Technically Speaking with Burak
Mervyn Burak, CMT
GOLD
Wow! Nothing but up days all week BUT are we about to witness the reverse? We can only go with the flow; we can't change what might happen. So, let's see if we can determine the flow?
LONG TERM
The long term charts continue to look good. Of course some of the charts look better than others. My long term point and figure (P&F) chart is on an up direction trend and only needs $450 to break through two previous highs to reconfirm the long term bull trend. As mentioned last week, this would then trigger another projection to $600 which is in the same ball park as our $580 projection from a few years back when the move first started.
As for the usual indicators, well the price is once more above the popular 40 week positive long term moving average line; even my more aggressive 30 WMAw line has turned up. For those who are not familiar with my abbreviation, WMA or DMA refers to weekly or daily SIMPLE moving average lines, where I have a lower case w at the end this refers to a weighted version of the moving average. An e at the end refers to an exponential moving average. The price momentum, usually represented by the 30 week RSI, continues in the positive zone and is moving sharply higher. As for volume action, I'm not too enamored with long term volume figures as they are somewhat distorted by a weekly chart. On a daily chart they are too often lagging indicators so I leave the volume action interpretation to the other time periods. All in all, I am BULLISH on the long term.
The one feature on the long term chart that continues to bother me is the negative divergence of the momentum versus the price action at the beginning of 2004 and 2005. This decrease in price momentum as the price itself is making new highs suggests a diminishing strength that too often results in a price trend reversal. This pattern is the exact opposite to that I had written about in early 2005 for the U.S. Dollar Index. That Index quickly reversed a long down trend and has been bullish since. Although not perfect, divergences do predict a future too often to be ignored.
INTERMEDIATE TERM
As you might imagine, the intermediate term P&F chart has moved up to the upper resistance line. The daily chart also shows clearly the lateral trend that has been going on since the beginning of the year. On the P&F chart we need that move to $450 to re-establish a bull market, P&F wise. The last confirmed signal had been a bear back in Feb.
It's a market as we see for the past 7 months that gives some technicians a heartburn. If one simply follows the indicators, they have changed from up to down and from down to up a few times while the price basically moved sideways. After the first such "whipsaw" I am inclined to take a more conservative view and wait for a P&F break to provide the next move confirmation. The P&F is not as inclined to whipsaw as are the indicators. The ratings in the various tables are based upon mechanical models and do not fully take this whipsaw effect into account. They may therefore differ from these personal comments and analysis.
Having said that, let's still look at the indicator action. The price is well above its positive sloping moving average line. The price momentum (50 Day RSI) is in its positive zone but trapped in the same kind of lateral channel as is the price. It is not showing any extra strength versus price action, more a neutral indicator at this time. Volume, now that's another story. The On-Balance Volume, a simple volume indicator I like to use, is well above its intermediate term moving average line AND most importantly, above previous highs. It is showing greater strength behind the move than is momentum. The only hiccup with the volume indicator is that most of the volume activity came at the bottom the previous week. The rise in price this past week was on greatly reduced daily volume activity. So, the volume action may not be what the O-B-V indicator may make it out to be. The short term activity may suggest a possible ending to the recent move so let's go there.
For the intermediate term all indications are that the trend is back on the move upwards and I should be bullish BUT I will wait for a valid break through that resistance line.
SHORT TERM
It was up, up and away all week. About the only sign of a problem might be the Friday action. Although closing on the up side it was still at the lower part of the day's trading range. It may be telling us something about the week ahead.
The short term analysis is easy after a week and a half of very solid gains. Every indicator is positive. About the only indicator that has any question to it is the daily volume activity, which did not improve with the move this past week. Although the On-Balance Volume indicator is quite positive the daily action leaves a lot to be desired. Also that Friday action mentioned above. Is that a one day reversal action? We'll see.
From the indicators one can only continue bullish on the short term.
IMMEDIATE TERM
The action on Friday seems to suggest the sharp rally of the past several days has ended, just as it has in the past, below the $450 break-out level. The aggressive Stochastic Oscillator is in its overbought zone and in the process of topping out and turning down. Monday should tell us if this will be the case or if there is still some steam left in this rally. My guess is that there is little steam left and a rest is in order before it can continue its rally.
NORTH AMERICAN GOLD INDICES
S&P/TSX CAPPED GOLD INDEX
The North American Indices all advanced on the week but seemed to be reversing their trend near the end of the week. This can be seen on a daily chart of the S&P/TSX Capped Gold Index (a weekly chart is shown). The action mentioned above for gold on Friday actually occurred in the stock Indices on Thursday, with a negative on Friday. Although these Indices seemed to have broken through their recent highs and through their down trend lines from the past 7 months of action the upside breaks do not yet resonate with strength. I will need a little more convincing that these upside breaks are valid.
Looking at a daily chart of the S&P/TSX Capped Gold Index we see that the On-Balance Volume is not showing the strength on the recent upside trend the way it showed downside strength late last year and early this year. Lateral action in the O-B-V is not strength. Price momentum is showing some strength, being in the positive zone, but here too it would be good to see some more aggressive upside trend. All in all, the North American Gold Indices are not showing the strength one would want to see if we are into a new bull move.
U.S. DOLLAR INDEX
Just a note that I will be giving an on-line seminar on "Point and Figuring the U.S. Dollar Index" on Thursday 11 Aug 2005 at 10:00 A.M. EST (14:00 GMT). This seminar will be given via the www.fxstreet.com web site. Those interested in the U.S. Dollar and the futures market are encouraged to register for participation by going to the site.
Reading the Info table
For a tutorial on reading and benefiting from the technical information in the table please go to the www.themarkettraders.com web site and access the SAMPLE section of Merv's Precious Metals Index. There you will find the tutorial.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
7 August 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.
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.
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