Weekly Gold and Silver Technical Analysis Report - 26th Feb 2007 - Technically P
Commodities / Forecasts & Technical Analysis Feb 26, 2007 - 12:45 AMBy: Merv_Burak
Tuesday was a bummer. Was someone playing around with the bullion? Wednesday was back on track and everything looks great.
GOLD - LONG TERM
Well, we now have a stronger confirmation on the long term P&F chart that the bull is on once more. The original upside break at $660 still had some resistance from earlier action but that was breached by the move to $690 this past week. Yes, there still is that previous high set last May but that is expected to be breached in not to distant future. When we draw our 45 degree up or down trend lines we can often draw a parallel resistance or support line.
We had that long red dashed resistance line from the 1996 action right up to last year's top. We now have a new resistance line which seems to be an extension of the previous blue support line. This happens, a previous support becoming a resistance and visa versa. One can now envision the action going into the future being trapped by these two lines, the solid blue support line and the dashed red resistance line. As for projections for the move, well we went through that earlier but let's look at it again. The original break projects to the $780 level while this weeks move through additional resistance now projects to $915. I know that I have those longer term projections going into the $1500/$1600 level but let's take things one step at a time -- $780 is first.
So, what are the normal indicators telling us. From the action during the week, especially the later part of the week, one might guess that they are all positive. Well, they are but with some slight caution. The price action has been all above the long term positively sloping moving average line. As long as the action is above a positive moving average line one can remain bullish. However, momentum is still slightly under performing although firming up with the latest action. The long term momentum (suggesting strength of the price action) has been in the positive zone for years except for a very brief period in 2004. Although continuing to move higher in the positive zone it is still below its level reached during the June/July rally of last year. This slight under performance is always something to be watched and considered BUT one should not dwell too heavily upon it but go with the recent action and trends. With a volume indicator in its positive zone and above its positively sloping moving average trigger line all is in place. The long term prognosis remains BULLISH.
INTERMEDIATE TERM
The intermediate term P&F chart last turned bullish at the end of Oct when it last bounced up from the support trend line. At that time we had a projection to the $715 level, just below the May top. On that P&F chart we have an up trending channel similar to that in the long term chart but with more action trapped within the channel, due to reduced unit price and reversal criteria. Most of the action since its break-out has been in the upper half of the channel. Now, it is often expected that when trapped within a channel the action will even itself out with about half of the action in the upper half and half of the action in the lower half. I would expect some lateral to slightly down side action over the next few weeks before the price makes its move into new highs. But this is more hope than anything that the charts are actually saying so take it as just a thinking out loud kind of message and not a prediction. At the present time the price can drop to the $630 to $640 range without activating a bear reversal signal.
As for the intermediate term indicators, they are a little more positive than the long term indicators. Here, the momentum is in concert with the price action and has exceeded its high set during the June/July rally high (see chart above). The price action itself is well above a positive moving average line and the volume indicator is comfortably above its positive moving average trigger line. The only mild cautionary note is that the recent price action has now hit right up against an upper resistance channel line on the candlestick chart (see short term chart below). There is nothing that says the price cannot breach this upper line but it is something to keep an eye on.
All in all, the indicators and charts all confirm a BULLISH intermediate term market action in progress.
SHORT TERM
One of the dangers of doing short term prognosis of the market and trying to guess what's to happen next is that price action of a short term nature could go up and down or down and up after the publication of one analysis and before the publication of the next a week later. The action this past week is a good example. The price plunged on Tuesday to close below the noted channel and moving average line, with the line turning down, but immediately reversing itself the following day with all the indicators following suit. Using daily data (rather than the weekly in my tables) I would have had a NEG rating on Tuesday followed by a POS rating on Wednesday. These whipsaw actions do happen and one must go with the action but you cannot go with it in a weekly commentary.
The channel shown last week has been redrawn to take into consideration the Tuesday plunge action. It's difficult to see but the short term moving average line did turn down on Tuesday and then turned up again on Wednesday. Right now we are back into a positive trend with the price action above its positive moving average line. The short term momentum remained in the positive zone throughout and is once more near, but not above, it's overbought line. The last time the momentum peaked its head inside the overbought zone was three weeks ago and although the price has moved considerably higher since, the momentum has not been able to get above that point. Other than Wednesday the short term momentum has been suggesting weakness in the price action. Although indications are for a possible reversal of short term trend, the existing trend is still bullish and one must remain so with the trend.
IMMEDIATE TERM
I have mentioned in the previous section the hazards of trying to predict short (or immediate) term trends while writing a weekly commentary. Tuesday's action reversed the immediate term trend to the down side but reversed again on Wednesday to the up side. The aggressive Stochastic Oscillator (SO) did close in the negative zone but recovered to remain in the positive. The SO has now moved into its overbought zone so we can look towards some hesitation in the price move if not a complete reversal. There is still a little more room left for the SO to move higher so I will go with the flow and expect a positive first day or two in the week.
NORTH AMERICAN GOLD INDICES
This week it is the turn of the S&P/TSX Global Gold Index to be looked at. It's called the "Global" Gold Index now because of the inclusion of several gold stocks traded on the U.S. exchanges, some of which are South African stocks.
Looking at the long term chart of the Index the first thing one notices, being used to looking at my own Indices, is the poor performance of this Index over time. From the publication of the original S&P/TSX Capped Gold Index this Index had a nice 100% run but then hit a brick ceiling and did nothing for three and a half years. Another 100% run and once more a lateral move. By comparison, ALL of the Merv's Gold Indices (and silver) are into new all time highs with the Gamb-Gold Index 15% higher than its last May high. Non of the major North American Gold Indices are yet at new recent highs. Long term momentum is also not giving us any encouragement. It continues in a lateral trend. The one bright spot in the Index is the volume indicator. It is moving into new highs and has been consistently doing so for two years now. Despite the poor Index performance there seems to be a lot of money going into these component stocks. Some of it may be due to merger activity but all of it can't be merger money. When gold is moving higher and the major Indices are not I start to worry. Too often the Indices are leading indicators of what gold is expected to do. If the Indicators are not going anywhere can gold continue moving higher?
MERV'S PRECIOUS METALS INDICES
As the gold Indices page shows, the Merv's Indices had a very good week with the Merv's Gamb-Gold Index gaining 9.0% on the week. Other than the Qual-Gold Index, the other Indices were at around the 5% gain level. The Qual-Gold Index was the laggard with only a 2.8% gain but this was in keeping with the performance of the major Indices whose gains were in the 2% to 3% range. As mentioned above, ALL of the Merv's Indices are into new all time high territory. However, the Composite Index of Precious Metals Indices is still below its previous 2006 high. This is due primarily to the lower performance shown in the various North American Indices.
MERV'S GOLD & SILVER 160 INDEX
The universe of 160 stocks had an average gain of 5.5% on the week, about double the gain of the major North American Indices. With 121 gaining stocks (76%) it was a pretty good week. The summation of individual stock ratings also improved significantly during the week. We are now at a BULL rating of 81% for the short term (62% last week), a BULL rating of 74% for the intermediate term (60% last week) and a BULL rating of 76% for the long term (67% last week). Looking at the chart of the Index and its indicators this is a simple analysis. Everything is positive for the intermediate and long term. Although the momentum indicator may be lagging the price action in both time periods they are still positive and heading higher aggressively. The intermediate term indicator has just entered its overbought zone and one might not be surprised if there was a rest period for the Index sometimes very soon.
Although the Index has moved decisively into new all time high territory there is still little evidence of over speculation of the type one might see at market tops. We did, however, have two stocks in my arbitrary plus/minus over 30% weekly move category. One was Bravo Venture Group (V-BVG) which is already in my recommendation list and the other is Rubicon Minerals (T-RMX) which is reviewed this week in the subscribers Stock Review section.
MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX
And a good time was had by all. However, the more speculative the stock, the better the party. The Qual-Gold Index advanced by only 2.8% while the Spec-Gold advanced 4.9% and the Gamb-Gold came in with a blistering 9.0%. The Gamb-Gold is rated as the best performing Index from the intermediate and long term perspective. It came in at number 2 just behind Qual-Silver for the short term. Despite its poorer performance the Qual-Gold had the largest % of component stocks closing on the up side with 83% winners. The problem was that the winners were not great winners, only so-so winners. The Gamb-Gold, on the other hand, had only 73% winners but they were mostly in the double digit.
All three Indices traded above their positive intermediate and long term moving average lines. Their momentum readings were also all in the positive for both periods. The cautionary point here is still the slight under performance of most momentum indicators. Although now above their earlier June/July highs they are still considerably below their peak of last May despite the fact that the Indices are now all above their respective peak. This is not a serious problem but does broadcast the fact that the recent rally is on strength that is less strong than the trend going into the May high. Lesser strength but still strength on the up side.
As for the summation of individual stock ratings, these all improved during the week and everything is BULLISH for all three Indices for all three time periods. The Qual-Gold and Spec-Gold Index have all their ratings well above the 80% level while the Gamb-Gold, the winner on the week, is still in the 70% range.
SILVER
Silver continues its better performance versus gold and is getting very close to breaking its previous May high. A technician would, however, consider the up trending channel shown on the chart and suggest that rather than breaking the high the most likely scenario is just reaching the high AND the upper resistance channel trend line and then reacting lower for a spell. One can see such scenario playing itself out in the volume indicator. Here we have a consistent up trending of the volume indicator but also trapped within a narrow channel. When the indicator gets close or reaches the upper resistance line everything reacts lower. That's where we seem to be once again.
MERV'S QUAL-SILVER INDEX
The Qual-Silver performed about at the average of the Merv's Indices with a weekly gain of 4.8%. The best performing Index in the short term the Qual-Gold is number 2 for the intermediate and long term (Gamb-Gold being number 1). Well into new all time highs this Index has the same problem with the momentum indicator that all of the other Indices have, i.e. under performance versus the Index performance. However, the momentum is positive for both time periods so no real problem yet.
MERV'S SPEC-GOLD INDEX
The second best performer this past week with a gain of 5.9% the Spec-Gold Index has now moved into all time high territory breaching that previous high from last May. Despite the % performance this Index had only 68% of its component stocks closing higher during the week, the weakest advancing performance of the Merv's Indices. As with the Gamb-Gold Index, it's not how many stocks advanced it's much the advancing stocks gained, and the gains here were mostly in the double digit. We have the same situation with momentum here as mentioned above for the Qual-Silver Index.
MERV'S PRECIOUS METALS INDICES TABLE
Well, I'm calling it another week.
Merv Burak,
CMTHudson Aero/Systems Inc.
Technical Information Group
for Merv's Precious Metals Central
Web: www.themarkettraders.com
e-mail: merv@themarkettraders.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 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 and their component stocks plus other publications of interest to gold investors. While at the themarkettraders.com web site please take the time to check out the new Energy Central site for the most comprehensive survey of energy stocks on the internet.Before you invest, Always check your market timing with a Qualified Professional Market Technician
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