Is That It For This Rally?

Short-term it’s looking like a top.  The start of a decelerating FAN pattern suggests a deceasing strength in the latest action.  My short-term momentum indicator is also suggesting a decreasing momentum in the price movement.  Stay with the trend…but it’s getting closer to the time to be ready to bail out.

Some people consider technical analysis as a science; others consider it more of an art form.  As an engineer I go with the latter.  As an art form one can see various nuances in chart patterns.  Given the same data, a dozen technicians can probably come up with a dozen different results, all with valid technical reasons.  As I have often mentioned, being the lazy type I go for the simple.  It gets you in for the major moves, it gets you out after the moves have ended…and it gets you out with minimal loss when the analysis is wrong.  Technicians are not afraid to quickly admit to an error and correct it.

So much for setting up my excuses.  In my last missive a little more than a month ago I had a feeling that the rally was looking like it had it.  Luckily I gave myself an out by reminding readers that as a technician I go with the charts until THEY tell me otherwise…and the charts at that time were still positive.  They remained positive and even more bullish right up to now.  Once again I’m getting that feeling that things are not going as well as hoped for and that some sort of correction is in the wind.  You know how my previous feelings turned out so again, go with the on-going technicals and just keep the feelings in the back of your memory bank.

LONG-TERM

The long-term position of gold at the Friday close is still not all that positive.  It’s heading in that direction and could be there in only a couple of positive days…but not yet on Friday.  Gold closed just a hair below its negative sloping moving average line.  The long-term momentum indicator is sitting on top of its trigger line just barely inside the positive zone.  By my super sophisticated way of judging these things I can only give the long-term a rating of – NEUTRAL, one step above a full negative.  Somewhat confirming this not quite bearish rating is the fact that the short-term moving average line is still below the long-term line but heading fast towards the long-term line.  It could cross for a positive signal in a matter of a few days of good upside markets.

INTERMEDIATE-TERM

The intermediate-term rating turned bullish a few weeks back and remains so.  Gold remains above its positive sloping moving average line and the intermediate-term momentum indicator is in its positive zone (although only slightly) and above its positive trigger line. From this the only rating I can give gold, at the Friday close, is a BULLISH rating.  Confirming the bull the short-term moving average line remains comfortably above its intermediate term moving average line.

SHORT-TERM

Although everything looks terrific there is a fly in the picture, short term wise.  Gold is above its positive sloping moving average line and the short-term momentum indicator is above its positive trigger line in the positive zone.  This gives us a BULLISH rating at the Friday close.  Before going into the fly in the picture just a very brief mention about the upward sloping box that the action is trapped within.  The bottom support line is shown as the solid black line while the parallel upper resistance line is shown as the light dashed line.  As long as gold stays within this box and the action continues to show higher highs and higher lows, then there is no concern.

Of some minor concern at this time is the action of the short-term momentum indicator (not shown).  Although gold has made higher highs in February versus the high in January the momentum indicator has not been able to perform likewise.  It has not made a higher high and is thereby showing a minor negative divergence.  This is a short-term warning that should be kept in mind.

Merv’s Fan Principle

I’ve mentioned the Merv’s Fan Principle often in the past.  There are several “fans” within this Principle.  We have what may be the beginnings of a bearish decelerating Fan on the chart today.  It’s bearish because a completed Fan results in a bear trend.  It’s decelerating in that each succeeding Fan has a lower and lower slope to it thereby suggesting the existing bull move is getting weaker and weaker.

We have here the first two Fan trend lines (we need three for a completed Fan).  I have drawn a third Fan trend line where I think it will form as the lines are usually equal spaced.  Why I think this will end up to be a confirmed Fan is the fact that so far it is acting as it should if it was to be a Fan.  After establishing the second Fan trend line by the bottom in late January it has rallied but has stayed trapped within the confines of the first two Fan trend lines.  Should it break below that second Fan trend line then I would expect it to develop a third Fan line as it developed the second.  It should then progress within the second and third Fan lines until confirming the bear trend by breaking below the third Fan trend line.  We’ll just have to wait and see how this develops.

MERV’S GOLD & SILVER 100 INDEX

Most gold stocks went nowhere to slightly negative during the past week.  The Merv’s Gold & Silver 100 Index closed lower by 1.95%.  The only significance of this is the fact that it halted a rally that started in mid-Dec of last year.  After several weeks of up moves a down move was to be expected.  The indicators are all still positive so I wouldn’t spend any time on them here just to say that for all three time periods the rating of this Index is BULLISH.

Although we had only 30 advancing stocks and 68 declining stocks on the week the BULL/BEAR percentage performance ratings remained all in the plus side with the long term even improving during the week.  The short-term BULL/BEAR percentage rating is 59% positive and 32% negative.  The intermediate-term BULL/BEAR is at 82% positive and 11% negative while the long term sits at 61% positive and 26% negative.  With a downer of a week there is still no need for any worry about the basic trend yet.

Just a quick brief comment on the Merv’s Penny Arcade 50 Index.  It was about the only gold Index that closed on the up side during the week with a gain of 1.88%.  This was accomplished with 5 stocks that closed the week with gains in excess of 20% (one almost at the 50% gain mark).

The next post will be in ????.

Readers are invited to view my Facebook page at https://facebook.com/merv.burak, where I will probably post from time to time a brief sentence or paragraph on the markets (gold, energy, technology and markets in general).  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.

Merv. Burak