As you can see on this chart of the S&P, we had a false break out above the 1430 level, followed by a fast sell off, which is keeping with the normal false break out pattern.

The trend pattern for false break outs normally only allow for 1 to 4 up days within the down trend, until the prior low is tested. At times we might see up to 7 up days in a row, but rare. So far, the trend pattern for a false break out is holding, which tells me, we are in a bear market still and will retest the March lows.

Second, if we look back at 2001 bear market, as you know history is our crystal ball, you would see a very similar pattern. The market bottomed in early April, rallied into late June, for a total of 56 trading days. This current rally is 52 days old, but has only moved half as much as the 2001 move.

If you have been with us for a while, you know that markets tend to trend in 30, 60, 90, 180 time frame patterns.

As trademechanics, we are neither bears nor bulls. We prefer to look under the hood, turn off the TV, and see what the market is telling us. These characteristics might change and we will change with them. But for now, despite what you hear from everyone on TV, we are continuing to boost our GOLD and SILVER exposure, and saving cash to short the S&P when the downtrend is locked in.

If we look at the GLD chart for GOLD, you will see a similar false break pattern back in March as we are seeing now for the S&P. That decline is now 52 trading days old. I am anticipating that pattern of trend coming to a close, and reversing back into a bull phase.

The great thing about the GOLD trade, is its not dependent upon the broader market to sell off to do well. The bottonm line is, inflation is a reality, despite what super rich Larry Cudlow thinks. My guess is he hasnt needed to look at the grocery bill in a long time, and takes a helicopter to work.

A big market decline would play into GOLDs hands, but a market rally, would help GOLD as well.--Jon