Technically Speaking with Burak
Mervyn Burak, CMT
GOLD
LONG TERM
The very long term P&F chart shown today goes all the way back to the top of the great gold bull market in 1980. Following a rally which may be considered a new bull in mid-1980 the price came immediately up against a previous resistance level and went nowhere, since then gold had been in a bear market for over 20 years until finally breaking on the up side in 2002 at $400. Now let's see how high and how long this very long term bull market will go. At the present time there isn't even the slightest hint from this very long term chart that there is any problem ahead. Let's just take a quick look to see what this chart is projecting or potentially projecting for this bull market.
At the initial break-out we can calculate a projection to the $625 level. The next break-out, at $425, projects to $925 while the break-out at $450 projects to the $1075. Now, should we actually break out above that $500 resistance level from the early 1980's then we have an interesting $1575 projection, let's make it an even $1600 for easy remembrance (it could be higher if the action reverses once or twice before breaking through $500).
So, the question is now, when will it meet the projected values? It could be next year if we have some currency crises involving the US$ or it could be many years, as it was on the down side. The P&F charts, although great for providing projections, do not provide any hint as to how long it will take to meet the projection. How accurate are the projections? Well usually quite accurate, at least using the more normal time length charts. For this very long term chart I have no statistics to gauge its accuracy. But let's get back to reality and see what's happening in normal time.
I'll stick with my present normal long term projection for this move, to the $600 level. I know I have some at different prices at slightly lower levels but this is easy to remember, besides, I don't believe that even technical analysis should be taken as "precise" or "absolute" accuracy. The recent P&F break-out move continues to be confirmed by higher Xs on our long term chart. Nothing here but positive.
As for the normal indicators, gold is far above my aggressive positive sloping long term moving average line and above the popular moving average line. A long way down to break below these moving averages. As for price momentum, it is also confirming the price trend. Volume is positive but let's ignore it for the readings at lower time periods.
On the long term, what can I say but BULLISH.
The intermediate term P&F chart still shows a bullish trend with no danger signs yet in the picture. The projection to $545 is still valid and is our next intermediate goal.
As for the normal bar chart, I see a substantial support in the $459 to $561 area. We might need it as the action seems to be heading lower for a spell. Although gold made a new recent high it did so without confirmation from the price momentum indicator. New highs without momentum confirmation are always something to be cautious about. While price is still comfortably above its $461 low set a few weeks back the momentum is already below its previous low value. The "box" pattern shown last week has now been changed into an upward sloping "flag" pattern. Hey, nothing is permanent these days. This is shown in the short term commentaries. These upward sloping "flag" patterns are very often a negative pattern with prices dropping below the flag, especially when the pattern occurs after a substantial price rise. I know, I said a break above the "box" was positive and now I'm saying I've changed its name and calling it negative. If I keep that up sooner or later I'll get it right (and of course it will be the only prediction I will remind you of). As for volume, it is still positive but nothing special. I'll take my cue from the short term analysis as to a trend reversal but for now I remain BULLISH pending a short term reversal.
SILVER
Shown on the silver chart are my long mentioned point and figure (P&F) chart barriers, the $6.90 on the bottom and $7.60 on the top. The bottom was breached a month and a half ago but was quickly determined to be false and the stock reversed to the up side. Silver has been on a tear ever since. It broke through the upper barrier a week ago and has remained above the barrier line since. The full positive move has been trapped in a well defined up trending channel and has remained above its positively sloping short term moving average line. Both the volume and momentum indicators are positive and above their upward sloping trend lines. So much for the good news.
Not shown in the chart are the $8.20 to $8.30 barriers from the two previous tops of 2004. Those two tops may be a bigger barrier to a further advance than were the previous P&F barriers. Also the daily volume leaves a lot to be desired. Looking at the chart one can see daily volume seriously diminishing as the trend continues higher. Both need to be overcome for the price of silver to continue bullish.
However, should silver break decisively through such higher levels than it is a whole new ball game ahead. I already have a P&F projection to the $10.70 level. Should silver break through $10.00 then a new, longer term, projection kicks in, to at least the $24.00 level. That would kick in another projection to at least the $44.00 level, and on and on. This is already above the previous high from the 1980 bull market, depending upon the data one uses.
But back to reality.
The price level to watch over the next few days is that previous $7.60 barrier. Should the price drop below there then several negatives would come into play and further downside could be expected. However, should the trend continue higher, well, we've already fantasized that event.
NORTH AMERICAN GOLD INDICES
Due to the time spend on the commentaries above I will keep this section short this week.
We have an unfortunate occurrence with the North American Indices to date. They are showing a reluctance, to this date, to seriously move into new bull market highs. Even the more aggressive AMEX Gold Miners Index has a problem moving through its 2003/2004 highs. They are all now moving lower and the trend seems to be for a continuation of such move.
MERV'S INDICES
A look through the Merv's Indices shows a disaster area in the making. This past week was not pleasant with serious declines in all Indices, but the least with the Gamb-Gold Index. This is not the time to be considering buying any gold stocks except the very rare ones that are holding up to the decline for individual reasons. For most investors and speculators this is a time to be holding, lightening up and preparing for the next low point to jump in again. I'm not yet convinced as to how far the stocks will drop so we will take it one week at a time for now.
Long term things are still quite bullish but as they say, in the long term we are all dead. Better to think in the here and present.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
16 October 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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