Technically Precious with Merv

Gold Bounce Goes Nowhere

Well, the gold bounce went nowhere, momentum and volume action were unimpressive. So, what’s next? I would suspect more downside action before things settle down, consolidate and then move back into new highs. But that’s only a hope, not a prediction; unless it happens in which case it was a prediction. An analyst’s first priority is to write in such a way as to be able to say “I told you so” regardless of what happens.

GOLD : LONG TERM

From the long term perspective gold is still not in much danger of a major trend reversal. The price is heading lower but is still some distance above its positive sloping moving average line. The momentum indicator is also moving lower and is already below its negative sloping trigger line, however, all this is still happening well inside the positive zone suggesting weakening but not reversal. As for the volume indicator, it seems to be more into a lateral trend and remains above its positive sloping trigger line. So, as far as the long term rating is concerned, at this point in time it remains BULLISH.

INTERMEDIATE TERM

The intermediate term is still in positive shape but much closer to a possible reversal than the long term. Here, gold touched my intermediate term moving average line the previous week and bounce up. That bounce did not go far and it looks like gold may be ready to take another tumble on the down side. For now it is still above its positive sloping moving average line. As for the intermediate term momentum indicator, it is moving lower but remains above its neutral line in the positive zone. It is, however, below its negative sloping trigger line. The volume indicator remains positive above its positive sloping trigger line but not that much above. A few days of negative action and it just might move below the line. Today, the intermediate term rating remains BULLISH. This is confirmed by the short term moving average line remaining above the intermediate term line. Here too things could change with a few days of negative action.

SHORT TERM

As we see from this week’s chart the bounce did not last long. For those who look for such things the bounce looks very much like a 50% retracement of the previous plunge. Nothing about the bounce was encouraging and the odds are for more downside action.

For today gold remains below its negative sloping short term moving average line. The momentum indicator is back in its negative zone and below its negative trigger line. The daily volume action has not been very impressive and needs to improve for any bounce or rally to have any longevity. We see on the chart an upward sloping wedge pattern which unfortunately has a habit of breaking on the down side. Putting it all together the short term rating is BEARISH, confirmed by the very short term moving average line.

As for the immediate direction of least resistance, baring any global upheaval during the weekend the direction of least resistance seems to be towards the down side and that’s the direction I would guess.

SILVER

Silver has had a sharper plunge and a weaker bounce than gold. Intra-day wise it even made a lower low versus the plunge low, during this past week. I guess what goes up the fastest comes down the fastest. By all accounts, looking at the chart action, more downside can be expected. I would look at $27 to $31 as a range of serious support. Baring that range the next step would have to be the $18 level. Do we really think it would go that low?

PRECIOUS METAL STOCKS

I know that probably 100% of my readers look to the major, most popular Gold Indices to get their bearings as to what is happening in the overall gold stock market. I look at my own Indices and especially the Composite Index for an understanding of what’s happening, overall. While the major Indices are now at a slightly lower level than their peak of early 2008 the Merv’s Composite Index of Precious Metal Indices is still some 32% above its previous peak. This is the difference in overall average performance of the 160 stocks in the Merv’s Index versus the weighted performance of the few highly weighted stocks in the major Indices. Precious metal stocks have been doing a lot better than these major Indices have let people to believe.

The Merv’s Composite Index is, however, showing a real danger potential ahead. Depending upon the indicators one uses the long term rating for this Index is now BEARISH. However, to confirm such bearishness I would wait for the long term momentum indicator to drop into its negative zone (which could be momentarily) and for the Index to break below its resistance lines. There are two of them but a move to the 450 level on the Index would break below both. We have an up trending wedge pattern which is most often broken on the down side. We have a support which may or may not hold. So, I would still not be in panic mode but would be pretty close to it. Of course, in the end one would look at the individual stocks before acting. There are always stocks that move counter to the prevailing trend but I would not risk money on it. Get out when the charts and indicators tell you to and protect your capital. Precious metal stock speculation (and it is all speculation, even stocks such as Barrick) is a risky business, no need to take greater risks than you have to.

Merv’s Precious Metal Indices Table

Well, that’s it for this week. Comments are always welcome and should be addressed to mervburak@gmail.com.

By Merv Burak, CMT