P&F chart to give us a first bull signal. A final bull signal might come at around the 90 to 91 level. The P&F chart patterns are so tight that the intermediate term bull confirmation would come in at the 85.50 level, just slightly below the long term signal.
On the short term, after a day or so of downside action the US$ Index is once more on the upside that has been its track for several days. The price momentum just slid below its neutral line but rebounded and is once more above it. Same for the price action versus its short term moving average line. The short term P&F chart had broken below two previous lows for a bear signal but my requirement to ALSO break below its up trend line had kept this indicator bullish. With new lows and highs established on the short term P&F chart, the boundaries are 85.50 for a bull continuation and 83.25 for a bear reversal.
Gold Indices and Stocks
Gold stocks have not been performing well lately. Most major North American gold Indices have broken below 3 and 4 year old up trend lines and/or below their long term moving average lines. What we are seeing in these Indices is not a pretty picture.
About the strongest Index still, at this time, is the Merv's Gamb-Gold Index of 30 gambling stocks. It has been going down with the crowd but had previously advanced so far that its decline does not look as bad. It is still above its 2005 support level, which is something no other gold Index can say. But even here, the trend is towards lower levels still. Breaking of that 2005 support seems to be only a matter of time. Although it has only a 53% overall bear rating for all component stocks (versus 83% bear for the "quality" Merv's Qual-Gold Index) this is more a function of the component stocks and not what is happening to the overall gold stock universe. Looking at the overall universe of 160 gold and silver stocks in the Merv's Gold & Silver 160 Index, a very large sampling of stocks, here the bear rating is at the 80% mark. So, some stocks ARE doing okay but the vast majority are not.
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
7 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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