Weekly Gold and Silver Technical Analysis Report - 18th Feb 2007 - Technically Precious with Merv
Commodities / Forecasts & Technical Analysis Feb 18, 2007 - 01:19 AM GMTBy: Merv_Burak
Butting heads with that $675 resistance level gold just couldn't get enough steam to get anywhere this past week. Maybe this coming week – or maybe not.
GOLD : LONG TERM On the long term P&F chart we are now at that $675 resistance level previously mentioned. Depending upon which long term chart one uses ($10 or $15 units) will depend upon what level would be considered the break-out. Since I have switched over to the $15 unit charts some time back, due to the high price level of the activity, that break-out would be on a move to the $690 level. As mentioned last week we do have a bullish upside break by gold's lower resistance break so one would be a cautious long term bull based upon that but still waiting for the next confirmation break.
As for the usual indicators, all is in sync on the up side although the price momentum (or strength) is still a little bit weak. The price action has all been above the positive sloping moving average line while the line slope is continuing to turn higher slowly. As mentioned, price momentum is positive but still a little weak. Although the price is butting up against its high of last July the momentum is still some distance below its July high. The volume indicator, on the other hand, has been reaching new highs, even higher than where it was at the time of the price May top. The long term moving average of the volume indicator has started to turn upwards but is still in the early stages.
All in all, having upgraded to the bullish side a few weeks back there is nothing yet in the action to suggest that a reversal is anywhere close, so remaining BULLISH.
GOLD : INTERMEDIATE TERM
I thought I'd show the intermediate term P&F chart along with the weekly Candlestick this week. The P&F shows the rally on-going since its last upside break at the $615 level. There was one period that things looked iffy (in the beginning of this year) but the action stayed above the P&F up trend line and did not give us the confirmation second signal required for a reversal.
We are still in the intermediate term bull market. Shown on the chart is the primary intermediate term up trend line along with the uptrend resistance line (the red dashed line). The action may be said to be trapped in this up trending channel. The latest action has taken gold very close to the upper resistance line and it is getting closer and closer to some kind of rest period or reversal action. As the chart shows, per the P&F any reversal action would have some distance to go to cause concern for a reversal to an intermediate term bear. Also on the P&F chart is that resistance level discussed earlier, at the $675 level.
This P&F action is already there and a move to $680 would break above, however, with the upper channel resistance line so close such upside break may not be meaningful as the long term would still be intact. From all this what one can guess from the P&F chart alone is that we just might breach that $675 resistance but not enough to activate the second long term P&F resistance. What I would see for the next few weeks might be more of a lateral to somewhat of a downside move but still within the shown channel. A final upside long term break would then come after such rest/reaction period.
As for the usual suspects, the intermediate term is all positive with the momentum here showing a little more strength than was shown in the long term chart. The price action has all been above a positive sloping moving average line with the line slope well established on the up side. Momentum has kept pace with the price action and in fact the recent action is just very slightly better having breached its high from the May high level. This may not be quite evident on the weekly chart but is on the daily chart. As for the volume indicator, it is nicely above its positively sloping moving average line and at new high levels for a good positive reading. The daily action, however, may be something else and I will touch on that in the short term commentary.
From all this I have no reason to change my previous bullish position on the intermediate term.
GOLD : SHORT TERM - The short term prognosis is starting to look a little precarious. For the past week or so the price action has had a rough time getting anywhere. Looking over such action and the indicators one gets the feel that we are more into a topping activity than anything else. Although still above its positive short term moving average line the price and moving average have been coming together. Trapped inside an up trending channel the action has also been moving towards the bottom support line. Price momentum is no help. It has been showing weakness in the recent price action.
Although the price has hit new highs during the past week and is higher than its action two weeks ago momentum has not been able to rise to the occasion. It has tracked a lateral motion rather than an up trending one. The daily volume action is also under whelming. As the price moved higher over the past few weeks volume has not been able to improve, although the cumulative effect of rising price along with modest volume is still positive. Based upon the recent action and indicators one must still see the short term prognosis as bullish but with a caveat. Should the action continue to “top out” and close below the short term moving average line and up trending support line, at or below the $664 level, a change in direction would be assumed.
GOLD : IMMEDIATE TERM : As the short term appears to be topping out let's look at the more aggressive indicators to see if the immediate action, like in the next day or two, seems more likely to the up side or down side.
The recent activity has been breaching the very short term moving average line (8 DMAw) but has not closed below it. A close at or below $668 would breach the moving average and turn it negative. It would also most likely breach the up trend line. The Stochastic Oscillator (SO) has been moving lower all week after a very brief flirtation with the overbought zone. All things considered, including the tried and proven concept of continuity, I am still positive on the immediate term BUT a close at or below $668 WILL reverse that to a negative.
NORTH AMERICAN GOLD INDICES : Let's take a long look at the most popular of the major North American Gold Indices, that is the PHLX Gold and Silver Sector Index. The first thing one notices from the chart on the next page is that the PHLX Index has been in a lateral trend for well over a year and there is no strong indication that such trend is about to change. Investors or speculators in derivative products based upon this Index must be really frustrated by now. But anyway, lets see what else we can spot in this chart.
I have already mentioned the lateral trend, which is represented by the horizontal channel. The long term moving average line had topped out some months ago and has gone into a very shallow down trend or more appropriately, a lateral trend. I have in the past mentioned a potential head and shoulder pattern in the Index (and other Indices). The right shoulder continues to extend but to this point one might still look at the pattern as being in effect as the action has neither broken below support or rallied above the head (the May top). As for the long term momentum indicator (150 Day RSI) it had forecast the weakness that was to follow by its negative divergence versus price action at the May top. Since then it has shown greater weakness than the price action but has stabilized lately. It has now taken on the dimensions of a lateral trend to follow the price.
This long lateral trend suggests that the Index (or more appropriately, the weighted components of the Index) are building strength for a major move. Which direction that move will take is still anyone's guess but the longer the Index stays in this lateral channel the strong the eventual move will be.
MERV'S PRECIOUS METALS INDICES
We now come to the real important stuff, MY Indices. These include the universe of 160 stocks, the three sectors and the two silver Indices. I do not cover my Merv's Gold & Silver 100 Index here but I do include it in the table of Gold Indices. The 100 Index is basically made up of the top 100 market value stocks from the universe of 160 and can be looked at as somewhere in quality between the Spec-Gold Index and the 160 Index.
Published every week is the Merv's Composite Index of Precious Metals Indices. This Composite includes the performances of all the Merv's Indices, the four major North American Indices, the four FTSE Gold Indices, several lesser North American Indices, as well as gold, silver and the US $ Index. At the present time it is a composite of 23 component Indices, each with an equal effect on the Composite with none weighted heavier than any other. The Composite Index continues to rally but is still some distance below its previous May all time high and also below its Dec high. The Index is above its positive sloping intermediate and long term moving average lines. Both the momentum indicators are positive and just keeping pace with the Index action. One can easily consider both the intermediate and long term prognosis as bullish but I would like to see the Index at least breach the Dec high for confirmation.
Once again we had a positive week in the Indices. All of Merv's Indices gained ground with the two silver Indices showing the best performance. Depending upon which Index one looks at that is 6 straight up weeks for some and 5 up weeks with a neutral week for the others. Unfortunately, whether one looks at the five or the six, so many up weeks and the total performance has been relatively weak compared to prior times when we have had such a straight positive performance. This starts to make one wonder about the longevity of the present rally and bull.
MERV'S GOLD & SILVER 160 INDEX
The 160 universe gained 1.6% on the week, which was par for the Indices. Although the universe continues to rally and is above its Dec high it is still a very, very minor amount below its all time high set last May. The Index is above both its intermediate and long term positively sloping moving average lines. Both momentum indicators are well into positive territory but are under performing the Index price action. While the Index is some distance above its Dec high the momentum indicators are only equal to their Dec highs (give or take a very minor %). One must consider both trends as being still bullish BUT one cannot dismiss the cautionary signal being given out by the momentum indicators.
The advancing and declining issues were almost even during the week with the advancers just slightly in the lead with a + 51% to - 46% ratio. The overall summation of individual ratings changed only slightly during the week with all three time periods in the BULL camp with the short term at 62%, the intermediate term at 60% and the long term at 67%.
Over speculation is still nowhere in sight as there were no stocks in my plus/minus 30% weekly performance category, although Sabina Silver came close with a 29.6% gain. Sabina last turned POS in my intermediate term ratings on 03 Nov 2006 at $1.32. It is now ahead by 126%.
MERV'S QUAL-GOLD INDEX: MERV'S SPEC-GOLD INDEX : MERV'S GAMB-GOLD INDEX
The three gold sector Indices came in with almost identical performances this past week with gains of 1.6% and only the Spec-Gold coming at 1.5%. The Spec-Gold has now moved into new all time highs leaving only the Qual-Gold below its all time high, although only very slightly below. Gamb-Gold moved into its all time highs a few weeks back. This may sound very positive BUT there is a cautionary feature to these moves.
Of the three Indices only the Gamb-Gold momentum indicator is above its Dec high. The other two are still below their Dec highs. Of greater concern, although the Indices are making new ALL TIME highs (Qual is just about to) their momentum indicators are far, far below their previous highs set last May at the time of the Index previous all time high. This under performance has all the indications of becoming a negative divergence warning which too often precedes a trend reversal. This is something that needs to be watched.
During the week the advancing issues (+) and declining issues (-) look like this; Qual-Gold +70% and -30%. Spec-Gold +50% and -50%, Gamb-Gold +47% and -40%. The summation of individual ratings changed very little during the week and no BULL or BEAR rating was changed so I'll leave the details for next week when we might have some changes to show.
SILVER
I had shown the chart for silver last week. There is no real change to the chart. The activity during the week was almost neutral although silver did close with a weekly gain of 0.5%. I'll bypass commentary this week.
MERV'S QUAL-SILVER INDEX
The 10 stocks in this Index had a pretty good week with a gain of 2.4%. This pushed the Index even higher into new all time high territory. As with the Gold Indices, the Qual-Silver momentum is under performing the Index. Momentum is still far, far below the level it was at during the May high. Caution is advised.
MERV'S SPEC-SILVER INDEX
The Spec-Silver Index had the best performance of all Indices this past week with a gain of 3.6%. Sabina (see above) is in the Index as are three others with double digit gains. Despite its performance the Spec-Silver Index has only this week moved into new all time highs and then only by a hair. Momentum, as with all of the Merv's Indices, is a bummer. The next several weeks might be very interesting.
MERV'S PRECIOUS METALS INDICES TABLE
That's it for this 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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