As of last week our Inflation/Deflation Moving Average was at -2 for the first time this year. It bounced back a bit on Monday to -1 but depending on how the week ends up could stay at the lower level.

Unless we are wrong about this being a secular bear market, the recent rally in stocks is an age old bear market trick to suck as many people as possible into the den for the big kill. Despite all the evidence to the contrary, an increasing number of investors are feeling positive about the stock market. And of course as Richard Russell points out, we have to listen to the language of the market.

But the language of the market is not all that positive, at least not yet. Volume for example has not been as strong on up days as on down days. And as Richard himself has pointed out in the chart of the DJIA (left),  “Here we see a series of declining peaks, each peak below the preceding. This is the formula for a market under pressure, a market under distribution. Fight it on your own, if you wish, but it's not a market I want to be in.

Of course if this pattern is broken, we will have to take note. And for sure, if the April 26 highs are taken out, as Dr. Robert McHugh as pointed out, it will mean the major (B) wave up—the corrective wave from the secular bear market that began in 2000 is not yet over, meaning we would have some more upside potential from the peak of April 26^th before the major (C) wave down gets underway.

Dr. McHugh also points out that there have been a large number of panic up days and panic down days. That is a sign of instability very much akin to that seen with Hindenberg Omens.  Overall, I remain very, very skeptical of this rally. Time will tell whether my skepticism is justified.

In any event, what is most important to us in following our gold mining stocks is that the real price of gold continues to hold very strong as seen above. That should be good for gold mining profits. Over the next few weeks as the majors begin reporting profits, we should find out if my thesis is holding true.