Three 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 and corresponding stocks will not simply go straight up, but rather they will 'stair step' up in a wave formation, possible an Elliot 5 Wave or an ABC pattern.

Gold looks strong on a yearly chart which shows that is has recently broken resistance near about $430, and the MACD is now trending up nicely. The $430 level will now act as a support level on a pullback.

Let's take a closer look at gold metal via a 6 month chart:

This chart shows us that gold completed an Elliot 5 wave correction in early February, and logically, a new wave has now begun. This new wave could either be another 5 wave, or an ABC 123 pattern. My point is, eventually we will get either a wave 2 pullback (if it's a 5 wave) or a B pullback (if it's an ABC wave). Obviously, one of these corrective waves will produce major buying opportunities.

The question is, how long will this initial wave last? There is no way to tell, therefore if you sell out completely, you risk doing so way too early. For myself, I have sold portions of my shares, however I have also kept a lot of my shares. I do not want to run the risk of selling too early and losing my positions that I waited so long to establish.

Gold now as support in the gold band region below in the low $430s. Also note that I have placed the 8 day moving average on this graph: Some of you may initially question this, however it has been my experience over the years that when a stock or index begins a momentum move up, that it repeatedly bounces off it's 8 day moving average during the momentum move. Curiously, gold metal appears to be doing the same thing, as well as the gold stocks indexes such as the HUI and XAU. Gold could continue to find support off this 8 MA until the next resistance at about $445, or it could beak it an anytime, there is no way to tell.

Next is the chart of gold metal, along with the commercial net short positions. As you can see, the commercial shorts have been very adept at picking major tops and bottoms in gold: Typically, the commercial traders have about 3 times as many short positions during a major top in gold, as they do during a major bottom in gold.

As you can see, and many of you already know from my past newsletters, the bottom in gold was very accurately predicted by the commercial traders in early February with only 38k net short positions.

After gold hit bottom in early February, it has enjoyed a very nice rally. However, the commercial net short position has also risen. As of February 28th, the commercial net short position has risen to 73,600!

Does this mean a pullback will occur any day now? No, but we need to keep an close eye on it.

Silver metal has also enjoyed a nice rally along with gold. Currently silver has strong support near $7, and a target of near $8.

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 broke down from a bearish rising wedge in February, which concurrently caused gold to find support and rally.

Currently, the Dollar has support in the gold band region below. If the Dollar rallies off this support level, the we finally get that pullback in gold and corresponding stocks along with a new buying opportunity. However, if the Dollar breaks support, then gold and corresponding stocks will continue their rally.

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 is the long term chart of the HUI. Some of you may be asking yourself why I continue to show this same chart week after week? The reason is that this chart is a thing of beauty, I just can't stop looking at it!!!

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. What's amazing to me is that while it seems that gold stocks have had a hell of a run up this month, it has only just begun. In fact, a major buy signal hasn't even been produced via the price relative to gold indicator at the top of the chart. When the HUI finally breaks out of this triangle, it could easily run to $330!!!

One gold stocks that appears to be following the HUI to a tee is NEM. NEM is the blue chip of gold stocks, and while it may not move as fast as the small gold stocks, everyone should have NEM in their portfolio.

The HUI has had a nice run since breaking the down trend line in early February. However, the HUI has strong resistance near $220 to overcome, but it also has support near $211, as well as the converged 50 and 200 moving averages. Stochastics are now overbought, therefore there is a strong chance that the HUI pulls back and or consolidates before breaking the $220 resistance level.

Remember, gold stocks are now in a major up trend, use pullbacks or consolidations as buying opportunities.

Next let's take a closer look at the HUI on a 60 minute chart:

The HUI has major resistance at about $220 as shown on the daily chart. However, the HUI has support levels near $211, and $204, and a minor support at about $207.6 which is the 38.2% Fibonacci retirement for this rally.

The support level near $204 also coincides exactly with a 50% retracement of this rally. Also note that the recent up trend line on the price relative to gold indicator has been broken. Perhaps this is sell signal that will begin the consolidation and/or pullback we have been waiting for.

Keep a close eye on this chart next week.