Chuck checked in early this morning…

1) The market is so obviously vulnerable that it is almost impossible to find anyone who sees it going up. That could mean a quick sharp down spike with a huge reversal, but today's release of the Investors Intelligence survey makes this much more improbable. Today's report showed that the ratio of bulls to bears fell back to the level of March 2009, the bottom of the crash, and one of the lowest readings in 20 years. That reeks of rank capitulation!

As I tried to show recently, this market in no way looks like 2008.

At that time before the market collapsed optimism was very high, silver had fallen $4 over a three day period in March as the first warning sign that things weren't right, and the HUI had broken down almost two months before the stock market collapsed. The gold index fell almost 50% before the stock market caved in. At this point, silver and the HUI have been leading everything up and instead of a break down, I believe they are pointing to a break out.

2) Silver continues to behave as though it is ready to explode. Yesterday marked the second major intraday reversal over the past two weeks. Last week it reversed $.65 in an hour and a half; yesterday it was $.45 in two hours, and almost $.60 in 3 hours or so. That is not the kind of price action you have if silver was ready to collapse as expected under many deflationary scenarios. I expect silver to go to $25 or so by the end of October, and perhaps $30 or more by February. The ratio between gold and silver should continue to contract.

3) The HUI continues to outperform the Dow at every turn, although it still behaves like a car that has one foot on the accelerator and one on the brake. That is because it still needs the stock market to start to move up. This is also the tension that exists between inflation and deflation. I think the HUI can go to nearly 675 by the end of October, or 50% from here, and then much higher by February.

4) A key point is that we are conditioned to disappointments even after 9 years. Almost all of the sharp moves have been to the downside. So if we have a breakout, it won't be be trusted at first and the PM complex will go much further than we could imagine. If you look at Goldcorp you see that it is now up about 18 times off its 2000 low. Yet the only major sharp move was to sell down from $52 to $14 in 2008. I think there are many gold believers who are totally out of the share market because of having been burned time and again. Besides the large stocks, the juniors are behaving well and the explorations are starting to trade much more heavily and positively.

Apropos to the stock market back in 1982 stocks hadn't moved in over 16 years. Everyone was conditioned for the worst, never imagining what was about to take place. Suddenly stocks caught everyone by surprise, going up 40% in exactly 2 months, and eventually to 2,700 by September 1987. I believe this is the current situation for the precious metals, and especially the shares. The initial thrust will be shocking and catch many cautious gold bulls napping.

The HUI being more volatile should go up more than the stock market did back in 1982, so that's why I say 50% or so. It might be more and I expect some of the smaller shares to double quickly. The point is that we should see some real fireworks all over the place soon as the summer fades away. The PM shares are champing at the bit but as the fear of deflation ebbs, they will rocket up.

5) The Canadian dollar is obviously weak because of the oil drop. I assume this will change soon as the dollar is driven down and will be a major plus for the shares that are denominated in Canadian dollars..

6) Copper is holding up very well, in spite of the deflationary expectations. This morning it is up to almost $3.40. A rising copper price is unexplainable if a devastating sell off is in the cards.

7) The news from India and China, from what I see is extremely positive. This is happening as everyone is fixated upon the West. Once oil moves up, the currency producing countries will be mostly gold friendly.

8) Sooner or later, the fact of the precious metals conspiracy and naked sales will put rocket fuel into the metals. The proof will be in the pudding, as the expression goes. We live in a very corrupt world but most often the crooks do get exposed.

That's all folks. It should be fascinating, fun and exciting in a short while, if you are not short. Chuck ikiecohen@msn.com