I talked about the intermarket relationship between stocks and Precious metals last week and pointed out that the NQ (Nasdaq 100) may have been putting in a quadruple top.  That top is history, for now.  You see, markets have a funny way of hurting as many people as they possibly can.  I was focusing on the NQ because it has clearly been the best performer in 2009 of all the major stock indexes.  The performance of the S&P and the DOW pales in comparison.  Getting back to my analysis, the high in the June NQ had been right around the 1285.00 level in January, February and again in March.  On Thursday the experiment blew up as the NQ made an intraday high of 1310.75 and, more importantly, closed above the 1300 mark.  Momentum traders got on board the breakout train and that’s probably what propelled the NQ to its high of 1327.50 in early trading this morning.  But wait just a minute here!  The market is trading 19 handles lower as I write this and my expectation for a peak in the first 3 days of this week may just come to fruition.  This could be the spark that lifts Gold and Silver off the mat and back in the fight.  The following chart on May Silver shows that the low that was made back on 3/18 (11.89 intraday) was a panic situation that provided strong support for this market over the longer-term.  If stocks should begin to tumble, and this morning’s action is looking weak, then Silver may be the market to be in.  Silver could quite easily rally back to the February highs if investors start to smell a trap in the equities arena.

So, to recap, I remain SHORT the NQ and, should the NQ be able to break support at 1293.25 on a closing basis, chances are that the Precious metals will have already shown signs that the decline is complete and a new leg up is underway.  Keep your eye on the MAY SILVER contract as we progress through the week.  If the market should break further and begin to approach the $12.00 level I’ll simply step in and BUY using the previous low at 11.89 as my stop on a closing basis.  This could be the BEST opportunity for being long SILVER since the October lows at 8.65.  You need to be ready to act because, as we all know, the best laid plans are worthless without action.

Good trading,

Dale F. Doelling, Chief Market Analyst

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