Well, it looks like I might have spoken just in time. Last week I mentioned that one of the things I would look for from the volume activity would be a day or two of heavy volume with no or little price movement. Right on schedule that's what has been happening this past week. For three days we have had very high volume, all on up days, but with really very little upside movement. Friday may have seem the start of a move. As most indicators, especially the trend indicators, they follow the market activity and therefore may not yet be picking this activity up. Price momentum and volume indicators might. So, let's go and see what they are saying and then ruminate on what might be ahead.
On the long term nothing happens fast. Most indicators are still bearish as the table suggests but I am still holding on hope for a turn up based upon my (very) long term point & figure chart. As for the intermediate term, that also remains unchanged and requires more upside action to reverse my bearish position. Now the short term.
The move on Friday has placed gold above its short term moving average line with the line turning but not quite yet reversed. The move still has a little more to go to break that short term resistance at the $423.30 level but that could be only a day or so of more upside. In the mean time the action has broken above the upper resistance trend line from the down trending channel. Price momentum has turned up and is heading for its neutral line but is still within the negative zone. Volume, the indicator that has been a problem for some time now, is quickly reversing and showing positive strength. It's all up to the price now to confirm this strengthening of volume activity. From all this the conclusion is that, although there is real strength being shown recently, there still needs some extra upside before the short term rating can reverse to bullish. For now I will upgrade to the neutral status.
As for the aggressive Stochastic Oscillator, it has moved up sharply and is now in its positive zone. There is no hint yet of the upside move ending so we can expect a continuation of the move on Monday. As they say, the markets are moving higher, unless they don't move lower.
U.S. Dollar Index
Unusual action in the U.S. Dollar Index. It's moving higher along with gold. One or the other has gotta give, so the experts say. Ever since I first suggested in these commentaries a few months back that the US$ Index may have bottomed and a new long term bull may be starting, it has been on a tear. There seems to be nothing to stop it at this time. The US$ itself has no "value" (other than the ability to buy things) except its comparative versus other currencies. The US$ Index value is 58% based upon the comparative value of the Euro. Reading all that's happening over there recently, and especially the French vote on the new Euro Constitution (have you heard about THAT bloated document) how can the US$ be anything but strong. What THAT says about the price of gold remains to be seen.
Gold Indices and Stocks
Looking at the table this week, the various North American Indices had a field day. Some of the best upside action in a long time. The Merv's Intermediate Term Momentum Indicator shown last week seems to be right on the money. The turn up in the Indices has started. Now if only they would continue. Merv's various Gold Indices have followed the trend of the other Indices, up. Of note is the poor upside performance this week of the Merv's Gamb-Gold Index versus the Merv's Qual-Gold Index. However, and this should be encouraging, during the initial stages of a new bull market, whether in gold or the overall markets, the first to move are usually the higher "quality" stocks. The more speculative stocks, and especially the gambling stocks, usually start their moves later as the masses become braver. Very soon thereafter these speculative and gambling stocks far overtake the quality stocks in % performance. One of the problems with investing in the quality stocks in the early stages of a new bull is that one then has less capital to take advantage of the huge run-up in the speculative and gambling stocks when they start their moves. Ah! problems, problems.
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
28 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.