I realize that you may already be out of the precious metals market, as I've mentioned many times in the previous updates that the risk of a temporary downturn is high, however short-term Traders that have been waiting for the price go a little higher before correcting will find this alert useful.

In the previous Market Alert (Oct 6th) I wrote that "given the strength and volume of this week's rally, it seems that it can take gold to the 1070-80 area before looking back" and this is what took place - gold reached 1,070.70 on Oct 14th. On the other hand, taking into account the symmetry in the shape of the upswings it has been suggested that perhaps PMs would move higher before declining. I'm sending this Market Alert, because based on yesterday's price action on the gold market (along with gold stocks) it is no longer probable that a move higher would materialize before the correction. The above is confirmed by the action in the USD Index, which moved to the 76 level - the upper border of its trading range.

The situation on the general stock market is concerning, many stocks moved lower on rising volume and the SPY ETF is currently at its lower support line. Based on the current values in our correlation matrix it is likely that a breakdown in the main stock indices would drag PM stocks with them, but metals would be affected to a much smaller extent. It is not yet certain that the general market would move lower from here (and I would need to see the confirmation of this breakdown before making final calls), but it is worth keeping in mind that PM stocks may correct deeper.

Again - it is not certain yet that we will have a breakdown from here in the general stock market, but if we do, I believe it would be a good idea to limit one's exposure to PM stocks or (if you are more risk-averse, and don't want to be completely out of the market) to switch from PM stocks to metals.

Summing up, the next local extreme will be a local bottom (and support levels mentioned in the latest Premium Update are still most likely to stop the decline). There are early signs that the bottoming process is beginning (i.e. yesterday's signal from the SP Gold Stock Top #2 Indicator). Whether or not a bottom will be put in the PM sector in the next several days, depends to a large extent on the general stock market. I'll let you know once we have more information.

Sincerely,
Przemyslaw Radomski