Monday, July 11, 2011

Technically Precious with Merv

Everything looked rosy this past week but now the question, “will it stay that way?” Time will tell but the latest action is getting into a decision making area. Let’s see how gold ended the week.



First, let’s see what the long term P&F chart is telling us, if anything. I had used a $15 unit chart for the long term in the past but the action has taken us higher to the point that a $15 unit chart is not appropriate any longer to represent the long term. I have increased the Unit price to the $25 level. Today’s P&F chart shows the bull market from the late 2008 lows to the present. Also shown on the chart are price projections at significant price break-out locations as time progressed. Up and down trend lines are shown as is the resistance up trend line. Heavy lines are primary while the thinner lines are secondary. My simple criteria is that for the bull market to reverse into a bear market (P&F wise) requires a break below two previous lows AND below the primary up trend line. The reverse is true to go from a bear to a bull trend. The price projections are based upon the horizontal count method although a couple are of the vertical count method. I wouldn’t go into a detailed explanation here, it would take too long for a weekly commentary post.

Before checking where we are at the present time on the P&F chart I’ll just highlight a couple of items. First, we did have a reversal to the bear at the $1050 level which turned out to be a false signal. This was quickly corrected on the move to $1175. The second feature to highlight is the resistance up trend line (thin red line). The action has stayed at or below this resistance line for most of the move since the new bull started in late 2008. The few times it over reached and broke above the resistance line gold quickly reversed and dropped back below the line. This is a feature of P&F charts often ignored but is an important feature.

Now, where are we on the P&F chart? We are into a lateral box pattern of the kind that Nicolas Darvas followed to make his millions in the 1960’s (he might have made even more money from his book “How I Made $2,000,000 in the Stock Market). Not bad for a professional dancer. A move to $1600 would break out of the box and provide, as Darvas would predict, a new buying opportunity. On the other hand should gold move to $1450 that would be a bearish break and another kettle of fish. From my P&F criteria there would still need to be a break below that primary up trend line for a P&F bear signal so let’s wait to see which way the flow goes. For now the long term P&F is still bullish.

Back to our normal analysis.

Trend: Gold remains above its positive sloping long term moving average line with no immediate sign of trouble.

Strength: The long term momentum indicator remains in its positive zone and has closed above its trigger line. The trigger has also just turned to the up side.

Volume: The volume indicator continues in an upward trend almost entering into new all time highs. It continues above its positive sloping trigger line.

The long term rating remains BULLISH.


The gold action during the week has improved the position of gold from the intermediate term perspective.

Trend: Gold closed the week above its intermediate term moving average line and the line has turned to the up side.

Strength: The intermediate term momentum indicator continues in its positive zone and closed the week above its positive sloping trigger line.

Volume: The volume indicator remains positive and above its positive trigger line.

On the intermediate term the rating has once more turned to the fully BULLISH side. This bull is not yet confirmed by the short term moving average line, which remains slightly below the intermediate term line.


After a down side break from a Head and Shoulder pattern it is not unusual for the price to rally back towards the neckline before continuing on its downward path. We are in one of those rallies. Now the greatest concern is that it will be only a rally and not a bullish move negating the head and shoulder break. My analysis is from the standpoint of where we are at this point in time and not a prediction of where the market will be tomorrow, the next week or the next month. As a market follower I let the market tell me where it’s at.

We have an intermediate term Bearish Decelerating FAN trend lines. As often mentioned, when we get one of these patterns the breaking of the second FAN trend line is the reversal signal while the breaking of the third FAN trend line is a trend reversal confirmation. We have the reversal but not yet the confirmation. This goes along with last week’s intermediate term bear rating but does not yet confirm the reversal back to the bull side. A move back into the area between the first and second FAN trend lines would negate the FAN bear signal.

Trend: Gold has once more closed above its short term moving average line and the line has turned to the up side.

Strength: The short term momentum indicator has moved back into its positive zone above its positive trigger line.

Volume: The daily volume action remains low and is a worry. I like to see the volume activity perk up on the up side, which would be the normal action during a bull move.

On the short term the rating has once more turned to the BULLISH side. This is confirmed by the very short term moving average line closing above the short term line.

As for the immediate direction of least resistance, I’m going with the lateral direction. Although the latest moves in the gold price have been to the up side and the Stochastic Oscillator has been zooming upward things have gotten just too good too fast. The price is now up against the FAN resistance line and the H&S neckline (both basically the same lines) while the SO has entered its overbought zone. Being in the overbought zone just indicates that the trend has been a strong one BUT what we look for is for the SO to weaken and move below its trigger line and below its overbought line. That would suggest a weakening in very short term momentum BUT that has not happened yet. It does look like the SO has reached a high and may be in a turning mode but that might still be a day or two away, so lateral is the best guess for the next day or two.


Silver has been a bummer for some time now but this past week was a good one with silver weekly performance outdoing gold by 8.4% to 4.0% (see the Table below). So where has that left silver at the Friday close?


The long term P&F chart for silver is telling us that silver price was way overdone and has now come back to earth. It remains above its long term up trend line and is boxed in into a horizontal trend for now. That would change, P&F wise, with a move to either $40 for a new bull trend continuation or to $32 for a bear reversal. But let’s see what the normal indicators are telling us as to where silver is at this time.

Trend: Silver dropped below its long term moving average line last week but is once more above the line. The line itself continues in an upward slope.

Strength: The long term momentum indicator remains in its positive zone but had been below its trigger line last week. As with the price, the momentum has moved above its trigger line and the trigger has turned back to the up side.

Volume: The volume indicator has been moving sideways since May but in general has stayed above its trigger line. It remains slightly above the trigger and the trigger remains slightly in an upward slope.

All in all, the long term rating at the Friday close is BULLISH.


Trend: Since the May plunge silver has been tracing a lateral path but continually below its negatively sloping moving average line. It closed on Friday just below the line.

Strength: The intermediate term momentum indicator has also been tracing a lateral path since the May plunge. This path has been along its neutral line with the indicator bouncing around above and below the line. On the Friday close the indicator closed above the line and above its positive sloping trigger line.

Volume: As with the long term the volume indicator has been moving sideways but here it has been bouncing above and below its trigger line. On the Friday close the indicator ended above the line and the line remains in a positive slope.

For the intermediate term the silver rating has improved but only to the – NEUTRAL level, one step above a full bear. The short term moving average line remains below the intermediate term line confirming that we are still not in bullish territory yet.


On the short term things are brighter.

Trend: Silver closed the week above its positive sloping short term moving average line.

Strength: The short term momentum indicator has moved into positive territory and is at its highest level since the plunge of early May. It is above its positive sloping trigger line.

Volume: The daily volume action is the real concern here. During an upward move it is a normal action to see the daily volume increase with the rise in price. We do not see that here. Speculators seem not to be too convinced that silver is ready for a new bull move, at least not yet.

Despite the concern raised by the poor volume action the short term rating ends up to be BULLISH, confirmed by the very short term moving average line closing above the short term line.


It was a very good week for the precious metal stocks but from a long and, to a great extent, intermediate term we still do not have a trend reversal confirmed. The Table below provides us with ratings for the various Indices for the intermediate and long term. I also have additional ratings that I follow for my universe of 160 stocks. The overall BULLISH/BEARISH percentage shows the short term at a 77% bullish rating for the 160 stocks while the intermediate term shows only a 43% bullish and the long term a 30% bullish rating. More work is required before the overall % ratings go into a full bull area.

I was going to show the Merv’s Penny arcade Index this week but I already have three Indices and some sites that allow my commentaries to be posted have limitations on how many charts I can provide per post. I’ll show the Index next week.

Merv’s Precious Metals Indices Table

Well, that’s it for another week.

Merv Burak, CMT


DECLINE AND FALL OF THE AMERICAN EMPIRE : Military overspending and overreach, an untenable economic system, and currency debasement all played a role. As has been well documented, the Roman emperors attempted to distract the populace from the increasingly dire reality of their situation by providing bread and circuses. But entertainments could not stop the nation-state from yielding to the pressure of its own weight. When will liberal hacks learn that Obama is no different than Bush or CLinton. He has either continued or expanded every controversial policy of the Bush administration. GITMO, Rendition, the Patriot Act, continued and expanded wars in Iraq and Afghansitan, increased national debt, reduction of the middle class, more and more people on government tit. It would not surprise me if we are still waterboarding people. This is the largest transfer of wealth in a single transaction that the planet has ever known. Our representatives are patting themselves on the back, they finally acted in a responsible manner, no? they just enslaved the american working class for at least 5 generations to an over realistic tax burden and a runaway inflation that will drive the standard of living down to the level of poverty for more than 70% of the population. high speed internet, satellite tv, vacations, health care...... soon to be out of our reach now that we
have been raped by our own representatives for the sake of a faceless elite. what to do?

Stocks Ready To Breakout: NVTL, AAPL, AGU, STEC, TKLC

( click to enlarge )

Novatel Wireless, Inc. (NASDAQ:NVTL) presents a potentially lucrative opportunity with several technical indicators suggesting it could make a big run next week. If the resistance is as light as it appears, early entrants could yield strong gains. On a technical note, up/down volume pattern indicates that the stock is under Accumulation. The 50 day Moving Average is rising which is Bullish. In addition, Moving Average Convergence/Divergence (MACD) indicates a Bullish Trend. In the past few sessions, I have noticed extreme consolidation but not on large volumes. So, since it is trading at its support levels, there is an increasing likelihood to witness an increase in market valuation. The stock is currently close to resistance from the descending trendline starting in February. A break and close above should open the way to $6.42. Watch NVTL trade since it could spiral upwards.

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Apple Inc. (NASDAQ:AAPL) stock looks good from a technical perspective. The stock’s 200-day SMA is rising which indicates the stock will trend higher. The up / down volume pattern indicates that the stock is under accumulation, meaning big institutions and large investors are buying up the stock. AAPL is acting very good and poised to clear the $365 area.

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Agrium Inc. (NYSE:AGU) - Watching for $90.55 breakout on a good intraday setup.

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STEC, Inc. (NASDAQ:STEC) - Technical indicators are displaying good signs. Buy at the break of $18.45 and target $21.70. Stop below $15.85.

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TEKELEC (NASDAQ:TKLC) - A break and close above $9.27 would be a longer term bullish sign for the stock.

These Indicators Suggest S&P 500 Overvalued In Excess of 40%!

4 Market Valuation Indicators Suggest S&P 500 Overvalued 34% to 61%!

The S&P 500 is considerably overvalued - somewhere in the range of 34% to 61% – depending on which of 4 market valuation indicators are used and whether the valuation is based on the arithmetric or geometric mean of each. While these findings are not useful as short-term signals of market direction…they play a role in framing longer-term expectations of investment returns and suggest a cautious outlook and guarded expectations. [Here are the details.] Words: 676

So says Doug Short ( in excerpts from an article* which Lorimer Wilson, editor (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Short goes on to say:

The 4 market valuation indicators I follow and are used in this analysis are:

  • The Crestmont Research P/E Ratio (more)
  • The cyclical P/E ratio using the trailing 10-year earnings as the divisor (more)
  • The Q Ratio, which is the total price of the market divided by its replacement cost (more)
  • The relationship of the S&P Composite to a regression trendline (more)

[To facilitate comparisons I have plotted each market valuation indicator on the graph below to show the trend of each and the consistency, or lack thereof, of one to the other going back to 1900.] I have adjusted the two P/E ratios and Q Ratio to their arithmetic means and the inflation-adjusted S&P Composite to its exponential regression. As such, the percentages on the vertical axis show the over/undervaluation as a percent above mean value, which I’m using as a surrogate for fair value. I have also plotted the S&P regression data as an area chart type rather than a line to make the comparisons a bit easier to read which reinforces the difference between the line charts — which are simple ratios — and the regression series, which measures the distance from an exponential regression on a log chart.

Click to View

The chart below – which differs from the one above in that the two valuation ratios (P/E and Q) are adjusted to their geometric mean rather than their arithmetic mean (which is what most people think of as the “average”) – shows the range of overvaluation of the S&P 500 somewhere in the range of 40% to 61%. The geometric mean weights the central tendency of a series of numbers, thus calling attention to outliers.

In my view, the first chart does a satisfactory job of illustrating these four approaches to market valuation, but I’ve included the geometric variant as an interesting alternative view for the two P/Es and Q ratio.
Click to View


The above indicators aren’t useful as short-term signals of market direction – periods of over and under valuation can last for years – but they can play a role in framing longer-term expectations of investment returns. At present they suggest a cautious long-term outlook and guarded expectations.

Several Inconvenient Truths About The Debt Ceiling And "Deficit Reduction"

Bill Buckler presents an amusing compendium of facts, let us call them inconvenient truths, in the latest edition of his newsletter, some of which would make for entertaining anecdotes if presented at the Biden "deficit cutting" talks, which also, and very paradoxically, aim to cut US debt by increasing it.

  • Not one penny of US debt has been repaid for 51 years: the last time US government funded debt actually decresed on a year-over-year basis was 1960
  • 97% of today's funded debt has been accumulated since August 1971 - the end of the Bretton Woods era by Nixon, and the terminal delinking of all fiat currencies from any and all hard assets, ushered in the era of modern-day hyper-debt insolvency
  • Obama projects 2.5% Fed Funds rate in budget calculations through 2020. Average Fed Funds rate since 1980: 5.7%; Since 2008: 0.00%, If average 5.7% rate was used, projected US deficit would increase by another $4.9 trillion by 2020
  • Obama projects 4.2% growth rate over next 3 years. If a normal growth rate of 2.5% is used, deficits would increase by another $4 trillion by 2020
  • The US government borrows 40-50 cents for every dollar it spends. A balanced budget would mean cutting government spending in half.
  • Implementing a balanced budget would not reduce current debt outstanding. It would merely stop it from growing.
  • Over the past three fiscal years US debt grew by over $1.5 trillion per year: this is more than three times the record annual debt increase in any previous year in US history
  • Last night deficit reduction targets were cut from $4 trillion to $2 trillion over the next decade, in exchange for a $2.4 trillion debt ceiling hike, which will last the Treasury until the next presidential election. Said otherwise, the Treasury needs to fund a $2.4 trillion hold over the next 15 months. Over a decade this come to $20 trillion: ten times more than the proposed deficit reduction.

And the most inconvenient truth of all:

The Global Financial Crisis (GFC) is said to have been precipitated by the Lehman failure in 2008 which froze inter-bank lending on a global basis and almost brought down the system. It is said to have been prevented by a massive and global increase in new money creation. In reality, had economic nature been left alone to take its course, there is a good chance that the world would be fast emerging from its financial black hole by now. At a minimum, most of the malinvestments would have been discounted to the point where they would no longer act as a dead weight on future savings and investment.

Economic “miracles” (so-called) have happened before. The US emerged from a deep recession in 1920-21 because the government and the central bank did NOT interfere. Germany emerged from the actual physical rubble of WW II for exactly the same reason. So, to a lesser extent, did Japan. In all these cases, debts which could not be repaid were not held on life support by central banks, they were written off. In all these cases, creditors took very severe “haircuts” indeed while many debtors literally had to start again from scratch. In all these cases, the LACK of government impediments or government largesse meant that a recovery took place in a much shorter time frame than would otherwise have been the case.

Economic distortions today are HUGELY bigger than they were then. That means that the recession will be deeper and the recovery phase possibly longer. But until it is allowed to begin, there is no way out.

None of the above will be noted anywhere by the great diversionary media spin machine over the next two weeks, since July 22 is the date by which Congress says it needs to pass the debt ceiling legislation so it can get it to Obama's desk for his signature by August 2.

IMF Chief Predicts 'Real Nasty Consequences'

Christine Lagarde, IMF Chief, Asks U.S. To Raise Borrowing Limit

Imf Borrowing Limit


WASHINGTON -- The International Monetary Fund's new chief foresees "real nasty consequences" for the U.S. and global economies if the U.S. fails to raise its borrowing limit.

Christine Lagarde, the first woman to head the lending institution, said in an interview broadcast Sunday that it would cause interest rates to rise and stock markets to fall. That would threaten an important IMF goal, which is preserving stability in the world economy, she said.

The U.S. borrowing limit is $14.3 trillion. Obama administration officials say the U.S. would begin to default without an agreement by Aug. 2.

Lagarde, who took over as managing director July 5, also addressed the fallout stemming from the sexual assault charges filed against her predecessor, Dominique Strauss-Kahn.

Strauss-Kahn resigned in May after he was accused of attacking a hotel maid in New York City. He has denied the charges. New York prosecutors have admitted in recent weeks that their case has weakened and that the accuser has lied about many aspects of her background.

Lagarde, a former French finance minister, told ABC's "This Week" that the scandal caused "a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness" among the IMF's 2,500 employees.

Lagarde said she would be on her "best behavior all the time."

"When it comes to ethics and whatever I do, I always think to myself, would my mother approve of that," she said. "And if she did not, then there's something wrong."

President Barack Obama and congressional leaders from both parties planned to meet Sunday evening at the White House to resume negotiations on a debt deal.

Record One In Six On Food Stamps As Depression Escalates

While the mainstream media has all but convinced most Americans that the nation is slowly climbing out of the "recession," new statistics released by the US Department of Agriculture (USDA) suggest otherwise. According to just-released participation numbers for the agency's Supplemental Nutrition Assistance Program (SNAP), known more commonly as "food stamps," nearly one in six Americans now participates in the program, which represents a new record high.

Rising from 14.3 percent of the US population participating in the program back in February (, the new numbers are a bit shocking when considering how many of these new enrollees actually are. It is not simply the very poor and chronic abusers that are taking advantage of the program -- many former middle class families now struggling just to get by are having to sign up for government food assistance.

According to the numbers, a record 44.647 million people are now enrolled in SNAP, up from 44.587 in May. Meanwhile, the average monthly benefit payment per household has dropped, and is now at a post-April 2009 revision low of $282.38 a month.

According to recent figures, 7.41 million people are now receiving state and federal unemploymentbenefits, which implies an unemployment rate of about 9.1 percent. Though upon first glance this appears to be lower than average unemployment rates throughout the past several years, these figures fail to take into account those that are underemployed and not receiving benefits, as well as those that have reluctantly taken part- or full-time jobs that do not pay nearly as much as those same workers were earning previously.

As opposed to the U-3 unemployment rate of 9.1 percent, the U-6 rate, which takes into account the aforementioned factors, is actually teetering at almost 16 percent as of May figures -- and in 2009, that rate was over 17 percent. This is nearly double the stated rate that is constantly repeated in mainstream news, and yet it is the more accurate figure that aligns with the true condition of the nation, and the subsequent increases in food stamp participation.

US Economic Calendar For The Week

None scheduled
7:30 amNFIB small business indexJune --90.9
8:30 amTrade balanceMay -$44.5 bln-$43.7 bln
10 amJob openingsMay --2.97 mln
2 pmFOMC minutes6/22
8:30 amImport price indexJune-0.7%0.2%
10 amBernanke testimony
2 pmFederal budgetJune ---$68.4 bln
8:30 amJobless claimsJuly 9 420,000418,000
8:30 amRetail salesJune-0.2%-0.2%
8:30 amRetail sales ex-autosJune 0.0%0.3%
8:30 amProducer price indexJune -0.4%0.2%
8:30 amCore PPIJune 0.2%0.2%
10 amInventoriesMay 0.8%0.8%
10 amBernanke testimony
8:30 amConsumer price indexJune -0.2%0.2%
8:30 amCore CPIJune0.2%0.3%
8:30 amEmpire state indexJuly5.0-7.8
9:15 amIndustrial productionJune 0.5%0.1%
9:15 amCapacity utilizationJune 76.9%76.7%
9:55 amConsumer sentimentJuly 71.371.5