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Gold Friday Price Surge, Volume Will Point the Way

Commodities / Gold & Silver 2009 Aug 02, 2009 - 06:39 AM GMT

By: Merv_Burak

Commodities

Best Financial Markets Analysis ArticleIf it wasn’t for Friday it would have been a miserable week for gold.  It would be interesting to know the trading volume on Friday (it’s not usually available until Monday, for what reason has always been a mystery to me).  More about this volume business below.


SIMPLE TECHNICAL COMMENTARY

Last week I commented about the fact that there is no fundamental analysis in these commentaries.  That’s just not my thing.  However, I left out what actual technical commentary one might expect while reading these missives.  There are continually new readers who are not familiar with the info they might find here or understand what the info is intended to portray.  Herein, just a very brief summary.

As everyone understands there are three investment/speculative periods of concern, short term, intermediate (or medium) term and long term.  I’m not going to try and define in minute details exactly the days or hours each refers to, they are just general terms.  I try to define how gold is positioned relative to these three time periods from a technician’s standpoint.  To do this I look at three technical indicators that help define where gold stands.  These indicators try to define the existing trend of gold relative to each time period, the strength or weakness of such trend, again relative to each time period and the volume activity (i.e. speculative interest) relative to each time period.  The indicators used are relatively simple and quite common, nothing fancy here.  I leave the fancy and sophisticated for the trading system being developed and expected to be available later this fall.  In the end I put the three indicators together and come up with a technical rating AT THAT MOMENT IN TIME, for each time period.  The Table posted at the end of these commentaries gives a summary of similar information although the pre-defined mathematical formula may be somewhat different than what I use in the commentary and therefore the ratings may, at times, be just a little different.

Although from time to time I may use point and figure charts, or some chart patterns, to assess where one might assume a move to go, these commentaries ARE NOT intended as predictions of the future.  A technician does, however, follow the rule that “a trend in motion remains in effect until a reversal of motion is confirmed”.

Simplicity in the indicators, simplicity in the charts, simplicity in the analysis.  That’s what my aim is here.  Whether I actually provide such is an individual judgment by each reader.

GOLD - LONG TERM

I always start these commentaries by looking at the long term position of gold.  One should start with understand the “big picture” first before getting into the details of the shorter activity.

As mentioned last week the long term P&F chart has now provided us with a good support level to watch for a reversal of trend to the bear side.  A move to the $900 would break below such support. 

Also on the P&F chart one can see a symmetrical triangle pattern forming.  It is not a perfect symmetrical triangle, but close.  I prefer to call this pattern a reverse megaphone with the action heading toward the megaphone mouth.  This pattern is often though of as a continuation pattern with the activity breaking on the up side and continuing the previous bullish move.  This pattern is also visible on a normal bar or candlestick chart.  Although no pattern is perfect I will go with the consensus that an eventual upside break will occur on this pattern.

As for the normal indicators, gold remains above its positive sloping moving average line and the momentum indicator remains in its positive zone and above its positive trigger line.  As for the volume indicator, it had moved above its previous February high on Monday and remains above its positive trigger line.  The long term rating of gold remains BULLISH.

INTERMEDIATE TERM

I find the intermediate term the more important time period to understand.  For a weekly commentary too much could happen during the week to change the short term prognosis and as for the long term, one can go to sleep for months with no change in its status.  It’s the intermediate term one needs to watch for changes in trend.  They do not occur overnight (although they might on a rare occasion).  You could see changes taking place over the span of a few weeks and this is seen in the intermediate term.

Last week I also showed how the gold action of the past several months has been trapped inside a box.  This week it continues inside that box.  This wide lateral trend has the unfortunate result of having the price of gold moving up and down, above and below its moving average line.  During the week the price of gold moved below the moving average but Friday’s action took it above again.  The moving average line ended the week in a positive direction but that also depends upon the up and down movement of the gold price.  Until gold moves out of the box we can continue to see this up and down movement, frustrating our analysis.  The momentum indicator is also gyrating but remains most of the time above its neutral line in the positive zone. 

Moves into the negative zone have been few and short.  Friday, the momentum indicator remained in its positive zone showing positive strength in the recent price moves.  It is also above its trigger line which was trending negatively but the Friday action turned it back to the up side.  Another indication of the intermediate term trend is the short term moving average line.  This moving average line crossed above the intermediate term line the previous week and has remained above the intermediate term line since.   The volume indicator remains in a positive trend and above its positive intermediate term trigger line.  All in all, as of Friday close the intermediate term rating must be BULLISH.

SHORT TERM

I mentioned volume in the opening remarks.  On Monday we had fairly high volume with the gold price doing nothing.  The next day we had another high volume day with the price plunging.  On Friday the stock zoomed higher but we do not know what the volume of trading was.  Is it important?  You betcha.
          

If the volume was high then maybe the rebound could be a precursor to better prices ahead.  If the volume was low, as with the previous couple of days, then the Friday bounce may be short lived with no speculators interested on the up side.  Why do we not get the end-of-day volume for futures trading until a day later?  Is the futures trading industry still in the 1960’s without computer technology to provide volume information along with the daily price data?  It can’t be that difficult.  Or are they just not that consumer oriented?

The short term has its ups and down similar to the intermediate term.  Gold dropped below its short term moving average line on Tuesday with the line turning down.  Friday has seen the price of gold move above the moving average line and the line has turned upward again.  The same fluctuation can be seen in the momentum indicator.  It is once more in its positive zone and above a positive sloping trigger line.  Without the knowledge of the Friday volume I must rate the short term based upon known information.  The short term rating is BULLISH.

The immediate direction of least resistance appears to the upside.  Although the Stochastic Oscillator is still in its negative zone the direction of motion is aggressively to the up side and one more positive day and it will be in the positive zone.

SILVER

The situation with silver versus gold has not changed.  Silver still has the better performance over the intermediate and long term but continues to lag gold on the short term.  While gold is only some 5% below its previous recovery high silver still has a long way to go.  It still needs another 50% move to get to its previous highs.  The P&F chart is quite instructive in this matter.
          

On the P&F chart the red is down trend or resistance, the blue is up trend or support.  The heavy lines are primary lines while the lighter lines are secondary.  We are still in a BULL trend per this P&F.  The P&F projections are to $18.50 and then to $24.50.  Now, as mentioned earlier, these ARE NOT predictions, what they are are suggestions for the projected move so that speculators may make their initial judgments as to market action.  You always let the market action decide what your on-going action should be, whether projections are met or not.  What this does suggest, AT THIS TIME, is that there still is a significant potential for more upside in silver.

Looking at the indicators they are similar to gold but not identical.  On the long term silver is above its long term moving average line and the line is sloping upward.  The momentum indicator was in its negative zone but has moved back into the positive.  It also is above its positive trigger line.  The volume indicator is showing resilience relative to the price trend.  Throughout the very recent decline and minor bounce the volume indicator moved in a basic lateral path.  It remains in a lateral trend although it is above its positive long term trigger line.  All in all, the long term rating is BULLISH.

On the intermediate term silver has moved just above its moving average line but the line has not yet turned up.  The momentum indicator has moved slightly above its neutral line and above its positive trigger line.  The volume indicator remains above its positive trigger line.  On the intermediate term the rating is BULLISH.

Everything is also okay on the short term.  As with the other time periods the indicators are very close to reversal locations.  Their positive showings are very precarious and could change with one negative day.  In the mean time the short term rating is BULLISH.

PRECIOUS METAL STOCKS

          

Dem that rises the most falls the most, or is it Dem that falls the most rises the most.  Whatever.  We have both here in the Penny Arcade.  These real penny stocks, prices at or less than $0.25 at time of inclusion, make huge moves, when they move.  Although the decline is the worst of the bunch in the Table below, for the short term, it is also the best performer from the intermediate and long term.  What other Index of 30 stocks has risen 540% in only 7 months.  Few single stocks have done as well, least of all an average of 30 stocks.  Of course it has come down and is still 16% below its previous high but all it would take to get back up there would be one or two good weeks.  Penny stocks are not for everyone but most speculators in the gold market have a few in their portfolio.  Wouldn’t it be great to be in the ones that are moving rather than the ones that are doing nothing.  Of course timing is important.  The Penny Arcade is presently the only Merv’s Index that has not gone BULLISH (POS) on the short term rating.  All Indices are still NEG on the intermediate term and POS on the long term.  So, all is not lost and the long term prognosis remains on the up side.  This should pull the intermediate term up shortly. 

It was an unusual week in the stocks.  The AVERAGE price of the 160 stocks in the Merv’s Gold & Silver 160 Index gained 1.8% and most of the Merv’s Indices were on the up side while every North American gold indices were in the negative camp.  This, despite the fact that both gold and silver were up a little on the week.

PRECIOUS METALS INDICES TABLE

Well, that will be it for this week.

By Merv Burak, CMT
Hudson Aero/Systems Inc.
Technical Information Group
for Merv's Precious Metals Central

For DAILY Uranium stock commentary and WEEKLY Uranium market update check out my new Technically Uranium with Merv blog at http://techuranium.blogspot.com .

During the day Merv practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv dons his other hat as a Chartered Market Technician ( CMT ) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada 's Northwest Territories in his youth, Merv has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE .

To find out more about Merv's various Gold Indices and component stocks, please visit http://preciousmetalscentral.com . There you will find samples of the Indices and their component stocks plus other publications of interest to gold investors.

Before you invest, Always check your market timing with a Qualified Professional Market Technician

Merv Burak Archive

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