Technically Precious with Merv

It’s been some time since my last Technically Precious with Merv missive so I thought it’s just about time for the occasional blast.  Gold seems to be at a very critical juncture with commentaries all over the place.  As long time readers of these Technically Precious with Merv missives may remember, I don’t understand sophistication and therefore try to keep things as simple as possible.  I have not kept all my various gold Indices up to date but have kept up the Merv’s Gold & Silver 100 Index and the Merv’s Penny Arcade Index so those, along with gold itself, are what I will focus on today.  I hope to post commentaries more often than I have this past year or two BUT retirement is sooooo demanding that we’ll just have to see how this progresses.  Well, on with the missive.

GOLD   

In the past I had reviewed the technical position of gold (and the other sections) from a long, intermediate and short term perspective but as a start today, focus will be primarily on the long term trend/position of gold and the Indices below.

Nothing much has happened with gold over the past few years, as the chart above shows.  However, gold seems to be at a crucial point.  It must hold here with very little downside wiggle room or else it just might continue back to its previous late 2008 lows.  The potential upside is still murky as we have a band of activity with resistance at the $1800 level that would have to be overcome before an upside bullish perspective could be entertained. 

Looking at the indicators, gold once more dropped below its long term moving average line earlier in the year and the line has turned downward, not good.  The long term strength of the gold price movement (some may refer to this as momentum) as reflected by the long term (30 week) RSI has also dropped below its neutral level into the negative zone and continues to look weak.  Although the intermediate and short term strength seem to be firming up suggesting a possible rally in the price ahead there is nothing yet in the long term strength to suggest that any such rally would turn into a new long term bull.  As always, should the indicators change in the future, so will the prognosis.  Without going into any details, long term gold bullish speculators should have been out of gold a couple of years back and just sitting back in their easy chairs, relaxing and waiting for the next trend.  Bearish speculators would have considered getting in on the short side earlier this year with the understanding that the bear side, although in progress, has that support level at $1525 to overcome before being too comfortable.

Merv’s Gold & Silver 100 Index

The Merv’s Gold & Silver 100 Index is composed of the top 100 North American traded gold and silver stocks based upon market value (at the time of last revision).  This Index (as are all of Merv’s Indices) is calculated each weekend based upon the average price performance of each component stock.  No stock has a greater influence on the Index value than any other stock, unlike most popular Indices which give their largest component stocks the greatest influence and the smaller stocks in their Indices next to no influence.

As we see here the average price of a component stock has been in a bear trend for some two years and is now 35% below its 2011 high (although still more than 200% above its previous late 2008 low).  Most popular gold Indices had collapsed below their support levels some time back but this Index just broke decisively below its support this past week.  The decisive move into new long term bear market lows has not yet been followed by a similar decisive move by the long term RSI but that may come.  At this point the odds of the average gold share dropping back to their late 2008 lows is probably greater than the odds of a reversal back to the up side any time soon.  If I was to guess I would say the odds may be about 75% to 25% for a continued move to lower levels.  This, of course, refers to the average price of all the 100 component stocks and not to individual stocks.  At Friday’s close 93 of the 100 component stocks had long term ratings as BEARISH, 2 are BULLISH and 5 are NEUTRAL.  That suggests that one should be looking for some sort of rally ahead (but only a rally at this time) as the ratings could not get very much more negative.

Merv’s Penny Arcade Index

Merv’s Penny Arcade Index (now called the Merv’s Penny Arcade 50 Index) includes 50 penny gold and silver stocks (recently increased from the original 30 stocks).  For inclusion into the Index stocks must be trading below $0.25 although on a few occasions stocks were slightly above that value due to sudden market moves just before inclusion.  This Index gets more frequent changes than most Indices as penny stocks have a short life span due to their nature.  Stocks are deleted for a variety of reasons including having moved above my upper threshold level of $2.00.

Here we see why aggressive speculators love the penny stocks.  The AVERAGE price of a component stock made a more than 2100% move from the Index low in late 2008 to the high in early 2011.  Even after a more than 50% bear move in the past few years the average price of a component stock is still 1000% above its late 2008 low.  At the Friday close the ratings are much better here than they are for the G & S 100 Index stocks.  Out of the 50 component stocks 6 are still rated as long term BULLISH, 10 are rated as NEUTRAL and 34 are BEARISH. 

What we see on the chart is an Index that, although bearish has not yet plunged into new low territory as have most other gold and silver Indices.  Both the Index price and its long term RSI remain above their respective support levels although in the negative zone.  We may still have one or more weeks of negative activity although a rally should not be unexpected.  However, I’m not sure how to interpret this activity since it is not following the other gold Indices.  Maybe another week or two will clear up the situation.  In the mean time one should not be jumping in on the penny stocks yet but their time will come again and one might expect a similar performance as in the past when that happens.

Merv Burak

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As mentioned earlier, I hope to be posting commentaries from time to time, maybe on a monthly bases, web sites permitting.  I am not a social media person and although I have a Facebook page somewhere I very rarely ever look at it so it is inoperative.  I welcome comments and/or suggestions.  My email address is      .

Until next time the word is Extreme Caution.