By Chris Vermeulen
Last week the broad market slide lower on heavy volume as the DOW tries to hold the 8000 level. If this support level is broken then we could see another leg lower with the DOW sliding down to the 6500 level.

The reason I am mentioning this is because gold surged higher on Friday with big volume as traders start to anticipate this drop as well as the drop in the USD which is currently at a short term resistance level. If the market starts to drop, then holding gold stocks may not be the best safe haven. When the market sells off it tends to pull all stocks with it, by holding GLD fund or physical gold, SLV fund or physical silver, and the USO fund or physical crude oil, you could have better returns on your investment trading the commodity rather than going long stocks in a bear market.

If you look at the monthly chart of the Dow Jones Industrial Average you can see that both of the previous bear markets back in 1998 and 2003 both bounced off the 6500 level before starting a new bull market. The Dow is currently at the 8000 level and looking very weak. I don’t forecast prices but technically the market could break down and reach the 6500 within 1-2 months with our current level of volatility in the market and continued negative news with the tarp bailouts not working.

Spot gold prices soared on Friday as investors move their money into gold which is generally a safe haven during tough economic times and a US dollar which could drop sharply within the next 2-3 months.

The weekly gold chart shows a very clear breakout to the up side of its current downward trend line. This chart looks to be strong its is important to note that it still has not made a new higher high, and is now trading at resistance of the previous short term top put in place last November. Gold could just as easily drop from here as it could rally.

We did not have a buy signal last week because momentum was very strong to the down side on the daily chart. I only like to play reversals when we have momentum in our favor. That being said, momentum is now in our favor and we will be looking for a pullback for possible entry points now. On the daily chart the MACD was headed lower with a breakdown which is the main reason I was not willing to put our hard earned money to work. I do miss some nice moves if our funds but I make sure the odds will be in our favor before pulling the trigger.

Silver had the same things happening to it as gold did last week. MACD (momentum) was down and its risk was over 3%. We are now looking for entry points during a pullback.

Gold and silver look like they have started a move higher as traders and investors put their money into something tangible which is a hedge against a falling dollar. I think these metals will perform much better than the gold and silver equities if the market does drop from here. That being said, if I get a buy signal for the equity funds I will take a position in them for sure. Waiting for a low risk trade with the odds in your favor is difficult but crucial if you want to succeed in the long term.