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The Great Rotation is in its early stages. For those initiated to this concept, it is simply that rising interest rates will cause asset allocators to sell bonds and buy stocks. And we shall posit that it shall become more pronounced in the weeks and months ahead as interest rates are on the verge of rising faster than many believe at this point.

Technically speaking, this is due to the 10-year note yield developing weekly "head & shoulders" bottom forming on the weekly chart. We'll mention that a bullish monthly key reversal to the upside is also forming, but the basis of this sharp move lies in the confirmation of the "head & shoulders" bottom on a close above 2.03%...a mere 8 basis points higher. Further, the volatile manner in which the 10-year note is trading would suggest it could happen next week, which would then target the 2.90% level...last seen in July-2011.

So, although the S&P 500 and other indices may be overbought in the short-term, then can remain so for quite some period of time. And we are correct in our 10-year note yield assessment, then our target of the S&P 500 is 2000...and that is not a typo.

Good luck and good trading,
Richard

The current S&P 500 rally to new all-time highs may very well be the beginning of a "bubble-like" move to much higher levels in the weeks and months ahead. However, make no mistake, there is a great deal of risk in being long many stocks at this juncture, but there are sectors/industries that haven't participated...and very well may be ready to do so given the trading patterns of the past two weeks.One such sector and/or industry is the energy sector (XLE), and in particular the oil service group (OIH).

Technically speaking, when we look at the relative OIH/SPY ratio, we find it at levels extant during 2012 and 2008, and we find the overall pattern a bullish multi-year wedge. Moreover, the longer-term 40-week stochastic is at oversold levels, which in the past have allowed for OIH to rally relative to SPY. Currently, prices stand at .27, but we look for a move towards the .42 level that in the past has proven to be major resistance.

Hence, if one needs or wants to be long in the current market environment, then OIH and its component stocks are the place to be.

Good luck and good trading,
Richard

Our attention has turned to the crude oil market, where a rather large "head & shoulders" top pattern is in development. The focus is upon how prices challenge and hold the 300-week moving average, and if not...whether neckline support is violated. A breakdown of these levels would lead to a virtual free-fall in prices towards the $51 target level.

Of course we are ones to wonder what the world economy and the world's stock markets would look like under such a scenario. If past is prelude, then we should expect a rather nasty correction...and it very well may be quick and sharp. Aware is prepared.

Good luck and good trading,
Richard

April has not thus far been very kind to the economic bulls. The various world and US PMI reports have been "less-than-anticipated", while employment is showing weaker-than-expected figures via the weekly jobless claims, ADP private payroll and non-farm payrolls. This economic deceleration is simply part and parcel of the lagged effects of the payroll tax and the sequester. Moreover, this weakness has pushed down  10-year yields down to 1.69% from its recent highs of 2.06%, a rather large percentage move to be sure, and not far off the lows at 1.394%. Ultimately, 10-year note yields are headed to new lows below this level; and this "should", and we stress "should" be the "final move" that will provide for a generational low in yields.

Technically speaking, the downtrend in 10-year yields remains in place, with the 20-week stochastic having turned lower from overbought levels. This rollover supports a decline yields into lower trendline support, which at this point has three very clear touches...thereby solidifying its importance as major support. Too, we should note that 10-year yields tend to bottom out at -50% below the 200-week moving average, which given its current reading of -32%...leaves roughly -18% of a decline before major support is found. This figures to be at 1.38%...slight new lows. However, we do believe that once these new lows do print - then an a minimum upside mean reversion target of 2.65% lies in the future.

So, as we enter the "sell in May and go away period", then perhaps one of the "biggest" trades on the technical landscape will see 10-year note yields finally rise on the order that everyone has expected over the past several years...but only after new lows print. And, it is an inevitability that prices will trade back to, and then above the 200-week moving average (only rarely in the past 12-years); and our bet it that the move off the lows will begin in 2013.

Good luck and good trading,
Richard

The stock market's uninterrupted gains in recent months is giving rise to talk of a bubble, and perhaps this is the case within the scope of time. It is still far too soon to determine this, although further gains will cause us to consider sharply higher prices within the context of anemic economic growth. With this said, we are watching the Crude Oil futures market rather closely, for on a monthly basis - a bullish pennant pattern is forming that projects sharply higher prices...to new highs above the $150/barrel level. This would come as a surprise to many, but the fact of the matter is that there is likely to be a series of rolling euphoric moves across all asset classed stocks, commodities and bonds. Right now, it is simply stocks. But we are starting to see signs of more interest in the commodity groups than we have previously.

Therefore, we are interested in various energy stocks to participate in this rally, which by-the-way can occur within the context of a lower stock market just as occurred in 2007-2008. Our choices are several of the "laggards" such as Apache (APA), National Oilwell-Varco (NOV) and others. If there is risk in the long energy trade, then we would look for a monthly close below the 50-month moving average at $85/barrel level. In effect, this would suggest a mean reversion exercise towards the 200-month moving average that occurs roughly every 7-years. In this environment, we hate to think of what the world economy looks like, but suffice to say there will likely be very few long hiding places.

Good luck and good trading,

Richard

The past two trading weeks in the gold market has been rather dramatic:  a sharp decline followed by a sharp rally and then a recent test of the lows. The end result - quite a bit of wailing and gnashing of teeth. And, we think the wailing shall become louder before gold finally bottoms and turns higher towards new all-time highs. Quite simply, gold is in the process of providing those longs accumulated over the past 2-years with losses, and a resultant "puke point" lies ahead.

Technically speaking, we are looking for a test of the rising 150-week moving average at $1539 - much in the same manner as was seen during late 2008. However, one need understand that this moving average is likely to be violated for a short period of time, and it is likely to test the rising 40-month moving average currently trading at $1494. So, we have a zone in which to consider buying gold for an initial position; and then we would use a breakout above the 30-week moving average to add to the trade and get very very aggressive. Until then, we can wait for the yellow dog to bark.

Good luck and good trading,

Richard Rhodes

There has been quite a bit of banter recently about a "currency war" developing given the Japanese Yen has fallen dramatically against the USD - roughly -15% in the past 11-weeks. This is a rather major move for a currency; and it is such that it is providing cover for Japanese exporters against those in Europe and the US as well as other emerging markets. Remember, the US continues to print money via QE-4, while Europe has simply said it "has what it takes, and believe us - it is enough. Japan on the other hand, simply said they would raise their inflation target from 1.0% to 2.0%, and employ an open-ended asset purchase plan...beginning in January 2014. One must wonder aloud why the Japanese aren't doing so now; and whether or not they are following the Europeans by jawboning the markets. In light of this, it would be wise to consider the technical condition of the US dollar as the "race to the bottom" looks to get much more interesting in the weeks and months ahead.

Quite simply, the US dollar is forming what is clearly a bearish "head & shoulders" topping pattern, and is on the verge of breaking down below neckline support. This would be a major violation, and thus would target the waterfall lows formed back in May-2011. And with volatility growing in the currency markets, then this decline could be just as quick over a couple of months. That said, one would ostensibly wonder which currency or currencies one would buy against the US dollar to take advantage of just such a move. In our opinion, the Euro and the Swiss Franc - with the Swissy being our favorite currency given her outstanding fiscal situation.

Lastly, we should point out that the US dollar decline to the May-2011 low was accompanied by increased volatility in the stock market - and a majority of this volatility resulting in a sideways trading pattern...ultimately resulting in a sharp decline into September 2011. So, caution is advised; especially given the recent euphoria.

Good luck and good trading,

Richard

Next week, the markets will be focused upon the incoming earnings reports; and in particular - Apple's (APPL) earnings after Wednesday's close. Over the past several months, AAPL has declined rather sharply off its highs around $700 down to its current trade at $500; which is due in large part to an increase in competitiveness of other product manufacturers such as Samsung - and a report out that AAPL is downsizing its number of component orders. Presumably, this means less iPhones and other gadgets.

Our interest in this stems from the technical viewpoint, which in our opinion is "slightly bearish.". The reason we believe at least modestly lower prices are ahead stems from the fact prices have violated the 70-week moving average crossing at $531. The last time this occcured was 2008, with prices falling roughly -50%. Now, we aren't expecting this substantial a decline, but certainly if the earnings report is less-than-hoped for, then we very well could see trendline support violated and the $300-to-350 support zone tested. Moreover, we only have to go back to late-2011...not so long ago really.

Our only concern is the oversold 20-week stochastic; however, it has simply entered into oversold territory, but it could be a number of weeks before it bases and turns higher. Hence, while the short-term appears rather challenging for AAPL; it will be setting AAPL for a larger back towards the highs. Its all a matter of timing.

Good luck and good trading,
Richard Rhodes

January 2013 has rolled in, with the "fiscal cliff" solved for the moment; and now there are concerns "QE-4" will end sooner rather than later...and perhaps below 2013 ends. Collectively, the passing of the fiscal cliff and the new QE-4 concerns pushed 10-year note yields higher; however, given "QE-4" has begun, and the growing concerns over raising the US debt ceiling - all should contribute to pushing 10-year yields lower...in all probability to new lows below 1.394%. This is our opinion; and it is our opinion this should be the "final move", and prep the landscape for a generational low in yields.

Technically speaking, the downtrend in 10-year yields remains in place, with the 20-week stochastic having turned lower from less-than-overbought levels. This failure should allow yields to move into lower trendline support, which at this point has three clear touches...thereby solidifying its importance as major support. Too, we should note that 10-year yields tend to bottom out at -50% below the 200-week moving average, which once new lows do print - should provide an upside mean reversion target in the future.

So, as we enter 2013 - perhaps one of the "biggest" trades on the technical landscape will see 10-year note yields finally rise on the order that everyone has expected over the past several years. It is an inevitability that prices will trade back above the 200-week moving average (a rare occurrence in the past 12-years); and our bet it that the move will begin somewhere towards the of 1Q or 2Q 2013. Be prepared.

Good luck and good trading,
Richard

In the past several weeks, the FOMC has voted to "expand" its balance sheet until which time economic growth is strong and getting stronger ($45 billion long-term treasuries/$45 MBS). One would have reasonably thought that Gold prices ($GOLD) would have rallied rather sharply - we certainly were of the opinion. But it did not happen given the gamesmanship exhibited by President Obama and House Speaker Boehner. However, the "game" is not over; there is still time for gold to find its footing and finally move to higher highs above $2000/ox upon which the media shall be all over this.

Technically speaking, if we take a longer-term viewpoint of Gold ($GOLD), then we find the uptrend still intact, although probably a bit long in the tooth. However, that doesn't sway from the fact that a monthly bullish triangle is forming, and the fact prices managed to hold the 20-month moving average last week. Historically, the 20-month has been a very good support level - outside of the late-2008 correction that managed top hold the 40-month moving average. Too, we find the 9-month RSI tends to bottom around the 50-level on these corrections - which is exactly where it is at present. Therefore, we suspect the probabilities favor that this current test of the 20-,month will be succesful - hence a modicum of patience is warranted in holding a long position.

But that having been said, the alternative would be for prices to clear break the 20-month and fall very quickly towards the 20-month support level at $1455/oz. That is and of itself would be no tragedy to the gold bull market, but it it would certainly deplete many trading accounts to be sure. Regardless, we believe gold prices ($GOLD) have one last "blow off" move in them before a larger correction takes place. Its only natural, for gold is cyclical as well.

The Dow Jones Transportation Index ($DJT) is on the verge of a major breakout that could see prices rise by up to +20%. Quite simply, the developing bullish pennant pattern would suggest that once a breakout of trendline resistance materializes, then a measured towards the 6000 to 6200 zone becomes a reality. In further support of this viewpoint, note the 20-week stochastic has turned higher from near the 50-level, while the 65-week moving average continues to provide major support to declines. Collectively, the risk-reward of long $DJT positions is rather good given one can measure their risk at the recent lows.

The manner in which to play this trade is several fold. One could look at the Dow Transports ETF (IYT) to mimic the index. Or, one could look at the the risk-reward of the particular stocks that make up the index such as the rails, truckers, and air freighters in general. Our particular focus is upon all of these, with CSX Corp. (CSX); FedEx (FDX) in particular, with Arkansas Best (ABFS) having potentially the largest percentage gain...but it has its flees so to speak. As with all of these stocks; do your technical homework.

Good luck and good trading,
Richard

There is quite a bit of newsprint lately regarding the US "fiscal cliff"; and the impact of whether it goes through or not. Regardless or not of whether it is extended or not, we think it instructive to analyze the consumer discretionary stocks as they will be inordinately impacted.

First, let us state that since the 2009 bottom, consumer discretionary stocks have rallied rather strongly through the halcyon days of the mortgage "cash out" period in which money were flowing towards all sorts of goodies. Thus, we were rather surprised at the veracity of this rally given the end of the housing bubble and the negative impact of the "cash out" refinancings. If fact, the current rally has continue to levels were never thought possible. However, there are there, and now we believe they represent an opportunity to be short a number of names int he group, or via the S&P Consumer Discretionary ETF (XLY) itself.

Second, the technical situation has begun to show signs of breaking down. The rising trend-line off the 2009 and 2001 lows was just violated, which should allow prices to plumb towards lower levels and into major support at the 120-week moving average rising towards $40.00. However, we would posit the decline will be deeper into the shaded area as this represent prior low and high support, as well as the 38.2% retracement moves. Too, the 200-week moving average crosses inside of it. This grouping if you will tends to act like a magnet - especially given the 30-week stochastics has formed and confirmed a negative divergence. Also, note the distance above the 120-week moving average in the PPO frame; it hit just above 20%, whereas in the past this has proven to be extremely good resistance.

Collectively, we would say that all the moons are lining up for traders to start exiting Consumer Discretionary shares and buying other sectors that have better defined risk-reward parameters. Certainly at TRR we will be putting our our recommendations for short positions soon; and perhaps acting upon them as well.

Good luck and good trading,
Richard

Last's week's early market rally seemingly disavowed all the bad news; which is of course what this market has been doing since the summer. However, we may be premature - but we are certain the market is changing its stripes from focusing upon "benefits" and tail-wind of QE-3; and focusing more upon the poor earnings and revenue reports coming out of corporate America. Quite simply, the European and Chinese slowdowns were bound to have an impact upon US stock prices; it was only a question of "when" within the context of an increase in monetary liquidity. Note the Google (GOOG) debacle this week; note the poorly received Microsoft (MSFT) figures - and one gets the sense that Technology in general has already made its bull market highs and lower lows lie ahead.

To that end, we've provided a monthly chart of the S&P Technology Sector, which is a longer-term outlook of where we have been, and the critical resistance/support levels that are in play. First, note the bearish rising wedge off the 2009 lows, which failed into overhead trendline resistance from an amalgamation of highs and lows. This seems to be rather important, for prices aren't likely to breakout above the highs forged in September. And if that is the case, then we must be worried about rising trendline support off the 2009/2011 lows...and prices are hard upon it. Further weakness will break this important support level, which would put the 33-month moving average in play at 415 as well the 100-month moving average at 359...a full 20%+ below current levels.

Therefore, technology buyers beware...there are lower prices upon which we'll be able to be comfortable buyers...but not here and not now.

Good luck and good trading,
Richard

Quite simply, a bear market has ended, and a bull market has begun in the Natural Gas market. This has been quite some time in the making, for the relationship between natural gas and crude oil has been skewed for a number of years in favor of natural gas. Now, we feel confident in the fact that the trend has changed in favor of natural gas on both an absolute and relative basis versus crude oil as well as the S&P 500.

Perusing the weekly Natural Gas chart, one can easily see that the simple downward sloping trend-line was violated after several touches. This simple, but elegant breakout suggests prices are headed higher over the next several years, with the 155-week moving average at $4.00 being the first target, with the $5.00 to $6.00 zone being the intermediate-term target. And, over time - given the relative valuation versus crude oil - we could very well see the highs challenged.

With that said, "natty" is a very volatile futures contract to trade, but there are various ETFs available to take advantage of this price rise. However, we'll urge some caution, for the "roll" between months tends to be unfavorable. One only remember trading the Natural Gas ETF (UNG) over the past several years to see the "roll" work against you. At some point, and we think that point is soon - it shall work in one's favor.

In any case, getting the "natty" trend right is paramount; with natural gas stocks such as Devon Energy (DVN) being a good proxy. Keep it simple: buy corrections against the main trend...and enjoy the ride.

Good luck and good trading,
Richard

Well, finally the past economic/political week has passed, and we find ourselves starting down the barrel of QE-3. There is no need to go into the particulars of QE-3, but suffice to say that the Fed is buying mortgage-agency debt rather than adding to their Treasury debt holdings. This put downward pressure upon agency debt yields of course, but then it also provided for a rally in both the 10-year note yield as well as the 30-year bond. Our interest lies in rally in the 30-year bond, for it would appear that the long bear market of a decline in yields is "over", which in our mind is a "watershed" event that means higher Treasury rates for the months and years ahead.

If we look at the monthly chart of the 30-year bond ($TYX), then we find previous support at 2.50% has held; we find the distance below the 115-month moving average tested its -40% oversold level and bounced - and we are starting to see the 14-month stochastic turn higher. This all argues for higher bond yields. But what we find more than a passing interest, is that since QE policy moves have come into being since 2008 - each and every announcement always led to higher yields and a test of the 115-month moving average. If that is the case now, then we'll see the 30-year bond move from 3.08% upwards of 4.37% in the months ahead.

Now, we aren't worried about this yet, for market participants will use any rally in bond yields as "fuel" for the stock market. However, the higher the 30-year goes, and the speed at which it gets there - if too fast - then will certainly cause concern at the Fed as well as on Main Street. Higher rates are not what the Fed wants, but at this juncture - it would appear this could be the "unforeseen" consequences of stepping on the QE gas pedal.

Enjoy while it lasts; higher rates are going to be with us for many years into the future.

Good luck and good trading,
Richard

For now, the S&P 500 is rallying in a manner that is abrupt to say the least - several days higher, then several days lower, and then repeat. This, coupled with the European fiasco has caused investor/trader sentiment to become rather archly bearish; and therefore the short-term trend appears to be higher towards the all-time highs around the 1500 zone. Certainly the 160-week moving average defines the trend higher as it is rising; but also the 80-week exponential moving average was recent tested and held. Resistance stands at upper wedge resistance and the previous highs at 1500 - and odds are that it shall be tested sometime this fall.

Gold prices are trapped we are afraid; and they are trapped between the $1584 and $1646 levels - of which the lower boundary is the 20-month moving average; while the upper boundary is the 30-week moving average. We expect Gold prices shall break higher given the bullish consolidation forming; and given the Gold/Silver is showing signs of being overbought. All "good bull markets" in Gold are led by Silver...which is another story for another day. Our upside target for Gold prices is simply to "new highs" and let the market take it from there.

Over the past week, we've seen gold shares gain sponsorship without the physical gold metal rising. Perhaps this was the "canary in the coal mine" as they say, but gold prices roared ahead yesterday from a low of $1545 to a high of $1632 before closing at $1627. This put in place a rather bullish key reversal higher from major support between $1500-to-$1550. We find this rather positive for further gains, which many would equate to some level of European/US/Chinese liquidity measures.

But what we find more interesting is the fact that the Gold Share/Gold Futures Ratio (GDX/$GOLD) nearly reached the lows it formed in October-2008 at roughly .25. Thereafter, a rather spirited rally began to the benefit of GDX; and we look for the same type of run to develop at this point. Clearly the 30-week stochastics of the ratio is at oversold levels; and also confirming this is the longer-dated 21-week RSI that hit oversold. The last time the 21-week hit oversold, then the aforementioned spirited rally began.

Hence, we believe we are in the nascent stages of a bullish run in gold and gold shares, with gold shares taking the lead. We are buyers of gold shares on weakness; and look to be involved in the trade for many months. Stop losses can put placed at the recent lows or a bit higher.

Good luck and good trading,
Richard

An important tops looks to be in place in the Dow Industrials ($INDU) by month's end if the current pattern holds true to form. Quite simply, the $INDU is forming a bearish wedge pattern, of which rising trendline support looks to be violated in the months ahead. This probability is higher given the current bearish key monthly reversal to the downside - if it holds up through month's end, and we have no reason to believe it won't given there are only 8-trading sessions remaining. And, this reversal lower is confirmed by the bearish divergence seen in the 9-month RSI.

Collectively, this presumes a decline back towards the rising 40-month moving average at 10,882...or roughly -1,500 points from current levels - a not inconsiderable sum to be sure. And if this support level is violated, then the downside could be rather difficult indeed towards the 250-month moving average that was ultimately tested during the 2007-2009 bear market.

In any case, there is a tremendous amount of risk in the $INDU - and rallies of any type are to be sold, and to be sold aggressively.

Good luck and good trading,
Richard

The S&P 500 rally continues unabated, although it has shown some signs of wear and tear given the less-than-hoped for volume patterns as well as advance/decline patterns. However, it is clear that this type of market condition does not preclude prices from moving higher and forming major negative divergences over time. Presently, we should note that the 160-week moving average has bottomed, which suggests the rally has further upside left in it, with any and all corrections - at this point - seemingly nothing more than garden variety corrections.

However, note that prices are now overbought via the 20-week full stochastics; which simply means the rally is growing more risky by the week. The simple speed resistance trendlines we've drawn indicate that the rally could take prices higher towards the 1460 level before any real weakness materializes. Moreover, and not shown on this chart is that prices are roughly +21% above the 160-week moving average - which is about 2 percentage points below its "speed limit" of +23% that has resulted in corrections over the past 2 decades. If prices exceed +23-to-+25%, then the past 2 instances (1985 & 1995) have shown prices to be in an upward "bubble-like" advance. So, if the S&P rallies much more off current levels - then we'll have to look for a massive spike higher towards the 1700 level in the next 2-years. This would be fed by funds leaving US and world bond markets in search of higher yields. This is the risk at present; and we'll give it more than "even" shrift of occurring given the massive amounts of liquidity force-fed into the world monetary system.

With all the press centering in upon Gold gains recently +10%, Silver has risen by +19% - thereby outperforming the yellow metal by +9%. Silver - the poor man's good; now looks rather ripe for trading once again. This is as it should be in a metals bull market - silver should always outperform gold. And the manner in which the technicals are shaping up in both absolute and relative terms - we should see both gold and silver move to new highs and not return to the lows forged on 12/30/11 at $1567 and $27.88 respectively.

In our opinion, we shall be playing silver form the long side, for the techncials are rather compelling. First, the weekly Silver chart shows a series of continuation patterns or bullish consolidations that have all lead to new highs. And, each one began with the 20-week stock at oversold levels. In fact, the first two times this occurred, silver rallied for 2-years plus and gained in the multiple of 100%s. Next, let's note the current price has held the 110-week moving average. which it has done on a number of occasions, and then rallied rather strongly. We expect this current test amid the bullish consolidation to take silver price upwards of $50/oz or more - a minimum gain of +34%, which is really rather paltry by past rallies, but one that has the potential to go much much higher.

Therefore, we are left to wonder what shall trigger such buying in the metals and silver in particular. Will be be turmoil in the Middle East? The Euro falling apart? Faster-than-expected economic activity around the world? New rounds of QE? They are all good questions, and perhaps an amalgamation would probably be the most likely scenario.

The 2012 trading year has begun with a "bang" to be sure. In terms of the S&P 500, we find that 16 of the 23 trading sessions have traded to the upside, with no losing session down more than -8 points or -0.6%. This is rather "one-sided", and it gives rise to thoughts that a correction must be forthcoming. Really, how could a rather sharp correction not take place given the European fiscal and debt crisis and the slowing the Chinese economy. There are so many negatives in front of everyone, there can't be any way the market should trade higher. However, one must try and understand the power of "money printing liquidity" provided by nearly all of the world's central banks.

We'll be the first to admit - we've been rather wrong-headed about this rally. There have been ample signs that this is nothing more than a counter-trend rally in a bear market, but then again there are technical signs it shall go further and farther than most believe. The question, is where do the probabilities lie in regards to this, and we look upon them in this blurb from the monthly perspective.

Quite simply, the risk-reward is to the upside given the October-2011 trade formed a bullish monthly key reversal to the upside - a signal that new highs were a higher probability than previously thought. Certainly given the European fiasco, one would have thought prices would trade lower; but when they did - it was only for a very short period. This is reminiscent of the pattern seen during the Russian debt crisis in 1998, when prices traded lower in October-1998 - only to trade over +40% higher in the ensuing 18-months. Frankly, the current technical pattern seem eerily similar from a corrective and MACD point-of-view - which would lead one to surmise that new highs in the S&P are forthcoming - in all probability into the 1600 area. But having said this, even if new highs develop, we would this as a bear market rally in much the same manner as those were in the 1970's trading range that broke to new highs only to falter massively in the months thereafter.

This is change in tenor for us; and one that we've held out for as long as we could. We are a "bear" with a bull hat on for the moment. The fact of the matter is that the S&P has broken above, and extended above all the necessary moving averages - which puts the risk-reward to the upside. There are other markets as well breaking out on a monthly basis such as Brazil, India and other Latin American countries - although China is not yet done so, or is even close for that matter. We've been bearish, and we've been rather wrong. Our outlook going forward will be for a weakening rally, with Energy, Healthcare and Gold/Silver shares leading the way. Moreover, we see an increasing potential for a "melt-up" to develop as rotation takes place out of bonds and into stocks. The low volumes associated with the markets at present certainly provide for this context.

So, the craziness continues...and we are left in humble stead to play "catch-up" until its time throw everything away again.

Since the beginning of the year, we've seen both Gold ($GOLD) and her sister metal Silver ($SILVER) rally; but we've seen Gold under-perform during this rally. This is exactly what should take place in a metals bull market. But that said, the Gold/Silver Ratio remains at a very critical area in our opinion, for up to this point - it has tested its overhead 600-day moving average and turned lower. Again, this supports a metals bull market, for silver is the leader; and history bears this out.

But what if this changes,? Rightly or wrongly, we are concerned about whether this is simply a correction from the 600-day, upon which another assault and perhaps breakout above this level is about to take place. If so, then the current good bullish feeling in the metals market shall dissipate rather abruptly, with traders running for the hills as the probability would be higher that Gold would then test the $1300-$1350 zone where the 150-week moving average crosses (this dynamic was shown in the CWW publication two weeks ago).

Therefore, in taking into account where Gold prices are today at $1665, and the position of the ratio - we would need to see gold rally strongly over the 30-week moving average at $1687 - AND - we would need to see silver outperform. If these two circumstances were to take place, then we would expect new highs in both Gold and Silver in the months ahead.

Good luck and good trading,
Richard

The downside violence in the Gold market as abated for the the time being given the reallocation and repositioning for the New Year. There are many the recent drop is sufficiently of the cathartic-type that will send prices to all-time highs, for we all know that "all the current roads lead to inflation - at some point" as the worlds' central bankers continue to print money. However, we are of the opinion that gold prices have further downside work to do before a strong bottom is formed that will indeed be sufficient for higher highs.

Our opinion stems from the gold chart, and the fact that gold has clearly broken below its 30-week moving average. In the process of doing so, a "head & shoulders" top pattern was confirmed, which now measures lower into $1280-*to-$1300 zone. This is currently where the 150-week moving average, which is where the 2008 correction feel to and then turned prices higher. Another interesting historic technical metric, the percentage below the 30-week moving average in which gold generally bottoms is between -12% and -17% below it - which would put prices in the range of $1476 to $1392. This zone was not tested on the most recent decline, so there is likely more downside forthcoming. .

Therefore, we are most interested in the 150-week moving average, and where it trades as time goes forward.