LONG TERM
Wow, what goes up must come down. But when one looks at a chart such as the P&F chart one then understands this is normal. The last time we had a straight up P&F trend of 80 points was early in the bull market when it went up 90 points. The reaction then was 70 points and still it remained bullish, and still is. By that criteria the price could still drop to the $480 level with no sweat. Now, I know there are books out there on a P&F technique that has some kind of criteria that if the price reverses more than half way from a long up move, this is suppose to be bearish. It wasn't in 2002/2003 and probably would not be now, if it happened. Staying with a trend in motion is far preferred than to guess ahead, To set your hearts a-flutter, this latest move has now broken above two separate very long term consolidation areas. Using data going back to 1980 and a $25 unit chart with a 2 unit reversal, we can now calculate a move to the $1075 level and another to the $1575 level. This last one was the break above market action that went back to the 1981/1982 period. Are these projections valid? Well, yes, as are all projections based upon P&F consolidation break-outs. In this case the consolidation just happens to be based upon a more highly filtered price activity. But always remember, projections are nice BUT it is the on-going market action that is important. Should the trend for some reason reverse, don't continue to focus on the projections. Get out and see where it goes next. If it reverses again and continues up, then you can always get back in again. For now let's just look ahead to the $600 (really $580) level as the next long term goal.
As for the normal indicators, they are still all on the positive side. The moving average continues to turn steeper and steeper in the upward direction but still has a lot of steepness to go. As may be expected, momentum has reacted slightly lower but not a concern yet. The volume indicator continues to confirm the bullish price trend although there may be some concern from the daily action which I will comment on in the short term section.
What can I say, despite the expected reversal action there is nothing in the charts yet to cause concern from the long term perspective. Still BULLISH on the long term.
INTERMEDIATE TERM
The latest action doesn't look much different on an intermediate term P&F chart versus the long term. It does show that we are still some distance from even an intermediate term reversal. We would have to see an additional up and down move to create another low zero for the trend to be close to an intermediate term reversal (Note the requirement for a break below two lows AND the up trend line). This would also move the action over to the right where it would also be within range of the up trend line. But this is all getting ahead of ourselves and maybe nothing like that will occur. The action on Monday got as high as $544.50, just $0.50 shy of our top intermediate term projection. But the P&F would not record it as it must hit at least the $545 price to plot. So I can't yet say it hit the upper projection level but it was close. So, what next for the intermediate term? Well other than the $550 projection using an alternate method that I mentioned last week we'll just have to wait for a new consolidation period to give us a new follow-on projection. Otherwise, I have no new projection on the intermediate term (I wonder if THAT means something?).
Friday's action halted just above the positive sloping moving average line and then moved higher to close above its opening price but still down from the previous close. The latest action is still some distance above an up trend line from the July low, drawn through the Aug and Nov lows. No surprise but the price momentum has come down a notch after hitting new highs just below the 60% level. Any previous underperformance by this momentum is no longer valid. Although reacting lower, the momentum is still positive and not yet in jeopardy of going negative. The volume indicator is still nicely above its intermediate term moving average line for a continuing positive reading. Again, no problems here yet. The short term might be something else but let's get into that in its proper place.
For now there is nothing in the indicators to suggest anything other than BULLISH on the intermediate term.
The SHORT TERM and IMMEDIATE TERM analysis can be found in the Merv's Precious Metals Central subscribers section.
As I take turns in looking at the 4 primary or major North American Gold Indices I guess it's time to look once more at the S&P/TSX Capped Gold Index. Since the Index is calculated based upon the activities of the component stocks on the Toronto Stock Exchange it naturally reflects the currency differences between Canada and the U.S. over the time period. This, and the fact that Barrick Gold has a huge impact on the Index and has not acted well over this period, results in an Index that has done nothing since reaching a top in 2002 unlike all other North American Indices which reached considerably higher levels in 2004. We will just have to see if this Index catches fire should it break decisively through the resistance line from the 2004 top. In the mean time the daily chart of this Index is showing a cautionary situation in that the strength of the recent two month rally has been less than what one hoped to see. Volume action in this Index is starting to come in more on the down side for another cautionary sign. All does not look well for this Index unless it starts to strengthen very soon.
It should be noted that the trading data for this Index only started on 30 Mar 2001. Data prior to that time comes from the old TSE Gold Index and such data was adjusted to reflect continuing activity with the new Index.
The performance of the various Merv's Indices seem to be all over the map this past week, from a loss of 2.5% for the Gamb-Gold Index to a gain of 1.7% for the Spec-Silver Index. The losses seem to reflect the average performances of the various sectors of the gold spectrum but what about that gain in the Spec-Silver Index? Looking at the 25 stocks in that Index we get about 50/50 gainers and losers. However, the gainers far outdid the losers on the % performance scale resulting in the final gain for the Index. Is there something going on in the speculative silver sector? We'll just have to wait and see. This group seems to be the most bullish of the various gold and silver indices that I calculate. In looking over the various Indices there is a real curiosity. On the gold side the quality are moving and have exceeded their previous 2004 highs while the speculative are still trying to reach their highs. On the silver side it's just the reverse. There the quality are still some distance from reaching their 2004 highs while the speculative are going gang busters well above their previous highs. Just an observation.
MERV'S GOLD & SILVER 160 INDEX
Here we see the average performance of the overall universe of 160 gold and silver stocks. The Index lost 2.2% on the week, far more than is reflected by the major market Indices. These losses were higher in the more speculative (gambling) stocks and less so in the quality stocks. The ratio of losing stocks to gaining stocks was over a 2 to 1 ratio. This is reflected in a lowering of the group percentage BULL/BEAR ratings, although the ratings have still not turned overwhelmingly bearish. The overall group BULL/BEAR ratings for the intermediate term are +57%/-31% while for the long term it's +69%/-22%. So no real worry yet although on the short term the bull rating has dropped below the 50% mark (the bear rating still has not reached over the 50% mark yet).
Long term momentum for this group is still positive and rising while the Index itself is just touching its previous 2004 high but not yet in a decisive break through. After two years of a lateral consolidation a decisive break through this resistance will be very bullish for the overall gold and silver sector.
MERV'S QUAL-GOLD INDEX
Getting into the more specific gold sectors of the overall group the quality gold stocks had the best performance during the week (or at least the lesser of the negative performances) with a loss of only 0.9%. For every 3 quality stocks that lost ground on the week there were still 2 gainers for the best ratio of the various sectors. The BULL/BEAR ratings are also still very high on the BULL side with +72%/-18% for the intermediate term and +93%/-3% for the long term. As with the overall 160 group, the short term bull has just crossed below the 50% level with a 47% reading while the bear still remains low at 43%.
The long term momentum reading continues in the positive zone and may have the first hint of wanting to flatten out. The Index is well above its previous 2004 high and looks to be heading even higher.
MERV'S SPEC-GOLD INDEX
The Spec-Gold Index performance during the week is almost mid-way between that of the quality and that of the gambling stocks, with a loss on the week of 1.7%. There were slightly more than 2 losers for every gainer on the week, which is worse than the quality ratio but better than the gambling one. The BULL/BEAR ratings for this sector remain positive with +72%/-20% for the intermediate term and +78%/-12% for the long term. Even the short term remained positive with ratings of +50%/-23%.
Although the momentum is in the positive zone and the Index is above both the intermediate and long term moving average lines (as they are for all sectors) the Index itself has still not breached its previous 2004 high. It has been the laggard of the sectors but is getting there. All it needs is one or two good weeks and it's broken through.
MERV'S GAMB-GOLD INDEX
The performance of the gambling stocks may vary greatly depending upon one's choice of stocks. This Index has performed very well over the years but may be considered as still a little behind, recently. Along with the 160 universe, this Index has still not received its end of year overhaul but should get it over the next few weeks. With a loss of 2.5% it was the worst performer of the gold sectors. With almost 3 losers for every gainer the weekly loss was well spread out. Even the BULL/BEAR ratings are the worst of the bunch with a +35%/-48% for the intermediate term and +52%/-38% for the long term. Although the short term BULL rating has dropped below the 50% mark (at 43%) the BEAR rating still has not gone over the 50% level (at -38%). One way of double checking if the performance of the gambling stocks is well represented by this Index is to check the difference in performance between the overall universe of 160 stocks and that of the Merv's Gold & Silver 100 Index. The 100 Index represent the top 100 gold stocks by market capitalization. The difference between the two represents the performance of the 60 smaller or gambling variety of stocks in the overall universe.
This Index had previously exceeded its 2004 highs earlier in the year and is now just nudging up against that 2005 high. Looking at the Index chart this Index looks like it's getting ready for a new major move. Stay tuned.
A couple of weeks ago I presented, in a simplified manner, my approach to buy and sell decisions based upon P&F Charts. The other technique I use for buy and sell decisions is the use of the moving average method along with other technical indicators for confirmation. Today I will very briefly go into the moving average part of that technique.
First, although I use all time periods for a variety of trading or investing, my preferred investment time period is the intermediate term. The presentation today will be from that time period. This period is defined by me as a period between a few weeks to a few months. Based upon continuing indicators, the action based upon this time period could last for many months to years until reversed.
The moving average used by the industry to represent this time period is most often the 50 day simple moving average. I also use the 50 day period but I like to be slightly more aggressive so I use the weighted method of calculating the average. This places more emphasis on recent trading data and less emphasis on the earlier data unlike the simple average which places equal emphasis on all trading data. Both are shown in the chart below.
Readers will recognize this chart as the same information I used for the previous P&F Buy/Sell presentation of a couple of weeks ago. On the chart are both moving average methods, the simple moving average represented by the red dashed line and the weighted moving average represented by the solid black line.
MOVING AVERAGE BUY & SELL
My basic moving average BUY/SELL criteria requires the price to move above the moving average line (or below) AND the moving average line must reverse its direction into the direction of the price. Using the weighted moving average, this occurred on May 19 at a closing price of $1.92. Using the simple moving average this occurred on May 27 at a price of $2.09. Using the weighted method you start off with a 9% advantage. However, with such advantage comes the disadvantage that you get slightly more false breaks with the weighted method than you do with the simple method. Both are okay if the final stock performance is as indicated by this stock.
Who said playing the market had to be difficult? Neither P&F or the moving average methods are difficult. Neither are perfect BUT there is NO PERFECTION in stock investing.
Of course, nothing is always this simple. One should never use a single indicator to trade or invest with. One should always have confirmation from at least a second source be it P&F or momentum and volume indicators. Such confirmation just reduces the always present risk in any decision.
Well, that's it for this week.
Next week the commentary may be a little late, holiday's and all that. For all my Christian readers, here's wishing everyone a very Merry Christmas. For those who do not celebrate Christmas but still celebrate the holiday, here's wishing you all a very Merry Holiday Season. For others that don't believe in Christmas, Please let US celebrate in peace.
Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group
www.themarkettraders.com
merv@themarkettraders.com
19 December 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.