Technically Speaking with Burak
Mervyn Burak, CMT
Energy seems to be cooling off a little and after 7 straight days of upside action, is gold also ready to take a rest?
GOLD
Looking first at a long term P&F chart shows us that gold is once more at a very interesting position. It's right up there ready to break into new bull market highs, all it needs is $460 on the Dec. futures contract (although one might say the Oct. contract prices might be more legitimate). A break would give us an initial projection to $560 and then to $640. We still have that original projection to $580 from the 2001 break so it looks like the $560/$580 area is quite likely, should the break come. I have much higher projections from a very long term P&F chart but let's not get too carried away.
A look at the bar chart suggests a weakness in the latest price run-up. First is the moving average line. Using the popular 40 WMA (200 DMA) although the price is above the moving average line the slope of the line continues to get weaker (more negative). This may or may not be a real problem because the slope is still very, very slightly negative but it could be serious if it continues. As for my more aggressive long term moving average line, the 30 WMAw line, it had turned up a few weeks ago and is still pointing upward for a positive sign. This suggests to me that the strength is towards the up side and the popular MA will quickly come around. Price momentum is still a little weak and underperforming the price. It has not yet exceeded its March high as the price has done. Although still positive the momentum of the latest move is weakening, although only slightly. On the long term weekly chart our volume indicator is quite positive but I prefer to not go by the long term volume information but rely on the more aggressive time periods.
For now I remain BULLISH on the long term.
Although the market was all on the up side during the week the intermediate term P&F chart was not able to chalk up an extra X on the up side. All the action did not get us much higher than the highest high of last week. So, we are just where we were last week with the P&F. It's interesting to note that should gold break on the up side during this move the intermediate term projection would be to the $545 level. That $560 plus or minus $20 is getting quite crowded.
As for the basic indicators, well a look at the chart pretty well tells us everything. The trend has been basically a lateral trend with the price once more at the upper end of the volatility. The price is above a positively sloping moving average line. Of interest, whether it means anything I'm not sure, but the moving average line has been in a positive slope mode for longer than it has been since its peak in Dec. Although the price momentum is positive its action has not been overwhelmingly so. One might almost consider the momentum action as a neutral action, sort of staying with the price but not getting ahead (strength) or falling behind (weakness). Here I am inclined to start looking at the volume action. It is showing strength making new highs where the price action still has a little to go to do the same.
On the intermediate term I am still BULLISH.
NORTH AMERICAN GOLD INDICES
AMEX Gold Miners Index
Of all the major North American Gold Indices the one I am getting to like the best is the relatively new AMEX Gold Miners Index. It includes about 40 of the top Gold stocks in North America including some speculative secondary stocks. It is very much like a combination of my Merv's Qual-Gold and Spec-Gold Indices. The Index is still, however, calculated on a weighting scale where some large companies represent most of the Index value. The top two companies (5% of the total) represent almost 25% of the index value. The top 7 companies (17.5% of the total) represent more than 50% of the Index value. The bottom 10 companies (25% of the total) represent only slightly more than 3% of the Index value. I wonder why they even bother having them in the Index. You could do away with 50% of the component stocks and have very little effect on the Index. I do not favor this type of Index calculation method but all of the major Indices are done this way. They may differ in some respects but all use some kind of weighting method. As so often mention, my Merv's Indices give equal weight to all the Index component stocks.
As the chart shows, the Index is in a good uptrend making new rally highs. Momentum is starting to perk up and confirm the Index trend. Unlike gold, the Index still has not exceeded its March high but that seems to be just a matter of days. The Index is presently trapped inside a large wedge pattern (not shown) with the lower up trend line starting at the 2001 bottom and the upper resistance line starting from the late 2003 top. The rally would need to go through the 750 level to ensure a break above this wedge. We'll be watching.
MERV'S PRECIOUS METALS INDICES
I should start calling them the Precious Metals Indices as that is what they are. It'll take a little time converting as I have called them gold or gold and silver Indices for so long. This is where we get the "feel" for what the AVERAGE precious metals stock is doing, not just the heaviest weighted large stock.
It was another good week for the Indices and especially the "quality" Index. For some time now it has been the quality gold stocks that had been moving, as a general rule. The more speculative or gambling variety have not yet gotten on steam but that is good. There are a few that are starting to show their stuff. These are still very risky as the actions of St. Elias Mines (SLI) showed. SLI dropped 50% on Tuesday quickly activating our stop loss for a profit of 62% in 3 months versus 116% the day before. I have been unable to really find what the problem was to precipitate such a sudden drop but these things DO HAPPEN with these gambling variety stocks and that is why one must maintain a stop loss.
The gainers and losers on the week were interesting. In the overall universe of 160 stocks we had more than twice as many gainers on the week than losers. Looking at the specialty Indices the "quality" stocks had a 100% gainers and no loser while the gambling variety of stocks had 3 gainers for every two losers. As mentioned above, the action is still with the quality.
During the past week, in the overall universe of 160 we have had one loser with over a 30% loss, that was St. Elias, and two winners with over 30% gain, those were Cassidy Gold and RNC Gold. Very often these huge weekly winners were preceded by a POS(itive) or bullish rating in my individual tables the week before. In this case this did not happen which just goes to show that not always are the ratings ahead of the move, but in reviewing over time we find that most of the time the ratings, especially the short and intermediate term rating, are ahead of the major moves.
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 Central. There you will find the tutorial as well as samples of the component tables of the various Merv's Gold and Silver Indices.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
11 September 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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