Important technicals:DJI vs gold.

Important technical considerations are becoming clear re the Markets.

One way of analysing a Bull Market is by the "fan method." This involves connecting the bottom of the Bear Market to interim tops before a strong correction. When the Market breaks below the third fan line, the Bull Market is over. Last week's 500+ drop hastened the end of the Bull. We are now n Bear Market territory, because the DJI dropped more than 10%. So, the next question is how long will the Bear Market last. That is harder to ascertain. It really depends on the FED. The FED will have to inject gobs of money into the system in order to end the Bear Market and to stop the economy from deteriorating further. The amount of money to be injected, and its timing, will decide the "when?" and "how far?"

Another import technical point concerns the gold prices. The second figure shows the test of the Gold Bull Market and 5 successful test of the 150 Day Moving Average. There are other important technical and a fundamental considerations. Gold prices fell during the 2008 Bear Market, but they are rallying now. What is the difference? In 2008, the Markets were frozen, because the switch to Mark to Market had frozen the money supply and investors had sought the safe heaven of US Treasuries. Now, the Treasuries are no longer safe havens (see the downgrades and Chinese comments - after all China is the biggest market for Treasuries) and investors are beginning to flock to gold as a safe haven.

Another important technical indicator was the gold price of 1,680. Many traders were waiting to buy in when gold closed above that. These orders are now being filled in and according to some, the rise in gold price to 2,300 is assured.

Another technical indicator will be at 1,764. If gold closes above that, it will go into a hyperbolic pattern with gold advancing very rapidly. What will propel gold prices? The coming QEs in the US and the ECB rescuing Italy and Spain by buying their bonds. In order to do the rescue, the ECB has to print a lot of Euros (the 66 or so billion Euros are not even enough for half of what they need). The Markets anticipate inflation.

Finally, we had been warned that the 1,764 level will be heavily defended. Closing above that will be a capitulation by gold bears.