It's been another very stressful week for investors and speculators counting on further strength in the precious metals sector, but we have reasons to believe that 'this is probably it'.

The HUI index did fall substantially, almost erasing its recent gains, but please consider the following facts:

-U.S. Dollar Index rallied to its previous highs, which is also a critical, multi-year resistance level (80) and today it formed a 'doji' candlestick – suggesting a reversal. At the same time gold is very far from its recent lows. Silver did not break through its previous lows either. The performance of both precious metals suggests that further rise in the USD will have limited impact on their price, whereas a decline in the USD should trigger a sizable rally.

-The general stock market measured by the S&P Index reached important resistance levels after an extensive decline. It seems that everywhere you look, you see some kind of 'bad news' relating to the stock market or the economy. Most essays in the financial press revolve around the word 'crisis' or 'depression'. This applies also to newspapers outside of U.S. or Canada. They all convey a similar message – 'the stock market is dead; all it ever does is fall; people lose money on stocks'. There's blood on the streets and we suggest taking advantage of it.

-The HUI / SPX ratio is rising despite the recent drop. This means that the precious metals stocks are now acting strongly relative to other sectors. If the ratio continues to rise (which we expect), and the stock market rises, then the HUI will gain from both of these factors.

-HUI is at its previous lows – which is a serious resistance level. We don't expect the volatility to decrease, so the rebound should be sharp.

How do we take advantage of the current market situation? Besides adding to your long-term holdings, you can make additional speculative purchases of precious metals stocks and / or call options on them. Currently our favorite gold stocks are AEM, ABX, GG, BVN. We also like GDX as it is already diversified. A good way to play the stock market's rebound might be buying calls on DIA and FCX (as a base metal producer), which is currently very oversold and has now reached a solid support at the $40-$45 level.

Once again our model suggests a small amount of money (definitely less than 10%) could be used to purchase super-risky, yet lucrative October calls.

Please remember to speculate only with money that you can afford to lose. Please check our Position Size Calculator in the Tools section for more details.