Technically Speaking with Burak
Mervyn Burak, CMT
GOLD
Well, the week seemed to start okay. If only it would have ended on Wednesday. Thursday and Friday were real bummers. Gold plunged through its recent support and we are now looking at the $410/$412 level as the next support. This is the low from the early Feb activity.
Shown this week is a long term (weekly) chart of gold. The moving average shown is the more popular 200 day moving average (40 week in this case). The price momentum indicator (RSI) is also shown in its 40 week basis to go along with the MA time period. These are still shown to be okay but close to going bearish. I use a slightly more aggressive long term MA and RSI, these being based upon 30 weeks and for the MA, a weighted basis. Here, we had originally gone bearish (NEG) in the table back on the 25 March 2005 and had not recovered since. As for the long term P&F chart, it has been bullish throughout. I had stayed bullish on the long term as the P&F had done me good service but it is getting more and more difficult to remain so. Since we have a support at the $400/$412 level and that level is required to be able to turn the popular 40 WMA downward I will hold off actually going bearish until then. However, this does not negate the fact that my basic technique, as represented in the table, is already bearish.
Everything on the intermediate term is negative so no need to elaborate. Bearish here.
On the short term things are not looking good. Everything here is negative. The next support to watch is the $400/$412 level. This should hold but in a bear market I would not place any bets on it. My short term P&F chart is also firmly in the bear camp and is projecting to the $400 level, so that is the level to watch.
As for the Stochastic Oscillator, well it is still negative and heading lower. It has not yet entered its oversold zone so maybe there still is some more downside before a rest is in order.
U.S. Dollar Index
The US$ Index has been very bullish lately and has now broken above my long term P&F chart break-out point. For the first time in three years this chart action has broken above two previous highs (Xs) AND above a long term down trend line. It is projecting to the 93 level, which would place it just above the 2004 high and activate additional bullish signals if it happens. The down trend line is a secondary line as the action had taken the chart far below the original down trend line. That original line is still some distance away, at about the 90 level and would need to be breached for a final confirmation of trend. However, it is far enough away to consider the secondary line break as valid.
With the actions of the past week everything is now on the bullish side for both the intermediate and short term. The previous 85.50 resistance level has been decisively broken and the Index is once more off and running. Much is being written as to why the US$ is showing strength. Since this Index is primarily (58%) a comparison versus the Euro my view has been for years that I could not understand why the Euro had shown strength versus the US$. Yes I know, the huge deficit and dept and all that BUT have you checked out the major European economies? Anyway, for now the US$ Index is on a roll. How long will it last? Well it could go all the way back to par or could reverse tomorrow. One does not take a position and go to sleep. One can always be wrong and therefore vigilance is compulsory in this business.
Gold Indices and Stocks
In the risk of being a masochist lets just briefly go through the position of the various major North American Gold Indices.
PHLX Gold/Silver Sector Index: Sitting right on top of a long term up trend line stretching from its low in 2000. Closed far below its 200 DMA line and the line is sloping downward. Just above support from its May low from 2004 (at 76.79) and this is the next level to watch. Price momentum is negative and pointing lower. Despite the up trend line and support, things are not good here.
AMEX Gold BUGS Index: Has decisively broken below a 3 year up trend line some time ago but still some distance above the up trend line from its 2000 low. Below a negative 200 DMA line with price momentum that is negative and pointing lower. Looks like a disaster zone.
AMEX Gold Miners Index: Everything said for the BUGS can be said for the Miners. In addition, this Index is in a steep 2 month downtrend channel and is just about to hit the lower channel line. This might be a place for a rebound but only a rebound, not a reversal yet.
S&P/TSX Capped Canadian Gold Index: This Index has gone nowhere for over three years. It has meandered up and down but mainly drifted sideways over a band with an upper limit of 230 and a lower limit of 150. It is back into the lower half of this band heading towards the lower level. The long term RSI is at its lowest level over this whole period, and heading still lower.
There are several other North American Indices but I do not consider them as major.
As for my own Merv's Indices, let me just highlight two.
Merv's Gold & Silver 160 Index: An Index of 160 gold and silver stocks traded on the North American Exchanges. I think this is probably the largest collection of gold stocks regularly followed within any gold Index. The Index value, as with all Merv's Indices, is calculated weekly based upon the AVERAGE performance of all stocks within the Index. There is no greater weight given one or another stock as with most other gold Indices. This Index is about 10% above its 2004 lows but heading quickly towards that low. Price momentum is negative while the long term moving average is pointing down. Overall, the percentage of stocks considered bullish in this universe of 160 is in the single digit while the percentage considered bearish is 93% for the intermediate term and 89% for the long term. Not a pretty picture at all.
Merv's Qual-Gold Index (shown this week): From the universe of 160 I have taken the 30 largest and highest quality gold stocks and included them in their own Index. This is the place if one were interested only in the highest "quality" gold stocks. As you can see from the chart, this Index has broken below a 4 year up trend line and is one of the very few that has ALREADY broken below its 2004 lows. Worse yet, off these 30 stocks the percentage of stocks considered bearish is 100% for both the intermediate and long term periods. Nothing here says to buy or hold.
As one who has a fondness for the gold industry, I don't like what I see but that's what the charts show. Somewhere down the road the tide WILL turn and great bargains will be had in this industry. One just has to watch and wait for it.
As one looks through these various Indices one is struck by the fact that they all have broken below this year's lows and are either close or have already broken below last years low. Gold, on the other hand, is only approaching this year's low and far from last year's low. This is another example that the stocks (Indices) are a leading indicator to the actions of the price of gold.
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
15 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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