There just seemed to be no stopping gold, and then along came Friday. Even then gold seemed to perk up near the end of the day. What next now?
GOLD
LONG TERM
Okay, where are we??? At the fall of 1979 position or at the beginning of 1980 position??
It's always so interesting going back in history and making these comparisons. But here it is almost eerie. Four times the indicator touches or goes through the 65% level followed by a 10% or more drop in gold price. Years inside a well defined channel trend lines. Years of a positive long term moving average line followed by a sudden shift to the more aggressive upward slope. A move through the upper channel trend line and then a trend that looks like it is going straight up. And finally consistently higher lows on the indicator finally broken just after the attainment of the gold top -- oops, we're not there yet.
Oh well, I needed a space filler on the long term. The recent action in gold has been so bullish that there is basically nothing to write about. I would, however, watch that long term momentum indicator (30 week RSI). We will probably get the first solid indication that the long term trend is finished when the indicator drops below the up trend line drawn through the recent bottoms. In the mean time everything is just too positive to be good.
On the long term I remain BULLISH.
INTERMEDIATE TERM
It took 5 years for gold to move the first $250 to double in price. In only the past 5 months it has almost reached another $250. That's really revving up the engines of progress. Such sharp increase in rate of move has only one result, a sharp drop. But when? That's the 64 Thousand Dollar question (I know, I should be thinking Million but I come from the era when $64,000 was still worth something). Maybe the drop has started but I don't think so. The recent move was just too strong, like as if there was very wealthy money buying, buying and buying. Although the daily volume has not been anything extra ordinary the volume indicator which shows a cumulative of daily activity is into new high ground. Momentum has moved into the overbought zone but just dropped below the overbought line on Friday.
All the intermediate term indicators are very positive so I can only remain BULLISH on the intermediate term.
SHORT TERM
This is a very strong move. One day here and one there of down side action but on the whole, up, up, up. Friday's reversal starts the brain to wonder, "Is THIS it?" From all indications, it is still nothing other than another one of those one day (or so) wonders on the down side but nothing is certain so we must keep watch and prepared for a reversal that may be more than a day or so. The short term momentum indicator (13 Day RSI) had moved into the overbought zone and quickly turned down. It is back below the overbought line and may be giving us a warning of a short term reversal of direction. The price is, however, still some distance above the short term moving average line and even further above the short term up trend line. A reversal of trend is therefore still a few days away before confirmation.
IMMEDIATE TERM
Before a short term move can change direction the immediate term trend should have already turned. So, we should try and determine if the immediate move, the next day or two, is turning or not. Looking at the chart we had a 5 week move where both the short and immediate term trends were tracking along the short term up trend line. Then, two weeks ago, the trend accelerated away from this trend line and produced a more aggressive trend. The very short term moving average line (8 DMAw) is tracking almost right on top of this trend line. Where, before, we waited for the short term trend line to be broken, now we wait for the more aggressive one to be broken. The immediate term trend remains bullish until both the aggressive up trend line and moving average have been breached to the down side. Actual confirmation of a turn will be the turning to the down side of the 8 DMAw line.
How does it look momentum wise? Well the Stochastic Oscillator, which I use for very short term strength analysis, remains very strong and inside its overbought zone. It is showing signs of weakening by moving below its "trigger" line but it has done so before. We need to wait for it to break below its overbought line and then see what it tells us then. For now, the immediate term trend remains positive.
NORTH AMERICAN GOLD INDICES
All of the major North American Gold Indices had losses on the week. This despite the fact that gold and silver had winning weeks. When we get a divergence between these two, the stocks versus the metal, we should be prepared for a trend direction change in the metals, especially if this divergence lasts for a few weeks or longer. This is especially so when viewing the metal action versus the PHLX Gold/Silver Sector Index. This Index represents the largest gold companies, those that the largest professional investors along with the Institutions are most likely to invest in. One rarely goes wrong by following the actions (not the words) of the professionals.
The AMEX Gold Miners Index shows the weekly reversal of action. Whether this is a trend change or just a short rest period, such as the Feb event, one will have to wait and see. On a shorter term chart we see that the reversal has already moved the Index below its short term moving average line and the line itself has now turned to the down side. This suggests something more than a one or two day direction change. More down side may be ahead. Although the intermediate term momentum above shows a slight weakening of strength in the latest move to new highs this weakness is more predominant on a short term chart. Although still positive the short term momentum indicator is moving aggressively lower and just about to move into the negative zone. Another down Index day would do it. All in all it looks as if the major Indices are in for some rough days (or weeks) ahead.
MERV'S PRECIOUS METALS INDICES
Unfortunately the Merv's Indices are presently only calculated at week end so I do not have short term information on their direction. The analysis of the Merv's Indices is purely using weekly data so is more attuned for intermediate and long term trends.
The average universe of 160 stocks decline on the week with the silver stocks taking the biggest hit. Of course, they were the biggest winners over the pat year so taking the biggest hit is to be expected. Looking at the weekly information it looks like the "quality" stocks and the out right gambling stocks took similar hits on the week while the speculative stocks in the middle faired not too badly. What this means, if anything, is unknown, it's just an observation.
MERV'S GOLD & SILVER 160 INDEX
The average price of the universe of 160 stocks declined 1.5% on the week. Nothing much to worry about yet. However, the ratings of this universe is starting to weaken and has turned from a short term POS to a +N rating. The other time periods are still POS but a few weeks of weakness and they will change also. The move this past week has caused the intermediate term momentum indicator to turn down and although it is still inside its overbought zone it has now crossed below its up trend line. So, although everything still looks rosy there are signs to suggest that the rosyness (is that a word?) may change soon.
As for our breadth information, we had just about twice as many declining stocks as advancing stocks on the week (34% up and 62% down). Overall the ratings declined in all time periods. We now stand at a short term NEUTRAL (BULLISH 56% last week), intermediate term BULLISH 65% (74% last week) and long term BULLISH 85% (88% last week). As mentioned some time back the ratings in the Merv's Indices got just too high and were due for a down grading. The down grading is at hand. Now to watch if the intermediate and long term ratings will drop to the point where the BEARISH ratings move above 50%. That will tell us that most of the stocks in the group are then in a bearish trend.
There were three stocks in my arbitrary plus/minus over 30% weekly move group. One was a loser and it is instructive to see how the technical information works when we have these major weekly losses. Yukon Zinc turned NEG this past week after a drop of 38.4% on the week to the $0.53 level. It was first included in my universe of 160 stocks in 23 Dec 2005 at $0.36 and was already POS. Despite the sudden drop during the week one would still be ahead 47% over a 4 ½ month period (some might call this a profit rate of 180% per year).
The best upside performer on the week was Midway Gold with a gain of 38.7%. Midway went POS the previous week so one would have caught the move just in time.
Northland Res. gained 31.7% during the week. It last turned POS in the technical ratings on 23 Dec 2005 at $0.62. It is now ahead over 200% since going POS.
The above just illustrates the importance of the tables of technical information and ratings. As often noted, the performances mentioned are for the intermediate term time period, which is my preferred time period for stock moves.
MERV'S QUAL-GOLD INDEX
The Qual-Gold Index lost 2.5% on the week, about equal to the average of the major Indices. This was at the low end of the Merv's gold based groups although the silver based groups did a lot worse. Over the past couple of weeks the long term momentum has been inside the overbought zone but has dropped back below the overbought line this week. Although far from a reversal of trend, long term or intermediate term, it does look like the sharp rise of recent history may be becoming history.
We had very bad breadth figure this week with 77% of the stocks declining and only 20% advancing on the week. The ratings are not as bad although the overall short term rating did move into the BEAR camp with a 50% rating (60% BULL last week). The intermediate and long term remain in the BULLISH camp with ratings of 72% and 83% this week versus 80% and 83% last week, respectively.
With 30 of the largest North American traded precious metal companies as component stocks this group needs careful watching for any serious change in direction.
MERV'S SPEC-GOLD INDEX
The best performing Index this past week the Spec-Gold Index lost only 0.9%. Despite the loss the Index is still showing strength with both the intermediate and long term momentum indicators just coming off new high levels, inside their overbought zones. The Index does look like it might want to turn around and move lower for a while but that should become more evident over the next few weeks.
Although still on the down side the overall advance/decline information was the best of the groups with 40% of the component stocks advancing and 57% declining. As can be expected the overall ratings moved lower during the week but still on the BULLISH side. Short term was NEUTRAL but the intermediate term was still a BULLISH 72% (85% last week) and the long term was BULLISH 88% (92% last week). The two primary periods still have a long way to go before turning bearish.
MERV'S GAMB-GOLD INDEX
The gambling stocks took a hit this past week with a loss of 2.5%, equaling the hit taken by the "quality" Index. With more than a 200% gain over the past year a losing week here and there is of little consequence. However, this loss may just be the start as we are coming off a very bullish momentum high and we have only one direction to go with the strength. We are still in the overbought zone and it might take a few weeks of poor performance before the direction actually changes but it may be coming.
We had twice as many losers on the week as gainers with 63% moving lower and only 27% moving higher. This is reflected in the overall ratings of the group with the ratings moving lower in all time periods. We are now BEARISH 52% in the short term (BULLISH 57% last week). Intermediate term rating stands at a BULLISH 67% (75% last week) and the long term at a BULLISH 93% (97% last week).
SILVER
Despite the fact that silver price recovered its previous loss and made a new high during the week, the move was associated with a very weak momentum indicator. The move just didn't have any real strength behind it and therefore the longevity of the move was very suspect. Friday was a down day and it remains to be seen if that was a start of more downside. I suspect we will see silver at lower levels before it continues on its raging bull direction. However, there is nothing to suggest at this time that we are in for an intermediate or long term trend reversal to the bear.
MERV'S QUAL-SILVER INDEX
The silver Indices were the performance bummers of the week. The Qual-Silver Index lost 4.6% on the week. Although still inside their positive zones both of the momentum indicators, the intermediate and long term, are very rapidly heading lower and both are below their overbought lines for a negative strength direction confirmation. This Index is also below its intermediate term moving average line with the line sloping downward. It is the only major Index to already be rated as NEG in the intermediate term.
Despite the negative weekly performance most of the breadth information stayed relatively constant. The advancers and decliners are the same as last week with 30% of the stocks advancing and 70% declining. As for overall group ratings, The short term BEARISH rating improved from 80% to 70%. The intermediate term rating went from a BULLISH 50% to a BEARISH 70% while the long term rating remained at its BULLISH 75% level.
MERV'S SPEC-SILVER INDEX
With a weekly loss of 4.8% the Spec-Silver Index was the over all bummer Index of the Merv's Indices this past week but when you've been ahead over 300% in the past year alone, what's a few lousy % points? Both the intermediate and long term momentum indicators have broken below strong support levels and are heading lower, although they are still inside their overbought zones. It does look like lower levels are in the future for this Index, at least for a short spell.
The breadth information continues to get weaker. We had only 28% of the stocks advancing during the week with 64% declining. This is a further weakening versus last week. As for the group ratings, they all declined. Short term has moved from a NEUTRAL rating to a BEARISH 62% while the intermediate term has moved from a BULLISH 62% to a BEARISH 50%. Long term we are still BULLISH at 88% versus last week's 94%.
MERV'S GOLD & SILVER INDICES TABLE
Click to open larger image in new window
Well that's it for this week.
