We were just asked if there's anything unusual about the current stock market run-up and the major buy signal for the general stock market which emerged - according to the Dow Theory - when Dow Jones Industrial Average and Dow Jones Transportation Average both moved above their previous highs. Here's our take:

The current situation in the stock market is particularly interesting. It's been widely commented in the press that the Dow Jones Industrial Average moved above the 2007 high and so did the Transportation Average. The S&P 500 Index, which is a proxy for the broad market did not move to new highs so far, and most stock indices around the world are below their respective highs as well. For instance the German DAX and the London Financial Times Index are in a position similar to that of the S&P 500 - close to breaking above the 2007 high, but have not done so just yet. The emerging markets are generally still far from their 2007 high.

Two of the major US stock indices have broken out and practically all the rest has not. What is unusual about this, is that a breakout in both: Industrial and Transportation Averages is considered a major buy signal according to the Dow Theory - something that tells investors when the major trend changes - these two indices have to confirm each other's breakout. Please keep in mind that when this theory was developed (approximately a hundred years ago), the economies and financial markets of countries all over the world were much less connected. It could very well be the case that if the Theory had been developed today, it would also take other stock indices into account. The particularly interesting fact here is that out of all the indices only the two that generated the buy signal moved higher. Is this a coincidence? Could be. Or it could be that some very influential entity wanted this buy signal to emerge to take advantage of people who buy on it, by shorting the market soon after that. There is no proof of that, of course, but let's say that we don't think that investors should take this buy signal at face value and that at least a confirmation from the S&P 500 should be seen before getting really bullish. This is especially the case given the damaged trust in the banking system in the recent days due to the seizure of 6.75% - 9.9% of deposits in banks on Cyprus.

In other news, gold priced in Euro has broken above the declining resistance line, which is great news. The average of non-USD gold prices (gold:UDN ratio) hasn't moved above the analogous resistance line, so the situation improved, but not dramatically. It does seem that we might see such breakout after today's session as gold is rallying even though the USD Index is not declining.

The headline on finance.yahoo.com says that "Cyprus is a game changer for investors" and we agree - its a major eye-opener for those who thought that gold was a barbaric relic and their money was safer in a bank. We think that this information is not getting the attention it deserves. Yes, the media are talking about it, but we think that investors worldwide don't think that it's a big deal - yet - so, this information is not "in the price". People know it, but are not focusing on the long-term implications. Consequently, stocks could still decline based on this news.

We are actually running a small poll on our Facebook page in which we're asking if there will be a bank run on Cyprus before the end of the month (vs. no bank run vs. more bank runs). So far the "No, don't be silly, there will be no bank run, not even on Cyprus" option has the majority of votes. There are a few votes for the "multiple bank runs" option, but keeping in mind that the voting could have been influenced by what we wrote in yesterday's Alert, it seems that actually very few people believe that the "Cyprus case" is really important.

Consequently, the positive impact that this can have on the precious metals market, it very likely still ahead of us.

Full speculative long positions are suggested for gold and silver and mining stocks.

Naturally, we suggest remaining in the precious metals market with your long-term investments. In particular, don't let the bearish analyses, declining prices or sideway moves make you sell your long-term precious metals investments. It's a good time to be adding to the long-term gold & silver investments, not a bad one.

As always, we'll keep you updated should our views on the market change. We will continue to send out Market Alerts on a daily basis (except when Premium Updates are posted) at least until the end of March, 2013 and we will send additional Market Alerts whenever appropriate.

Thank you.

Sincerely,
Przemyslaw Radomski, CFA