Technically Speaking with Burak
Weekly Commentary
(For week ending 11 Nov 2005)
Mervyn Burak, CMT
It's been a good week for the metals and boy, look at that Palladium (what in the world do they use that stuff for?). But the energies, that's a different story. They had their fun a few weeks back. Now, what next?
GOLD
Well, first looking in on the long term P&F chart (not shown) to see if it has changed to any degree - Nope, still the same as last week. Nothing here to get excited about.
As for the normal chart and indicators, they are still looking okay. The latest action is still above its positive sloping moving average line, price momentum is still in the positive zone and volume is still acting okay. All should be right with the world BUT there are always some lurking problems that need to be watched. The 2 to 3 year negative divergence of the momentum versus price action is worrying. As you can see on the chart, this worry is not an instantaneous thing if the weakness in the momentum has been going on for so long. However, if the weakness continues something has got to give, the price or the momentum, one by reversing or the other by strengthening. As mentioned last week, these price peaks seem to happen almost every year, followed by a reaction and/or lateral trend for many months. Actually, these peaks seem to occur every about 11 months so the latest is right on schedule. I have no idea if this means anything or not but it is a curiosity.
So, from the long term standpoint I am still BULLISH.
Going to my intermediate term P&F chart (not shown) I see the break below two previous lows but not yet a break below the up trend line. We have a reversal that is not confirmed so we stick with the last confirmed direction, which was positive. On the original latest upside break we had a projection to the $515 level while a little later on the new high mark we had a projection to the $545 level. Despite the somewhat weakness shown due to the support break I am still looking forward to these levels being met, and not in too long of a time period.
As for the usual indicators, the price just inched slightly above its moving average line and the line has just turned slightly upward. Price momentum is bouncing off its neutral line and still staying in the positive zone while the volume action is moving above its moving average line but the line is still sloping downward. In both the price and volume cases it might take another day or two of good upside action to turn their moving averages around. Finally, as shown last week, we have that intermediate term up trend line from the July low. That line has not been broken for a positive trend sign.
It should be noted that it is not unusual for the price to rally shortly after breaking the neckline of a head and shoulder top. However, such rally usually takes the price back towards the neckline. In this case the price has now gone well beyond the previous neckline but not yet above the right shoulder. That would be bullish if the price exceeded the $478 level.
For now, I have slightly improved my rating to that of NEUTRAL until the picture solidifies one way or the other.
Silver
A very brief comment on the actions of silver. It is acting very much like gold except for one major important difference. The volume action in silver futures is considerably more positive than that of gold. It just might be that over time, if this keeps up, that silver futures and silver stocks may be the better movers % wise. For now there is no real difference if one looks at the Gold Indices table.
NORTH AMERICAN GOLD INDICES
Well, it's been a few weeks since I looked in on the AMEX Gold BUGS Index so let's do it this week. Although the relatively new AMEX Gold Miners Index may become the Index of choice for those wanting to know about the performance of the general group of gold stocks, that may come in time but still, the AMEX Gold BUGS Index is the one most look at. An Index of about 16 stocks, give or take a few from time to time, this Index has less than half the component stocks that the Gold Miners Index has. It is, however, composed of stocks that have a no-hedge policy, or at least not an aggressive one. That makes it a more volatile Index than the "quality" PHLX Gold/Silver Sector Index and produces greater performance, up and down. However, this week's performance might suggest otherwise but see comments in Merv's Precious Metals Indices section on next page.
AMEX GOLD BUGS INDEX
The AMEX Gold BUGS Index has been sliding upwards on the top of the up trend line from the May low. It now looks like it is accelerating its upward "slide" and drifting further above the line. However, there is a short term resistance about at the 235 level, right where it's at. Once this level is breached then it's on towards the previous high and new highs. Looking at the performance of the momentum indicator, such new highs may come with difficulty, if they come. Momentum, although still positive, is weak and must improve for any sustained rally to be probable. The recent move has turned the short term moving average to the up side but the intermediate term is not quite there yet. Not shown, but the Stochastic Oscillator is entering its overbought zone which often puts a damper on any subsequent up moves. The next couple of days should be interesting and telling as to the continued upward trend of this Index.
MERV'S PRECIOUS METALS INDICES
It has finally been a relatively good week for gold stocks. As suggested above, the PHLX Index seems to have had the better performance versus the AMEX Gold BUGS Index. One would have thought the other way around on the up side. But one has to look through the Merv's Indices to see what's moving and assess what affect this might have on Indices.
The Merv's Indices were all on the up side this past week but with varying performances from +1.8% to +4.8%. The driver for performance, as we will see, was the difference between "quality" and speculation. With the new silver Indices the same can be said about them but a detail review of these Indices will wait for another week or so.
MERV'S GOLD & SILVER 160 INDEX
Since there are only a limited number of large gold companies and a huge number of speculative companies it is only logical that this Index represents more the performance of the second group. For a performance of "quality" company stocks one should look to the Merv's Qual-Gold Index. The Merv's Spec-Gold and Gamb-Gold Indices try to present the two extremes within the speculative group.
With a gain of 1.8% on the week this Index was one of the poorer performers of the various Merv's and major Indices. With performances in the major Indices at the 3.5% to 5.2% it is obvious that the masses of speculative stocks were not the great movers of the day. As expected from a positive weekly gain, more individual stocks gained than lost on the week with 90 moving higher and 63 moving lower. Although we had 3 stocks with weekly gains in the low 20% level we had none over the 30% level. This shows that outright speculation is still not at hand and only informed "nibbling" at specific stocks is on going. It is during a period such as this that quiet accumulation is going on by informed professionals. If one thinks they know of a stock being thus accumulated then the tables of technical information should provide the timing for your purchase (or sale if the stock goes the wrong way) once the move is on. Buying BEFORE moves start is always fraught with great risk. My view is usually to buy on the break, when a move appears to have started for a considerable risk reduction (but ALWAYS with risk).
MERV'S QUAL-GOLD INDEX
This is where the action was during the week. The Qual-Gold Index had the best performance of the Merv's Indices and the best overall ratio of advances to decliners, at 28 advances and only 2 declines. As can be expected these are the "slow and steady" performers. Although the best group performance there were few real great winners in the group, only 2 stocks that gained just over the 10% mark.
The Index is entering a level where it must either break through that down trend resistance line propelling the Index into new high ground or else it must halt and possibly turn back towards the lower support trend line. The next week or two should tell us which way it will go. For now everything looks rosy.
MERV'S SPEC-GOLD INDEX
The Spec-Gold Index is a mystery. Its components are at the upper end of the speculative group, just below the "quality" stocks. It should by all accounts give us a performance in between that of the Qual-Gold and Gamb-Gold Indices but in fact has been, at times, the poorer performer. Although the % performance is not between that of the Qual or Gamb Indices its advances and declines are with 17 advancers and 13 decliners.
The Index is still in its mid range of the wide lateral trend. A good support can be seen at the 207 level. Since the Index is very close to this it remains to be seen if the support holds. Momentum is neutral and no help.
MERV'S GAMB-GOLD INDEX
With a performance of 2%, this is less than half that of the Qual-Gold Index. With 13 advances and 13 declines it also has the poorest ratio of advances of the Indices. As a saving grace, it does have the most number of component stocks with advances greater than 10%; 6 stocks with such performance, 2 in the 20% advance range. This continues to suggest accumulation of selected stocks rather than a speculation in the speculative and gambling stocks in general. It's still a stock picker's market, best performed by technicians understanding what's moving and what's not. There are lots of "stories" circulating about a variety of stocks but very few are moving. In the end only a small percentage will actually move until such time as greed takes over and the masses start buying anything.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
13 November 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.
Email this Article to a Friend 
Printer Friendly Version
