Editor's note: Part three of Chris Ciovacco's seven part series will resume shortly. The comments below are timely since they apply to both the very short-term and the very long-term. The fundamentals behind the seven part series remain firmly intact.

There is no question that the markets made an intermediate bottom on June 13th. All three major indexes also had follow through days within six days after the bottom, which gave positive confirmations that some type of rally was most likely going to take place. Hence, our decision to slowly feather some very small amounts of money back into several asset classes after taking some profits in early May.

However, all three major indexes also have seen four distribution days since the positive confirmations. This raises a red flag as to whether June 13th was "the bottom". Additional red flags are the fact that the NASDAQ, which tends to lead all markets higher, was unable to break its 50-day moving average. Similarly, both the DOW and the S&P 500 did make a bullish move above their 50-day moving averages, but they have been unable to remain above their 50-days, which is not a good sign.

If you look at stocks, specific sectors, commodities, and bonds, the market seems to be forecasting the next few months as follows:

• The economy will slow which is evident in the recent strength of consumer non-cyclical stocks (stuff people still buy during a slow down like food, beverages, health-related products, etc.)

• The FED may not be done raising interest rates. There has been no rush in the bond market to move into longer dated securities. That rush could begin at any time.

• Oil may have a tighter supply and demand balance than many thought. This conclusion is drawn based on the fact that the Fed was able to "talk down" almost all markets including gold, silver, and base metals. But oil barely reacted to all the tough talk on inflation. Said another way, oil prices will most likely move higher over the next 12 to 24 months (maybe much longer than that and much higher than most think).

• While there is no question that gold and silver have exhibited a bullish stance since June 13th, the volume on gold and silver investments have only been cautiously bullish. My read is that the precious metals markets are tentatively bullish because the Fed may have some further "tough talk" or rate increases in the next few months, which could knock down gold and silver again. My guess is that once the Fed signals a pause, or more importantly an end to the current rate raising cycle, gold and silver will move to more obvious bullish up-trends with more impressive upside volume. The current bullish bias on gold and silver is based on the forecasted economic slowdown and realization that the Fed will stop raising rates at some point in the not-too-distant future. The long-term bullish case for gold, which is a whole story within itself, is based on the global debasement of fiat (a.k.a. paper) currencies. Since fiat currencies are not going away anytime soon, the long-term (next 5 years or more) bullish case for both gold and silver remains firmly intact. If gold can close above its 50-day moving average (currently at $634.80) and remain there for several days, it would significantly improve the short-term bullish case. The same can be said for silver, which is also below its 50-day moving average.

Please keep in mind the following: (1) The markets may be misreading the future, but I doubt it, and (2) the comments above are one man's interpretation of what is happening.

From where I sit, I remain long-term (next 5 years) bullish on gold, silver, and oil. I also believe the ride, especially for gold and silver, will remain very volatile since rising prices of these commodities eat away at the credibility of all central banks. You can expect the FED to "talk down" gold and silver numerous times during any resumption of a long-term bull market.

Oil is a different animal and will most likely move based more on supply and demand. The perception of slowing global growth may also prove bearish for oil in the short-run. However, even under slowing global growth, the demand for oil will continue to increase albeit at slower rate (read bullish). When supply is tight, even small increases in demand will have a positive effect on price. I think oil will eventually get to $100. It will slow economic growth and reduce discretionary spending. At $100 per barrel, it won't be a total disaster, but as it moves higher and higher in the next five to ten years, which I think it will, it will cause larger and larger problems.

While there is really no evidence to back up this theory, I feel the media has overstated the geopolitical premium in oil. There is no question that a geopolitical premium exists in the oil market, but it may not be as large as many market participants think. I think the vast majority of oil's rise is based on simple supply and demand.

Unless or until we see a significant global recession or depression, I am firmly in the inflationist camp. I do believe that deflation will come after a period of more inflation, possibly ending with hyperinflation. There is too much debt in the economy at all levels for the governments around the world to stand by and watch us slip into deflation. They will do everything in their power to prevent deflation, which in turn will be inflationary. At some point, they will fail and the deflationists will finally be right after being basically wrong for a very long time. I respect the deflationists, but the markets have not treated them well as investors.

In short, inflation first - then deflation. If deflation hits, we will have time to adjust - we are nowhere near the beginning of a deflationary cycle - it is at least several years away unless something catastrophic happens, which is always a possibility in today's world of derivatives, global unrest, terrorism, etc.

The comments in this article are based on market activity as of Wednesday, July 12, 2006 at noon EDT and are subject to change based on future market activity.