Watch Out For A Gold Topping Process

As suggested here recently gold hit its upward sloping “box” pattern resistance level and reacted downward.  There is just too many indicators pointing to a continuing for the reaction, possibly even below the “box” support.  At this point the odds are for continued weakness in the price which needs convincing otherwise.  Volatility will continue until the price breaches the upper or lower “box” lines.

WEEKLY GOLD SUMMARY

LONG-TERM

As previously mentioned, there is nothing in the long-term indicators to suggest an immediate panic as far as the long term is concerned.  The gold price remains well above a positive sloping long term moving average line and the momentum indicator remains in its positive zone.  The long term rating remains BULLISH.  As for the performance of the 100 stocks in the Merv’s Gold & Silver 100 Index, well they continue to be very, very positive with a POS/NEG rating of 97% POS and 3% NEG.  Just too, too positive, no room for advancement.

INTERMEDIATE-TERM

The chart gives us a good intermediate term picture.  First, the basics.  The gold price remains above its positively sloping moving average line and the momentum indicator remains in its positive zone although just very slightly below its trigger line.  At this point, based upon the basic indicators the intermediate term rating remains BULLISH.

What else is the chart telling us?  Well that “box” pattern mentioned here a couple of weeks ago has caused gold to react downward temporarily.  I would not expect it to break below the lower support line although these upward sloping patterns usually break on the down side.   The real stinker as far as the intermediate term is concerned is that momentum indicator.  The negative divergence is now more pronounced than ever and great caution is advised.  Although not a “signal” it is a very strong warning that the latest upside move has deteriorated in strength and unless that strength comes back soon more downside is expected.  The latest volume action has not been that great either.  Put these extras together and we have a market that must be watched on a daily basis.  It IS NOT the time to be purchasing or adding to gold stock portfolios.  In the end you just might miss a little upside should things improver BUT the risks of more downside action ahead is just too great.

As for the 100 stocks, these have started to deteriorate in performance but are still quite positive with 82% POS and 13% NEG.

SHORT-TERM

At the Friday close gold was just very slightly below its short-term moving average line and the line was just on the verge of turning down.  As I write this Monday morning gold is trading upward and if it continues like this for the rest of the day it will close above the line and the line will remain in a positive slope.  As for the short-term momentum indicator, that has been in a basic lateral drift for the past three months although at a very slight positive level.  This suggests a price trending very slightly to the up side but with no gusto at this time.  I would rate the short-term as – NEUTRAL at the Friday close but changing to BULLISH if the price finishes the day on the up side.

The performance of the 100 stocks shows the recent deterioration with 52% POS and 32% NEG.  This is still a bullish performance but to this point the recent performance has been weak.  I guess the short term weakness is to be expected after the rally that the stocks went through since Dec.

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New readers to these commentaries might notice that I use time moving averages and indicators that are not common. Readers are invited to view my Facebook page at https://facebook.com/merv.burak where I will be slowly posting commentaries explaining in more detail my various indicators and techniques. I also present from time to time some individual stocks that look as if they may be good speculations.  I’m getting lazy in my old age so posting on the Facebook may not be as rapid as I would hope.  However, nothing I post is meant to be a recommendation to buy or sell.  One should check with their broker or investment advisor before acting.