Two weeks ago I wrote the following: "I think there is a good possibility that the gold market is at, or very near, a major bottom. I think a major investment opportunity is upon us that only comes along perhaps once a year or every few years."

Well my friends, it looks like my timing was impeccable and it looks like we've seen the bottom in gold and gold stocks.

So what now? Gold metal, as well as gold stocks, have had a nice to weeks, however gold will not do a V bottom here. In other words, I think gold metal, as well as gold stocks, will consolidate and base for a little bit. The US Dollar, which has fallen the last two weeks, is not short term oversold and could rally once again which will put pressure on gold and corresponding stocks.

As you can see on the yearly chart of gold metal, gold is right at resistance near $330, it will either break this level, or pullback first. What gold does here will depend on what the Dollar does this week.

This next chart shows us that gold has ended it's 5 Elliot Wave down trend and has begun an up trend. However, as you can see, resistance is just overhead in the low $430s as marked by the gold band. Gold may need to test this level a times before finally breaking through.

When discussing the gold market, it is prudent that we also analyze the US Dollar because gold and the US Dollar are inversely correlated with one another.

The US Dollar has rallied since December, which was the main reason for the pullback in gold. The Dollar topped out about two weeks ago, which corresponded with a rally in gold and corresponding stocks.

Currently, the Dollar is getting short term oversold, as you can see from the stochastics. Therefore, sometime soon, the Dollar may try to rally again, and when it does, gold and corresponding stocks will pullback.

Here's a long term chart of the Dollar, as you can see, any rally in the Dollar will probably be short lived. During the last rally, the Dollar did not test the 200 MA, I suspect there is still a good possibility that the Dollar tests the 200 MA.

Also, the one thing we 'gold bugs' don't want to do is to be blindly bullish and caught off guard just in case the Dollar began a strong rally and gold fell to new lows. The Dollar chart below, while weak, could recover and rally strongly, especially if the 200 MA is broken clearly on a rally. Also, the Dollar has the look to it like it is trying to form a bottom.

My point is, don't be so blindly bullish that you will be caught off guard, just in case the Dollar strengths and gold falls to new lows. I personally think we have seen the bottom in gold, but we have to aware that anything can occur in the short term.

Gold Stocks:

Gold stocks typically lead relative to the metal, and the best time to own gold stocks is when they are outperforming relative to the metal.

The HUI / Gold chart ratio below shows that gold stocks are finally starting to outperform relative to the metal. This was predicted via the positive divergence which had been developing in the MACD.

However, the HUI / Gold ratio chart also broke above the 50 day moving average. The 50 day MA has been a significant level in the past. Also, you can see that there is now a clear resistance level at 0.500 on this ratio chart. Therefore, a break above this level will be very bullish for gold stocks.

Here's the 'big picture' view of the above chart: This chart shows you just how important the 50 day moving average has been during this entire gold bull market. This year, I suspect the red dotted line will probably be the significant down trend line which will launch the next powerful up leg in the HUI. When that line is broken, we could see the HUI begin a rally that takes it up to the high $300s or the low $400s! Also, by the time the ratio reaches the red dotted line, the 50 day moving average will probably coincide with the down trend line, just has it has in the past.

This next chart of the HUI gold bugs index is a thing of beauty: Notice that major rallies off the multi-year up trend line have occurred whenever the weekly stochastics have been oversold. As you can see, the HUI found support at the up trend line, we couldn't have planned it any better!

The HUI is also forming a large symmetrical triangle, and I've drawn in red trend lines to show how I think this chart may play out this year. As you can see, I think the HUI could bounce around inside this triangle a couple times before finally breaking out later this year. Of course, the HUI could also break out of the triangle on the this first rally, we'll just have to see.

Also, I have placed the price relative to gold indicator on this chart. As you can see, another major buy signal will be generated once the down trend line on this indicator is broken to the upside. The red arrows represent previous major buy and sell signals based on trend line breaks.

As you can see, the HUI has rallied nicely since breaking the down trend line. However, the HUI now has resistance at about $211, and then at $220 to overcome.

The 60 minute chart of the HUI clearly shows the resistance near $211. Here's a tip that has worked well for me. There are two ways to play these gold stocks: 1 Hold them (marry them) and don't trade them, gold stocks are in bull market. 2 Trade them, attempt to sell into strength and buy on dips.

I'm a trader so therefore I trade them myself. One thing to note if you trade gold stocks, it is best to buy the pullback, rather than buying on breakouts. I know this is contrary to the website name, breakpointtrades, however it works far better.

Here is my strategy, it is very simply, but it works pretty well: Gold stocks have now bottomed and are in an up trend. Therefore, I buy gold stocks when the stockchastics are oversold on the $HUI, and I sometimes take profits when the stochastics are overbought.

I DO NOT BUY GOLD STOCKS WHENEVER THE STOCHASTICS ARE OVER BOUGHT ON THE $HUI.

As you an see, on the chart below, the stochastics were over bought late last week, therefore I took some profits on gold stocks. Now the stochastics are beginning to fall, and once they reach oversold levels, I will buy gold stocks once again.

I know this is over simplified, but it seems to work well.

Palladium is starting to look interesting once again, there is positive divergence in the MACD and it seems like a base is trying to form.

SWC is a palladium stock that looks good, notice the positive divergence in the MACD.

Take a look at the long term chart of SWC, note that SWC has bottomed off support near $10 and is forming a nice base.