Tuesday's blog post highlighted several developments which suggested stocks and precious metals were set for corrections, and the action into the end of the week supports that notion. After attempting... and failing... to negate Tuesday's large reversal, gold broke lower, throwing the odds sharply in favor of a larger corrective move.

Now, I don't know if a correction will actually take the shape drawn above, but several indicators suggest we are in for a more drawn out correction than most gold bulls expect. First, bullishness in the gold miners is extreme:

Of course, prices can continue to run higher while oscillators are stretched, but I certainly wouldn't want to get caught with leveraged positions at such a time, especially given the risk generated by Tuesday's action.

Gold's price in terms of silver, which has been crashing, also seems to be prone to a bounce:

The triangle projected the ratio to 51 which, coincidentally, was tagged on Tuesday. We should now see a bit of retracement in this ratio, corresponding to a pull-back in metals prices.

One could also note that industrial metals are due to cool off a bit before further advances can be seen:

A trend line break does not necessarily mean the larger move is over, but would implicate metals... and perhaps the commodity complex in general... in a substantial pull-back.

Ultimately, the nature of this correction is going to depend on how the dollar bounce unfolds.

Weekly swings, especially when formed with such powerful moves as we witnessed last week, tend to form the footings of stronger rallies. Will such a rally materialize? Consider that after the 13-point plunge in the dollar index out of late spring, sentiment around the dollar was already rather crummy. Then the Fed comes along and confirms a well-publicized counterfeiting operation, sending the DX to a marginal break of its 3-year trend line. That the trend line was recovered so quickly and was followed by a continued snap higher reeks of a bear trap. We should now see the dollar rally far enough to work off a big chunk of that bearish sentiment (I would like to provide you with firm sentiment numbers, but sentimentrader.com has been down all week. I am certain, however, that bearishness is stretched). Furthermore, I would not be surprised to see a trap form on the bull side, as well. A break above DX 80 would get dollar bears scrambling to cover just in time for the buck to roll over into the major cycle low due in spring.

Like the dollar, stocks also posted a marginal break of a pivot before reversing:

There was quite a bit of euphoria generated by the FOMC meeting, especially after several members of the Fed suggested the cabal was explicitly targeting higher stock prices. As with dollar bearishness, bullishness toward equities reached levels in need of punishment. It remains to be seen whether this action will prove to be a significant top or just a run-of-the-mill correction. We certainly did not see any significant distribution days as the SPX surged into the peak. However, the bond market is blaring warning signs:

The 5 and 10-year notes have also been seeing their yields move higher. Rising interest rates will do the stock market no favors.