Due to limitations on some web site there may be charts or tables referred to but missing in the commentary. An unedited commentary may be found at www.themarkettraders.com.
LONG TERM
First we look in on our long term P&F chart to see if there has been any change to its message over the past week. NOPE. It has moved an extra notch lower and has not reversed its direction to the up side yet. That would take, at the present time, a move to the $645 level. A reversal of trend requires a move to the $690 level, so a reversal according to the long term P&F is not expected anytime soon. The P&F still has us in a bear market, long term wise.
The long term does not change often or very fast. Quickly going through the basic indicators to see how they are performing, and it's opposite to the P&F. Gold is still above its positively sloping long term moving average line with a price momentum indicator (RSI) that is comfortably inside its positive zone. Not shown but the volume indicator is also showing a positive trend being above its positive moving average line and almost at new high levels. The basic indicators are bullish at this time.
With a conflict between the P&F and the basic indicators one must pick which to rely upon. As mentioned last week it is a difficult choice. The basic indicators, although positive, are weak and depending upon the week, get weaker or halt and show a little bit of strength. The P&F has a down side projection of $480 which would take us to the bottom channel trend line shown on the chart. I will cop-out and go NEUTRAL (with a bias towards the bullish due to the addition of a positive intermediate term P&F) until the two methods come closer together with a unified message.
INTERMEDIATE TERM
The more one looks at the intermediate term P&F chart the more one starts to suspect that the gold action from mid-April to the end of May (the range between up through $600 and down through $650) was premature action. It has caused quite a reversal in the technical indicators for the long and intermediate term that now takes time to recover from. The P&F chart suggests that we are back inside our intermediate term up trend channel where the price had been since the start of the bull, except for that month and a half period mentioned. This P&F is still bullish and one might even apply it towards the long term since the period of the chart is several years.
As for the basic indicators, this is a whip-saw period. The price of gold is at a point where it is moving above then below its moving average line. The moving average line also does not know which way to point. It too is oscillating with the price. At the Friday close the price is once more above its intermediate term moving average line but the line has not yet turned to the up side for confirmation. Since breaking above its neutral line in late June the price momentum has remained in the positive zone, although it did come very close to moving below the line on Monday. With the high volume action during the week, mostly on the up side, the volume indicator is above its intermediate term moving average line and almost at new highs but the moving average itself has not yet turned to the up side. It is at best, horizontal.
A move to $650 might continue right up to the upper channel trend line, to around $700 while a move below $600 might cause a trend reversal signal and it might be on towards that $480 projection. Staying with the existing trend the intermediate term may be considered as bullish but a weak bullish.
SHORT TERM
Gold just can't seem to get a good trend going lately. If this was the 1950's we could blame this lack of action on nuclear bomb testing. We blamed everything on nuclear bomb testing in those days. It just seemed like a good excuse for whatever ailed us. Maybe these days it's the lack of nuclear bomb testing. But I really am digressing.
The down trend came to an abrupt end on Monday and quickly reversed. By Thursday the short term trend had become positive and that is where we are at today. The price closed Friday above its slightly positive short term moving average line with the momentum just above its neutral line. We now have a short term up trend line but these trend lines could change at such an early time in the trend. After a few weeks THEN a trend line becomes firmer. The daily volume action has been pretty low until this week. It has been above that 100,000 level all week BUT this is probably due to the effects of futures contracts getting close to expiration. Be that as it may, the price has not really benefited that much from this volume. With the moving average turning upward and the momentum in the positive zone I will go with a bullish short term. However, a close at $620 or below would put the trend back to the down side.
INTERMEDIATE TERM
So, what does it look like for Monday and Tuesday? Well, barring an intensified war or the outbreak of peace, we should see a continuation of the past few days of up trend. The very short term moving average is pointing upward and the Stochastic Oscillator, although inside its negative zone, has crossed above its trigger line and seems to want to move higher. As with the short term, the price to watch would be the $620 price. That would break the up trend line, a short term support and would most likely reverse the direction of both the SO and the moving average.
Well, I guess it's the turn of the PHLX Gold/Silver Sector Index (XAU) to be looked at this week. When last we looked the XAU was in the process of possibly forming a long term head and shoulder pattern. The pattern continues and a move below about 117 might be the confirmation. Such a break would project to the 78 level, which is the low the Index made in May of 2005, which started a sharp one year rally. I guess the question now would be "which is the most likely, break on the down side or continue rally on the up side?"
From a long term perspective all is not great with this Index. That negative divergence in the momentum indicator versus the actions of the Index is always a killer. It's not a sure thing that the trend will reverse to the bear BUT this negative divergence should never be ignored. The long term moving average has flattened out and ready to go negative even before a break below the neck line. Same with the momentum, it is only slightly positive and would in all likelihood go negative before the break. If I were to guess I would say that the Index will eventually break below that neckline for a bearish outlook.
As for the intermediate term, the moving average has already turned down and is looking pretty weak. Momentum had been negative but is right now hugging the neutral line, again, looking weak. As for the short term, after a plunge, then a rally and then another turn down the short term is looking a little haggard and not giving a clear picture. In fact from the short term indicators one might say that everything is presently neutral, waiting for a further rally or a turn down before giving any direction indication.
TRADING THE COMMENTARIES
This is just a note that these commentaries are for information purposes only. They are NOT intended for readers to use as advice for trading futures, commodities or stocks. You should always consult your investment advisor (or if you are knowledgeable, your own research) before committing any investment or speculative funds. These commentaries are provided free of charge on a variety of web sites and their value is probably well represented by such cost to the reader.
You might notice that some of the Indices tables have a slightly different look this week. I am in the process of converting the tables using a newer software. The present software is still from before the millennium panic and is reaching its life limits. As I am changing over I may be slightly modifying the program that calculates the technical information in the tables. The changes will be minor and should improve the results once the program has been fully modified. This week, all of the tables are using the new software except for the overall 160 Index table. That one is so large that it might take some time to modify. Changes will also be incorporated into the tables one can find on the home site of the www.themarkettraders.com web site (the Global Indices).
It was a pretty good week for the Indices with gains from 5% to 10%. The higher gains were in the quality Indices, the lower gains in the more speculative stocks.
Looking at the Composite Index of Gold Indices the pick up in the market overall did not quite undo the previous week's decline. We have a close just above the intermediate term moving average line but the line is still sloping downward. Intermediate term momentum has barely moved above its neutral line for a very weak move. Intermediate term we are not yet out of the woods and need some more upside action to confirm any kind of turn around.
Long term the Index has moved once more above its positively sloping moving average line and the momentum continues inside its positive zone. From the long term stand point we are not yet in trouble.
MERV'S GOLD & SILVER 160 INDEX
The overall universe of 160 precious metal stocks gained 5.9% on the week. This is less than the major Indices and was pulled lower by the large number of more speculative stocks in the Index. As with the Index of Indices, the 160 Index did not quite make up for last week's decline. It has, however, closed above both of the moving average lines, the intermediate and long term. However, although the long term moving average line continues to point upward the intermediate term line is still pointing downward. Maybe another week or two are required to turn this moving average around. Both momentum indicators are in their positive zone but while the long term continues to hold in that zone the intermediate term is moving above and below its neutral line for a more neutral message. From this I would rate the intermediate term at best, + NEUTRAL while the long term is still BULLISH.
As for the overall breadth of the market, we had 124 winner (78%) and 32 losers (20%) for a good ratio. Now if we can only keep it up. As for the overall BULL/BEAR ratings of the component stocks, all time periods improved but not necessarily up to the bullish level. The short term rating moved the most and we did get the BULLISH rating above the 50% mark, at 53%. For the intermediate term the rating had the BEAR at a 50% level while neither bull nor bear reached 50% in the long term. I guess it's wait till next week.
Since the start of the bull market in Merv's Gold & Silver 160 Index stocks, in August of 1998, the price of an average Index stock has risen by 4946% (i.e. an average of all the 160 component stocks). Since the end of 2005 the average price is still ahead by 40%. Both take into account the recent decline of the Index by 16%. Where else can one find an Index performance to match? It should be noted that the Spec-Gold and Gamb-Gold Indices far out performed this Index. The real gains over a long period are in the speculative stocks.
MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX
Here we see which sector was pulling up the gold performance and which was pulling it down. The Qual-Gold gained 8.8%, the Spec-Gold gained 5.7% and the Gamb-Gold gained 5.0%. The higher the quality the better the performance, at least this week. This suggests that speculators are not yet ready to consider the move this week as anything of longevity. When the professional speculators start to get the bull fever they will be dumping the quality and going for the more speculative stocks. At that point the speculatives will far out perform the quality. They have been doing so since I have been keeping records for over a dozen years. It is, however, very hard to keep one's cool and hold off jumping in just because the quality are moving. But by holding off one has the capital to jump in when the movers are moving.
Looking at the charts of these three Indices one can see that the long term moving average information is the same for all three, all three Indices are above their positively sloping moving average lines. On the intermediate term The Qual and Spec Indices are above their negatively sloping lines while the Gamb Index is still below its negatively sloping line.
On the momentum front we have a similar situation in the long term momentum, all three are in their positive zone but still with a slight negative slope to them. On the intermediate term all momentum indicators are now positive but only the Qual and Spec Indices have a positive slope to their momentum. The Gamb Index momentum still has a negative slope.
From this I would rate the long term for all three Indices as BULLISH although the negative momentum slope is a concern. On the intermediate term I would rate the Qual and Spec Indices as + NEUTRAL and the Gamb Index as - NEUTRAL.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
30 July 2006
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.
To find out more about Merv's various Gold Indices and component stocks, please visit www.themarkettraders.com and click on Merv's Precious Metals Central. There you will find samples of the Indices plus other publications of interest to gold investors.