Technically Precious With Merv
For week ending 2 July 2010Feet on the stool, beer in hand I'm TV watching the Queen in Ottawa (it's Canada's birthday after all) how was I to know that gold was collapsing right before everyone's eyes. Is this the end of the world as we know it? Not yet, Obama still has more work to do.
Lately I have been reading a lot that the various markets have formed double top patterns. You should be a little careful about these observations. Just because a stock or Index has reached a previous high price (after a period of reaction) does not make that a double top. The term "double top" refers to a bearish chart pattern BUT ONLY AFTER the price has reacted from this second high point and moved below its low reached in between the two tops. Only then is the pattern a double top pattern and a bearish one.
It is very common for a stock or Index, after reaching a high and reacting lower, to climb back to its previous top and hesitate, or take a rest period, before continuing on its merry way to even higher levels. This rest period is not a double top. The pattern at this point is neither bullish nor bearish. It would become bullish on a move to new highs or it would become bearish should it reverse back to the down side and close below that inter-top low.
I may sometimes forget this little definition factor and call double tops when I should not have. These moves back to a previous top should be referred to as "potential" double tops, if one was to refer to them. Just a nit-picking point.
As scary as the Thursday's drop in gold was it didn't affect the long term situation in the gold price trend. Gold is still well above its positive sloping moving average line. The long term momentum indicator has turned downward and is now below its negative trigger line but remains inside its positive zone. As for the volume indicator, it continues moving into higher ground above its long term positive trigger line. Nothing yet to worry about from the long term perspective as far as my normal indicators are concerned. The long term rating remains BULLISH.
My long term P&F chart, however, is very close to a reversal. With the actions of the past couple of weeks the bar has been raised as to where the reversal signal would be given. At the present time a move to the $1185 level would give us a bear signal on the P&F chart. That looks very much more like an intermediate term signal. I may have to review my P&F units and reversal criteria to see if they are still valid from a long term standpoint. In any case a move to $1185 will give a bear signal whether it's from a long or intermediate term standpoint I'll try to re-assess for next week.
The intermediate term indicators are not much different from the long term ones. Gold has moved below its intermediate term moving average line but the line remains sloping in an upward direction. The momentum indicator remains in its positive zone but like the long term indicator has moved below its now negative trigger line. The volume indicator continues to move higher above its positive sloping trigger line. This is normally a positive sign but if we are working towards a reversal of trend the volume indicator is often the last of the indicators to turn around. At a top the volume indicator is too often a lagging indicator. Although we are not yet in a reversal of trend situation here, we are moving in that direction. From the indicators the intermediate term rating has now dropped to a - NEUTRAL rating, one level above a full bear.
We see here what some are calling a double top between the highs of Dec and May/July. I think that's pushing the idea but as I mentioned earlier, this would only be a double top once the price drops below the Feb low. That does not seem in the cards at the present time but who knows?
We can clearly see the momentum weakening as the trend moved towards the recent plunge. Momentum may warn of potential upcoming events but they do not predict how far the move will go. At the present time, assuming the worst, my indicators do not see a drop going as low as the Feb low but it could easily drop to the $1125 level, but that's just a guess.
The action this week took the price of gold well below its short term moving average line and the line has turned towards the down side. The momentum indicator has dropped into its negative zone and below its negative trigger line. As for the daily volume action, you can see it has been pretty low and not telling us much. For the short term the rating is now BEARISH. The very short term moving average line has now moved below the short term line confirming the rating.
As for the immediate direction of least resistance, well, there still may be a day or so of downside activity but with the Stochastic Oscillator already in the oversold zone a rally or bounce could be expected any day. For the next few days I'll go with the lateral direction.
Silver has once more under performed gold by a long shot. It's the economy. A little more of this improving economy, as we keep hearing from the U.S., and silver will quickly get to $10. The P&F chart shown here in the past still suggests that silver has not yet turned bearish. It remains above its very strong P&F support but a drop to $17.00 or lower will kill that.
As suggested, silver is somewhat weaker than gold at this time. The long term indicators are slightly more negative than those for gold and place the rating for silver at a - NEUTRAL rating. The intermediate term is also weaker and have already turned the rating for silver BEARISH. As for the short term, all the indicators are negative giving us a BEARISH rating with the very short term moving average line below the short term line for confirmation.
PRECIOUS METAL STOCKS
It was a lousy week for gold and silver stocks. Although the major North American Indices closed lower in the 8% range most of the Merv's Indices showed declines from 6.5% to 9.7%. Only the Merv's Penny Arcade Index was not a disaster. It closed lower but only by 2.3%. This is still a good sign. As often mentioned here, these penny stocks are expected to turn bearish long before the overall universe of stocks do. If the pennies are not yet collapsing then there is still hope that the universe will soon turn around and move higher once more. This view is tempered by the fact that the Table is showing the Penny Arcade Index as already NEG on the intermediate term so weakness here continues. Another sign that things may not be quite as rosy as the above comment may suggest is the fact that the Merv's Indices have shown a negative divergence which is warning us of a possible change in trend in the not too distant future. This is not the time to be jumping into the gold and silver stocks, although one might still find that rare stock going counter to the trend of the universe.
An interesting note, the Merv's Qual-Gold Index includes the 30 largest gold and silver stocks traded on the North American markets. The Merv's Spec-Gold Index includes the next 30 largest stocks traded on the North American markets. For these 60 largest stocks traded on the North American markets NOT A SINGLE STOCK closed on the up side this past week. Actually, of the largest 100 stocks (Merv's Gold & Silver 100 Index) only three stocks closed on the up side and the best of these three only gained 0.7% for the week. It was a miserable week. I guess Thursday and Friday was what did it.
Merv's Precious Metals Indices Table
Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
Mervís Precious Metals Central
4 July 2010
For DAILY Uranium stock commentary and WEEKLY Uranium market update check out my new Technically Uranium with Merv blog at http://techuranium.blogspot.com.
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 whatís going on in the securities markets. As an underground surveyor in the gold mines of Canadaís 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 Mervís driving focus is to KEEP IT SIMPLE.
To find out more about Mervís various Gold Indices and component stocks, please visit http://preciousmetalscentral.com. There you will find samples of the Indices and their component stocks plus other publications of interest to gold investors.
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