A New Gold Index

December 23, 2018

fine gold

There seems to be a new gold Index in the works that may just be the most important Index for speculators in the small stuff, you know, those small exploration type of “penny” stocks that could zoom 2, 3, 4 times in price in a few short weeks (but could just as easily drop as fast – usually faster).

Some old timers may recall my weekly commentaries “Technically Precious with Merv” where I would often mention my Merv’s Penny Arcade 50 Index.  This was an important Index of “penny” gold and silver stocks for the speculator.  Its main disadvantage was that it was not easily or readily available to the general public.  Since retiring a few years ago I have discontinued this Index but still like to keep in touch with the “penny” environment. 

In my view there are three types of people who gravitate to the “penny” stocks.  There is the GAMBLER (G) who is enticed to buy some “penny” stock by a promoter who promises a doubling in price next week or who suggests a 10 fold price move over the next year, or other such propaganda.  There is the SPECULATOR (S) who does limited research into the “penny” company and comes to his own conclusion that a speculation in the stock is or is not warranted.  Finally, there is what I refer to as the INTELLEGENT SPECULATOR (IS).  The IS not only does some limited research into the “penny” company but also realizes that these “penny” stocks can be easily manipulated (and often are) and speculates attempting for the odds to be in his favor.  Again, in my view the new gold index discussed below should provide the limited research into the “penny” company while technical analysis may be used to provide the odds in your favor.

S&P/TSX Venture Gold (Sub Industry) Index

The www.tmxmoney.com/en/index.html is my favorite site for information on North American stocks.  It provides information or links to information on all securities traded on the North American markets as well as all Canadian Indices.  It also provides a variety of investor tools for screening stocks or an industry group of stocks.  There are also much more there for the investor’s or speculator’s use.  As far as I can tell, most of this is free to investors.

Lately I noticed that they have started to provide information on a set of industry and sub industry indices based upon the component stocks of the S&P/TSX Venture Composite Index.  One such index is the S&P/TSX Venture Gold (Sub Industry) Index which includes all the precious metal stocks (to the best of my knowledge) included in the Venture Composite Index.  In this group of stocks one can find everything from stocks priced as low as $0.03 to ones as high as $20.00.   This gives a range from true “penny” stocks to substantial high valued stocks.  The Sub Index is defined using the Global Industry Classification Standard and the actual Index value is calculated each day using the market cap weighted method which would give the high priced stocks in the Index overwhelming preference.  The top 10 market cap stocks in the Index have a total weight of 57% towards the Index calculation while the remaining 56 (number could vary) stocks provide the remainder.  However, being components of the S&P/TSX Venture Composite Index one could assume that even the higher priced stocks could be considered more in the speculative side of the quality spectrum.  In addition, all the stocks must have gone through some level of review so this takes care of the limited review process for speculators. 

This Gold Index was “launched” in February of this past year so on the TMXMONEY site there is only Index information for the past year although the spindices web site has the start of this Index going back to October of 2011 with a starting value of 100.00.  Since the start in 2011 it has been all downhill for this Index except for a 160% rally in 2016.  This Index is lower by 67% since 2011.  To put it another way, the Index needs a rally of over 200% to get back to its starting point.  For these “penny” stocks that is not a difficult task once a good bull market in the “pennies” gets going.  For those who wish to speculate but not take too much of a risk one might just watch the top 10 market value stocks in this Index and speculate accordingly.  To find these top 10 you can go to https://us.spindices.com/indices/equity/sp-tsx-venture-gold-sub-industry-index-cad and click on the factsheet link.

As far as timing for the best reward/risk is concerned, one can use any of dozens of technical techniques.  Not every technique is appropriate for every individual.  It is most important to be comfortable with the technique being used and even more important to understand when the technique gives you the signal to get the heck out of a stock.  Over the many years I had developed a specific point and figure technique to address the “penny” gold stocks that had worked very well for me but may not have been useful to others.  The odds of a profitable speculation using this point and figure technique was in the neighborhood of 70-80%.

As a final word, to try and ensure you are on the right side of the market you need to follow an appropriate Index.  DO NOT use any of the large well entrenched gold Indices as they represent mostly very large cap gold stocks and may move (or not move) in opposition to the speculative stocks.  This S&P/TSX Venture Gold Index may be the more appropriate Index to follow and speculate in the direction of the Index.  One takes great risk if speculating (or investing) contrary to the direction of the appropriate market.

As you can see from the activity over the past year one would not have been in the speculative stocks, at least not since mid/end of May.  Things are starting to perk up for this group and it deserves close watching. 

From a short-term standpoint the Index has moved above its short term moving average line and the line has turned positive.  Although not shown, the short term RSI is stronger than the Index price action and very, very close to breaking into its positive zone.  The price levels to watch from a short-term basis is 33.00 on the up side and 31.75 on the down side.  Closing above 33.00 or below 31.75 would give one a short-term positive or negative signal respectively.  Short-term is very volatile so one needs to stay alert for any sign of reversal of trend.

As for the intermediate term things may be showing some signs of strengthening and even reversing but we are not yet there.  The best indicator is the IT 50 day RSI which is showing improving strength (versus Index price action) although it is still in its negative zone.  The Index price is not yet showing signs of a turn around and is still in a serious downward trend.  For this Index to suggest a new intermediate-term bull market in progress, we would need the Index price to close above the intermediate-term moving average line (65 DMAw) and the line either turning upward or the short term moving average crossing above the intermediate-term line.  For now the intermediate-term is still considered as being in a BEAR market phase.

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Merv is a retired Aerospace Engineering consultant.  He is also a retired market technician with over 40 years of market experience and research.  Merv received his certification as a Chartered Market Technician (CMT) in 1992. Developer of many technical techniques and programs which he has been using in his previous Technically Speaking with Wil-Arm and Technically Precious with Merv commentaries posted throughout the globe.  Developer of several gold and silver Indices, Merv continues to update his Merv’s Gold & Silver 100 Index and Merv’s Penny Arcade 50 Index and reviews them during his periodic on-going Technically Precious commentaries. 

Pure gold is so soft that a strong man can squeeze it and shape it.