Four days down, one day up, not the makings of a new bull trend. Gold broke its up trend but silver has not. Maybe there is something to silver being the better bet.
GOLD
LONG TERM
I thought I'd just show the $10.00 unit chart once more, after all I have been using this chart for years so it's instructive to go back every now and then to see what it would have told us. At the present price levels the $15.00 unit chart is still the more appropriate one. As with the $15 chart once the trend broke down and confirmed a bear signal it has stayed that way since. On a couple of occasions the action was close to breaking up but that was about it, close. We see a very strong P&F resistance level at the $670 price requiring $680 to break on the up side. The latest direction, however, is going the wrong way. At the break this chart projected down to the $490 level. The $15 chart projects to $480 but that is simply due to the units used. Both projected a $240 drop from the top. We'll have to just keep watching to see if the projections will be met. In the end, projections are only a GUIDE, not a certainty. One should never continue holding stock until a projection is met, regardless of the method used for the projection. It is only a guide. Use the on-going daily or weekly action and the indicators that go along with them for your buying/selling decisions.
As for our normal indicators, well they are still telling us a different story. The price is still above its positively sloping moving average line, in fact it is sitting almost right on top of it. Going to the more popular 200 DMA (simple MA) the price is still some distance above. From the strength stand point the price momentum is still in the positive zone but heading lower fast. It is below its "trigger line" and would be classified as - POS. The volume indicator continues to confirm the price action.
Putting the P&F together with the normal indicators we continue with that mixed message we have had for weeks. Because of this mixed message I will continue with my NEUTRAL stand until a clearer picture is provided between these two methods. Another week or two like this past one and that clearer picture may be confirmation of the P&F, but let's not get ahead of ourselves.
INTERMEDIATE TERM
Although the daily chart is probably a little more accurate to use (and my analysis is based upon the daily) I show the weekly chart so that subscribers can compare the weekly action in gold from the start of 2005 versus the action in the various Merv's Indices found in the subscriber's section. But first the intermediate term P&F chart. In my 28 July 2006 commentary I showed the latest intermediate term P&F chart. It showed a bull move starting in 2001 and continuing, unlike the long term chart which broke to the bear side in June.
DANGER, DANGER. The intermediate term P&F chart is in a very precarious position today. A move to $610 will cause the trend to break below this long standing up trend line and signal an intermediate term bear. The low for Friday was $610.20. That was close. There is a support at the $605 level so we'll just have to see how things turn out. The short and immediate term analysis should give us a better idea whether the trend will turn bearish or not. In the mean time let's see what the normal suspects are telling us as far as the intermediate term position is concerned.
The action is within one of those whip-saw areas that I mentioned some time back. The price keeps moving above and below its moving average line and the line keeps turning up and down in rhythm with the price. The price is now below the moving average line and the line has turned down to follow. The price has broken below the up trend line of the triangle mentioned and shown last week (see also the short term chart). We still have a support just above the $600 level that needs to hold. The intermediate term momentum has just broken below its neutral line for a negative reading. The volume indicator is sitting on top of its moving average line but heading lower real fast.
From the basic indicators I must go BEARISH and consider that the P&F chart will do likewise, probably on Monday or Tuesday.
SHORT TERM
Although we are still in that "whip-saw" area and might remain there for some time yet, the chart does not provide any good feel that that is where we are heading, i.e. a continuing lateral trend. From the short term perspective the price is already below its moving average line and the line is following right behind. Price momentum (the 13 Day RSI) has moved into the negative zone with its moving average line sloping downward for a - NEG rating. And the volume indicator (not shown) is below its moving average line and heading lower. Volume of activity has been drying up for many months now (the red dash line is the 100,000 daily volume level). Every two months the activity peaks but the past few times (March, May & July) the peaks have been lower and lower. As for the activity between peaks that too has trended lower and lower. Professionals are just not that interested in gold and have been showing their continual disinterest for some months now. There will no doubt come a time when this will change and we will be into a new bull market but not today. Shown on the chart is the break below the triangle pattern and a short term down trending channel. This channel will most likely be broken very soon as it is very tight but I just thought to show it anyway. One might get some encouragement from Friday's action which might be seen as a reversal day. Otherwise, the trend is down and continues.
IMMEDIATE TERM
The trickiest analysis to provide, but them that doth not knowith what they talketh about are not loath to talketh anywho.
We are in a decline in the market with the price below its very short term moving average line and the line pointing lower. The aggressive Stochastic Oscillator is negative but has entered its oversold zone. This is a precursor to a possible trend reversal or at the least, a change to the lateral. In the past, although the SO often stayed in its overbought zone for some time it is not that often that it stays in the oversold zone for long. However, the period during May and June was an exception.
Going with the trend in motion the period early in the week should see further declining action. One positive, as mentioned above, is the Friday action which could be taken as a one day reversal action but I'll wait for the reversal to happen.
NORTH AMERICAN GOLD INDICES
Well, I guess it's time to look in on the Canadian S&P/TSX Capped Gold Index.
The S&P/TSX Index looks much like any of the gold Indices but they all seem to have minor differences in their chart patterns over the past several weeks. This Index has a rising wedge pattern. Unfortunately, this pattern is most likely to result in a break on the down side. This would go along with most of the gold analysis which is either bearish or trending in that direction. The normal trend and strength indicators ARE, however, still positive for the S&P/TSX. We can see the recent price action taking place above both its intermediate and long term moving average lines and both lines are pointing upward. On the other hand, momentum, although still positive, is inching its way lower towards the negative. At this point it's a battle as to which way is going to win but I'll place my bets on the down side.
MERV'S PRECIOUS METALS INDICES
Twice a year I give the various Merv's Indices a complete look over to see if any deserve to be deleted and to see if the various Sectors need to be updated. Such a look see was done during the past week. These Indices ARE NOT MANAGED PORTFOLIO'S and therefore I do not necessarily remove a stock just because it has changed from a bull to a bear (and make the Index look better). The changes this time around were more cosmetic than anything. The three Indices whose component stocks are fairly well defined are the Qual-Gold Index (the 30 largest market value stocks traded on the North American markets), the Spec-Gold Index (the next 30 largest market value stocks) and the Merv's Gold & Silver 100 Index (the top 100 market value stocks in the overall universe of 160). These had stocks shifted around based upon their market values as of last Friday's close. The next overall review will most likely be during the year end period. As for the Gamb-Gold Index, there were a few changes to better reflect gambling stocks that may be on the verge of moving. These are usually taken from the bottom 60 stocks in the 160 universe. The Qual-Silver and Spec-Silver Indices remained untouched this time around. I am looking to either change or increase the Spec-Silver Index but that might require a further overhaul of the universe of 160, which is not in the cards until year end.
During the week two of my speculative gold Indices actually advanced on the week. All others declined in keeping with the rest of the market. The Spec-Silver Index was the worst performer with a 3.5% decline.
The Merv's Composite Index of Precious Metals Indices has an interesting pattern developing. As with the S&P/TSX Gold Index (see above) we are developing a rising wedge pattern. As mentioned in the previous section this pattern, unfortunately, is prone to break on the down side and continue to new lows. Although the intermediate and long term indicators are all still positive they all are very close to breaking on the down side into negative territory. Another week such as this one and we should see some bear signals given. In the mean time both time periods can be most accurately rated as NEUTRAL to + NEUTRAL.
MERV'S GOLD & SILVER 160 INDEX
There had not been any stocks added or deleted from the universe during this look see effort. We continue with the stocks we have had except where some have been taken over, merged or stopped trading.
The average of the 160 stocks showed a decline of 0.7% during the week. This may not sound like much but it represents declines for 61% of the component stocks with only 31% advancing. With such difference in advances versus declines one might have expected a greater % Index decline but that's the way it went. The overall BULL/BEAR rating for the 160 component stocks shows that for all three time periods we are in BEAR territory. The short term is 53% BEARISH, the intermediate term is 51% BEARISH and the long term is 59% BEARISH. Not yet too bearish but the direction has been steadily more bearish and less bullish.
Looking at the chart for the Index we see little change from last week. The Index is still above both its moving average lines. The long term line is still positive while the intermediate term line is still very slightly negative. The momentum indicators are also still positive although the intermediate term is very, very close to going negative. Although one might rate the long term as BULLISH it is not overly so and is heading towards the negative. The intermediate term can be rated as NEUTRAL but also heading towards the negative.
With the universe of 160 in a bearish mode and with the direction towards more bearishness this is not the time to be risking investment or speculative capital. This is a time only for the gambler.
Over/Under 30% Weekly Performance
There were two stocks that qualified for my arbitrary weekly above/below 30% performance. These two stocks were Bravo Venture with a weekly gain of 35.4% and St. Elias Mines with a weekly gain of 34.5%. I had suggested St. Elias to my subscribers as a "bottom picker" stock last week. Bravo Venture, is however, one of my three recently recommended gambles and is ahead 55% since issuing a buy 3 weeks ago.
MERV'S QUAL-GOLD INDEX
MERV'S SPEC-GOLD INDEX
MERV'S GAMB-GOLD INDEX
Little has changed with these three Indices since last week despite the difference in their weekly performances. The Qual declined on the week by 1.2% while the other two Indices advanced, the only advances in the Gold Indices Table. The Spec-Gold Index advanced 0.7% while the Gamb-Gold Index advanced by 0.8%. Small advances but still advances. All three had the majority of their component stocks declining on the week continuing a negative drift in performances of gold and silver stocks. There were only minor changes in the indicators but those changes drifted towards the negative side. For this reason I am downgrading the ratings, based upon the chart readings, for each Index. I now have a + NEUTRAL rating for the long term of all three and for the Qual-Gold intermediate term. For the Intermediate term of the other two, the rating becomes NEUTRAL.
As can be expected the overall individual BULL/BEAR ratings have moved further towards the negative during the week. We'll visit these again next week.
SILVER
Silver continues to act stronger than gold and actually advanced on the week. Unlike gold, silver is still above its up trend line established from the June low. As the chart shows, silver is still solidly captured within an up trending channel and as long as it stays above $11.75 it is in no danger of turning down. One must, however, admit that although the price looks great the momentum, a show of strength, leaves a lot to be desired. Momentum is very weak above its neutral line and does seem to be heading back towards the negative. Unless more strength enters into the silver trading we are more likely to see this metal once more drop into the bearish camp.
MERV'S QUAL-SILVER INDEX
Although the Index had a 0.4% decline on the week it remains one of the best acting of the Merv's Indices. Its actions since the initial severe plunge mirrors that of silver itself. Unlike silver the intermediate term strength is somewhat better than reflected by silver. From all indications if one MUST BE in the market then the quality silver stocks are probably your best bet, at least at this time.
MERV'S SPEC-SILVER INDEX
Moving from one end of the spectrum to the opposite end we have the Spec-Silver Index. The Spec-Silver Index was the worst performer of the week with a decline of 3.5%. Unlike the Qual Index, this Index is also one of the worst performers since its top in April. It is the only Merv's Index not to have made a new rally high in recent weeks. The fabulous 320% one year advance from May 2004 to April 2005 is now playing in the opposite direction. When this will end and the action reversed is anyone's guess but when it does I would expect a similar performance going forward at THAT TIME, but not necessarily from the same stocks that moved the first time.
MERV'S PRECIOUS METALS INDICES TABLE
Click to open larger image in new window
Well. I think I'll close for this week.
