Markets arrived at crossroads, and big moves are around the corner.

Seldom have we seen so many assets and indicators at decision points simultaneously! We see stocks, gold, and the U.S. dollar, in conjunction, trading at extremely important levels in their chart structures. This is not technical analysis, this is intermarket analysis.

First, as indicated in recent analysis, risk indicators in U.S. stocks have turned positive in recent weeks. That suggest a bullish outcome for stocks, almost exactly at a breakout level. We prefer to let the market do its work, and so far we have not seen a breakout. But there are sufficient signs that it is in the making.

As stocks are testing key resistance, the U.S. dollar is testing secular support. Needless to say that the next chart is of incredible importance to all markets worldwide. Remember the summer of 2014, when the dollar broke out big time? It created a domino effect in all markets: crude oil crashed with more than 70% (the steepest decline ever), stock markets went through a flash crash, emerging markets collapsed, … If the dollar manages to hold the 92 level, it would imply a successful test of its secular breakout. We should not understimate the importance of it, as the dollar would be in a confirmed bull market, or, at a minimum, in a consolidation phase of a bull market.

We realize that a dollar bull market is not in line with the expectations of many, including ourselves. Let us reiterate, as we have done repeatedly in the past, that we are not in favor of that outcome. We do not believe extreme monetary policies will end well, and the sooner a correction in monetary markets takes place, the better. Our job, however, is to read the message of markets, regardless our opinion(s).

Talking about expectations, below is the chart featuring inflation expectations. This is another case of an asset that reached multi-year resistance.

While all previous charts were interesting and meaningful, the most fascinating chart currently is GOLD. This is an incredible story. The yellow metal moved from the bottom to the top in the descending trend channel in a matter of weeks. That was an extremely powerful move.

However, gold is being stopped currently, and seems not able to rally further. Gold's huge resistance area coincides with secular support in the U.S. dollar, resistance in inflation expectations, and resistance in U.S. stocks. That is really no coincidence. From an intermarket point of view, this is an extremely important period of time, as the next big moves are brewing, and we can expect sooner rather than later a resolution.

Which direction will gold go? We believe the rally in gold is over, and a sharp correction is in the making, based on two indicators.

First, gold miners, a leading indicator in the precious metals complex, have reached extreme resistance. Note on the next chart how that resistance level goes back to the 2013 collapse. After an incredible run in which gold miners doubled in a matter of weeks, this rally seems extremely overbought, and we see a sharp reversal right at the upper boundaries of resistance. This is extremely bearish.

Our second, and more important, indicator in precious metals is the COT report. Readers know meantime that we are focused on the combination of extreme net positions of commercial traders combined with the rate of change of net positions. Both paramaters suggest an extremely bearish outcome. Commercial traders have accumulated short positions in a very fast way (too fast), and reached extreme levels not seen since December 2012, right before the big crash of precious metals.

Are we now saying that a crash is coming in gold and silver? Not necessarily, but our point is that a severe correction is in the making, and we do not exclude that gold will fall back to the lower area of its trend channel, which would be right above $1,000, based on the extremely bearish COT report and the gold mining index.

CONCLUSION:

We believe gold is about to correct sharply. The U.S. dollar is testing its breakout point, watch whether the 92 level holds for a breakdown or a confirmation of its bull market. If gold corrects and the dollar stabilizes, stock markets will trade at all-time highs very soon.

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