For week ending 18 February 2011
Well, it was up, up all week long for gold. However, there seemed not to be any enthusiasm behind the move and trends do not last long without enthusiasm. Maybe it will enter this coming week.
GOLD
LONG TERM
Over the past few weeks I had mentioned that my long term P&F chart gave a bear signal BUT that there was still one more support level on the chart that needed to be breached for that bear signal to have meaning. Well, as we have seen, that support has held and we have been in a rally for the past three weeks. The big question now is, is this only a rally or are we in for a new bull move? I’m not very good at predicting the future. It’s enough effort just to understand where we are right now least of all where we will be next week or month. So, where are we right now?
From a long term perspective, although it does appear as if gold has been in a several month topping and turning mode it remains above its positive sloping moving average line. The long term momentum indicator has been moving lower and lower since October but is in one of its upward turns. It is still in its positive zone and now above its long term trigger line. The trigger line has also turned upwards which is a very positive sign. The volume indicator has been moving sideways since December and is very close to breaching into new high ground. During this sideways period its trigger line has moved right up to the indicator and has flattened out but still is in a very, very slight up slope. Everything is still looking okay for the long term. The rating remains BULLISH.
INTERMEDIATE TERM
The intermediate term perspective is also okay. Gold has crossed above its intermediate term moving average line during the week and the line itself has turned to the up side. The intermediate term momentum indicator was in its negative zone for a few days but has once again crossed into its positive zone. It is also above its positive sloping trigger line. The volume indicator is slightly positive and above is positive trigger line. All in all the intermediate term rating remains BULLISH. This rating is confirmed by the short term moving average line crossing above the intermediate term line.
There are many, many technical indicators one can look at to assess where we are but these simple indicators tell us the trend, strength of the trend and interest by speculators in the trend. What more do we need? We wouldn’t be right all the time but I hope we are right most of the time. More importantly, we should not be wrong for any length of time to cause major financial losses. We do not blindly hold as the trend goes against us. That is the sign of an amateur.
SHORT TERM
The short term has been great for the past few weeks but could be coming to an end. We are inside an upward trending wedge pattern. These patterns unfortunately are most likely to be broken on the down side. The strongest move would come when the price is two thirds along its way towards its apex point. As it continues closer and closer to the apex the strength of any break becomes less and less. So, we are not yet at the strongest location should the price break below the lower support line. That would still take a couple more weeks of steady up trend within the confines of the wedge. From here, that does not look probable, so, we should get a break soon but not one that is of any great strength (or longevity).
For now the short term position of gold remains basically positive. Gold has been above its short term moving average line for over two weeks and remains above. Its moving average line remains sloping in an upward direction. As for its short term momentum indicator, well that is comfortably in its positive zone and above its positive trigger line. Only the daily volume action leaves a lot to be desired. During its entire few weeks of price rally the daily volume has remained relatively low. It had remained below its 15 day average value throughout the advance. This does not bode well for longevity of the rally. However, despite the poor volume showing the short term rating remains BULLISH with the very short term moving average line confirming by remaining above the short term line.
With events as volatile as they are in global politics I wouldn’t even try to guess the immediate direction for gold. The direction of least resistance, however, seems to be getting closer and closer to the down side. The Stochastic Oscillator remains in its overbought zone and can’t stay there for much longer. The next turn to the down side by the SO should also see gold turn lower.
SILVER
Silver continues to put in a great performance versus gold. This past week gold advanced by 2.1% while silver advanced 7.7%, almost 4 times the weekly performance. The chart shows that silver has entered new bull market highs and is heading towards its all time high in the low $40s way back in January of 1980. Depending upon the chart one uses the all time high in silver was about $41.50.
A few weeks back silver gave a P&F bear signal, however, I had mentioned a support just below the break that needed to be breached before really going bearish. That support held and silver quickly moved higher. We need to go back to the P&F chart of 17 Dec 2010 where I still had projections to $32.50 and $34.00 that were not met at that time. Well, the recent sharp rally has met the $32.50 projection. Now, on to $34.00. However, with the latest move a new projection can be calculated, to the $42.00 level, just $0.50 above silver’s all time high. One thing all these projections seem to say is that there is still more upside potential for silver.
Without going into details, one can guess that the ratings for silver in all three time periods is BULLISH.
For a cautionary note it is interesting that silver price is now butting up against the previous support up trend line, which can now be considered as a resistance line. Couple this along with weakness in both the momentum and volume indicators and we have the prospect of a reaction very soon. I would suspect that any reaction off that resistance line would not stop at the very narrow up trending channel lower support but break below it also. Just something to be aware of.
PRECIOUS METAL STOCKS
All precious metal stock indices had a good week, some better than others. The silver stocks were, of course, the better weekly performers as is noted by the Indices that have silver stocks as their major components. Although the Indices had a good week ONLY the Merv’s Penny Arcade Index made it into new all time high territory. Go pennies GO. This is one of my best indicators that the major long term bull market in precious metal stocks is not yet over and still has more to go. During the last bull market top when the major Indices (and gold and silver stocks) topped out in early 2008 this Penny Arcade Index topped out a year before the majors. I don’t expect the same year’s notice but I do expect that the pennies will top out before the universe of precious metal stocks top out and therefore we should have this advance warning.
The Penny Arcade IS weakening as far as the momentum (strength) of the recent move is concerned. Although the Index has made new highs the momentum indicator is still below its previous recent high. This is not yet a serious concern as the indicator is very strong, above the 80% level so a slight weakness is not a big deal, but it is so far a weakness in the latest move. Something to watch.
Merv’s Precious Metals Indices Table
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