Technically Speaking with Burak
Weekly Commentary
(For week ending 25 Nov 2005)
Mervyn Burak, CMT
GOLD
And it just keeps on trucking. Looking first at a long term P&F chart we see that another X has been added on the up side. It's getting closer and closer to the previous 1987 P&F high of $500. We are now into the best consistent P&F chart bull market since the big run-up during the 1975 to 1980 bull market. That bull took gold from $100 right up to the $870 level before the bull ended. To equal THAT bull market we would have to continue up to at least the $2260 level. Ah, the things dreams are made off. If you read enough variety of gold commentaries you are bound to read predictions of $3000 and even higher gold prices. Here at Merv's Precious Metals Central we take things one step at a time. For now our projection takes us to the $600 level. Once there, or close to it, we can then see if there are realistically higher P&F projections but let's not get too carried away with ourselves. Maybe that $2260 or $3000 or higher levels will be reached. Maybe we'll be long gone and dead by that time cause it ain't gonna happen anytime soon. So let's just concentrate on what is likely to happen during our life time, or at least the active part of it.
The weekly bar or candlestick chart provides a very good picture of the long term indicators. First, the price action is well above the moving average line and the line continues to slope in the upward direction (after a short spell in the horizontal). The price momentum (RSI) continues to trend above its neutral level and has done so since the bull started in 2001. Momentum is looking weaker and weaker suggesting the upside is losing strength BUT this has been going on for a couple of years now and no disaster yet. I hope it is able to exceed that late 2004 peak thereby showing some improving strength. Otherwise, regardless of how slow it is going, continuing weakness in momentum (strength) is not good. Lastly, the volume indicator has been on a tear on the up side confirming the price direction. However, volume during a bull market is only relevant when it starts to move counter to the price trend. I usually do not pay much attention to the volume indicator except during my analysis at the shorter time periods. It is very important for the short term analysis.
For now I continue to remain BULLISH on the long term.
Despite the short trading week my intermediate term P&F chart tacked on another 2 extra Xs in the upward direction. The first of my intermediate term P&F projections ($515) is within sight of being reached. Nothing yet to suggest that the trend is in for a sudden reversal (although it could happen).
The normal intermediate term chart shows the sudden spurt in the price over the past two weeks or so. This started after it dropped below support but above the up trend line. The moving average had turned down at that time but the up trend line held and we see the results. The moving average has once more turned up. Price momentum remains in its positive zone after coming close to breaking below. Even in this time period the momentum is underperforming the price action. It is still below its previous Oct level. As for volume, we have two volume indicators on our chart, both are giving us a positive picture. The OBV is above its intermediate term "trigger line" and into new highs while the daily volume action bars at the bottom of the chart shows a volume build-up over the past several upside price days.
So far all is well with the world as far as the intermediate term trend is concerned and I remain BULLISH.
Analysis for the short and immediate term time periods can be found only in the Merv's Precious Metals Central subscribers section.
NORTH AMERICAN GOLD INDICES
One can consider this past week as being a short trading week. American Thanksgiving was on Thursday and the markets were closed while Friday was a short day and very little trading took place. Be that as it may (where did THAT expression come from?) the AMEX Gold BUGS Index did make a new recovery high and is within spitting distance from its late 2003 high at 258.6. Once through there it will be at an all time high for this Index, which was developed in 1996. As with most of the gold Indices, the intermediate term momentum is showing a negative divergence with the price action and should be watched closely. If the momentum stays underperforming the Index may turn. For now we have a positive moving average reading and a solid up trend line. As long as we are above those two we remain bullish, intermediate term. That up trend line is the strongest part of the trend, having been tested on more than one occasion.
It should be noted that several of the North American Gold Indices have already broken into new high territory. Among these are the popular PHLX Gold/Silver Sector Index, the AMEX Gold Miners Index and the FTSE Gold Mine North America Index. The S&P/TSX Capped Gold Index is still below its late 2003 high levels and has a little upside left to go but getting there.
MERV'S PRECIOUS METALS INDICES
The Merv's Indices had another good week but the performances varied widely from a paltry 1.0% for the Spec-Silver Index to a not bad 4.6% for the Spec-Gold Index. Last week on the various Indices Pages I showed the high and low prices over the past several years. You should keep these for future reference as I may not go that far back for some time. Since the Indices are calculated only once each week there are no daily charts available and no short term Index analysis that is appropriate to perform. We can look at the intermediate and long term trends and take our cue for the short term from the major North American Indices and from gold itself. As always, the Index charts are available in the individual Index Page elsewhere in the subscriber's section.
MERV'S GOLD & SILVER 160 INDEX
With a gain on the week of 3.2% this Index was near the upper level of weekly Index gains. The universe of 160 stocks has been performing quite well BUT is still below its all time high set in early 2004. It is above all other previous levels except for that one week in Jan/2004 when it hit 1421, almost 5% above this past week's high. That one week was the final lunge into new highs and then into a 2 year lateral trend, working off the 430% 9 month run that it had just completed. Both the intermediate and long term moving average lines are pointing upward and the trend looks like it is destined to reach those new highs very soon.
As for market breadth, we had 96 issues on the up side and 55 on the down side for a ratio of 1.7 to 1, up versus down. We've seen some better ratios recently but this is still okay. What this continues to show is that there is still no outright speculation going on in the general universe of precious metal stocks. Another way I like to gauge the speculative fever is to see how many stocks gained (or lost) more than 30% on the week. It is not uncommon for stocks to gain (or lose) 10% or 20% but for speculation effects, I set the standard at above 30%. This week only one stock was in that category. As for the overall BULL/BEAR ratings for the three time periods, we have a 69% BULL rating for the short term, a 62% BULL rating for the intermediate term and 66% BULL rating for the long term. The BEAR ratings are all in the upper 20% level. We are not yet into any euphoric state. This is the time to be getting your strategy in place and starting to pick those potential 10 and 20 baggers that are ahead.
MERV'S QUAL-GOLD INDEX
Up. Up and away. It is the quality stocks that are and have been performing lately. This is almost always the case. The quality move first and the speculative stocks come up later, after investors and speculators are more confident as to the trend in gold stocks. With only a 2.1% gain on the week, the Qual-Gold Index is well into new all time highs, the only one of Merv's Gold Indices to do so. This Index is up almost 50% above its low in March, with a few stocks within the group already up over 100% in the past several months. Even the "quality" provide good moves at times but you wouldn't know it from some Indices.
As for the component stock breadth, we had 24 gainers and 5 losers for a ration of 4.8 to 1. The overall BULL/BEAR ratings are also quite lopsided on the BULLISH side. They range from 85% BULL on the intermediate term to 97% BULL on the short term with the long term in the middle at 93% BULL. The BEAR ratings for all three time periods are in the single digit level. These kinds of high BULL levels are dangerous as there is almost no place to go except LOWER. Possibly a trend reaction ahead.
MERV'S SPEC-GOLD INDEX
The Merv's Spec-Gold Index had the best percentage gain of the gold or silver Indices this past week. Although there were no huge gainers, i.e. over 30%, there were several in the over 10% bracket. This Index has been a laggard this year but just might be getting ready for a good run. When the speculative gold stocks start moving, they REALLY move. For now this Index is still far away from its previous early 2004 high. It is still below this years high. While most of the Indices are at least near the upper end of their two year trading range the Spec-Gold Index is still closer to its mid-point. Despite its poorer performance versus other Indices this group has some of the best individual performers over the past year. Tan Range is up some 350% since its low in April while several are up more than 100% since earlier in the year.
With 21 gainers and 7 losers, the 3 to 1 ratio shows that the stocks are being bought. With BULLISH ratings in the high 70% there is still room to grow in popularity. This group is one to watch for speculative interest build-up.
MERV'S GAMB-GOLD INDEX
This is the one place to watch for that real gambling fever. These are the "all or nothing" plays, i.e. you win big or you end up with nothing. The Gamb-Gold Index has continued to be one of the stronger Indices but not necessarily one of the best. It has been in an up trend for over a year now and was the only Index to make new highs earlier in the year. Lately it has been underperforming. I like to think it is relaxing, waiting for its turn at the bat.
With 16 gainers and 11 losers on the week, this 1.5 to 1 performance is the weakest of the Indices. The intermediate term BULL/BEAR rating is still less than 50% BULLISH. On the short and long term the rating is barely into the 50% BULL level. There is lots of room for growth here and this may be the next spectacular Index, if the trend keeps up. But first investors have to become more comfortable with the gold trend to get into the gambling spirit.
What the above Indices suggest is that the "quality" have been the movers but if you are a speculator or gambler NOW is the time to be getting in for the next moves. As the Indices charts suggest (see the overall universe Merv's Gold & Silver 160 Index above) once the moves REALLY start, they move fast and spectacularly. Over the past few months Merv's Precious Metals Central has already had several multi-hundred percent gainers. No doubt there should be more to come in weeks and months ahead.
Well, that's it for now. Next week I should have the Qual-Silver and Spec-Silver groups to include in the commentary.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
20 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.
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