Last week's price action unfolded just as we expected. Money poured into stocks with the focus being on small-cap, bank and technology stocks. The fact that these sectors are showing strength while utilities, health care and consumer staples lag is a good sign that investors are once again taking risks in the market.
Because investors and traders are bullish on the stock market again, the money flow into the safe havens like gold and silver are decreasing. I believe this is the reason stocks moved up last week while precious metals drifted lower.
Below are three charts (dollar, gold and silver) showing what I think is most likely to happen in the coming week or two.
Dollar Index Daily Chart
The dollar has put in a very nice bounce/rally since the low in November 2009. Last month the dollar index finally reached a key resistance level of 81. I have been talking about this major resistance level since January, noting the dollar would find it difficult to break above this level.
Take a look at the daily chart below. You can see a head-and-shoulders pattern and a neck line, which appears to have broken late Friday afternoon. There is a strong chance the index could reach 78, which is the measured move down. If we get follow-through selling this week then I would expect 78 to be touched within five to 10 days.
SPDR Gold Shares and iShares Silver Trust Trading Charts
Precious metals have been moving very well for us recently. Using technical analysis we were able to catch the Feb. 5 low and also the Feb. 25th low on several ETF's.
As you can see from the charts of SPDR Gold Shares(GLD) and iShares Silver Trust(SLV), both metals are now in an uptrend, showing bullish chart patterns and trading at support. If we see the dollar break down next week then be ready to go long gold, silver and stocks.
