As noted in a previous post, HUI has sneakily diverged bullishly from gold on its last 3 tests of 320. Here is another look at it after a few more bullish days of trading.

At the same time, the gold miners product is declining vs. their costs. Something has got to give. As long as gold doesn't make new lows vs. the likes of crude oil & industrial metals, we grind forward in the oncoming contraction (of whatever magnitude) camp.

A weekly chart of the S&P 500 shows no break downs whatsoever and in fact looks like a bullish consolidation. With techs leading and short interest high because everybody KNOWS the market is coming down, it may be quite a grind getting this piggy under control. This is the miracle of funny munny, there is enough of it in play that walls of worry have been constructed the world over. Too bad they are all built on a sand foundation (debt).

With short interest high and a holdout public still generally not in acknowledgment of the bull market, it is not a stretch to imagine a blow off to impressive new highs as shorts give up and cover and the public, seeing this, finally jumps in. Henry To covers this subject quite well in High Short Interest the Achilles' Heel of Bears. I have been watching the semi's - a leader of late - with great interest. The SOX is still 'big picture' bearish but a blow off up to stiff resistance will feel like bullish nirvana as techs continue to lead. We of course keep in mind how this scenario ended the last time technology accelerated to the upside. What is needed of course are some good 'stories'; updated versions of '.com', 'XML', 'DWDM', 'e-anything', etc. What is also needed is for the financial media to dutifully get on board the bullishness and give the public permission to buy in - if the public is not yet tapped out and if there are no major leveraged financial accidents along the way.

Meanwhile, crude oil continues to be strong. I was incorrect in not respecting this rebound as I thought 70 and below offered solid resistance. If gold is firm and the miners are strong because of the "inflationary" effects of crude oil, then that is a tragic circumstance for gold bugs because as Bob Hoye and Steve Saville point out again and again, gold is counter-cyclical. Also, rising oil is not inflationary. The only thing that can be inflationary is rising money supply.

Here we have dear old Uncle Buck. The only thing not bullish about the world's reserve currency to bottom feeders and contrarians is the small fact that this note denominates a nation that thinks it can live indefinitely on credit. CONfidence has been bred into the average American that our money is highly desired the world over. And that may be the case, but this is temporary in that developing nations are funding our outright hoggish consumption habits while we fund their development. We are a tool. Our currency is a tool.

Speaking of foreigners' willingness to finance our operation, here is a chart you are probably tired of seeing me post, the TNX (10 year yield). Our target for a retrace has been "4.9% to 5%" (top end of target has been hit) since the TNX did as we expected and made a strong move up to, and failed at the 5.25% resistance noted. To this point I have been looking for a healthy retrace from the impulsive run up and then a blast to new highs. That is still the favored scenario but on this chart we note what could be some sort of a rough inverted head & shoulders pattern which has already expressed itself to target. Just an FYI as we must consider all possibilities and it is possible that rates do not have much higher to go. Again, I don't favor this view - especially with the Dollar still stuck in Mudville, but there it is anyway.

Have fun putting all of the above into a blender along with all the other analysis out there. These are certainly interesting times and frankly, I have rarely enjoyed market watching and participation more than now. As slavishly noted over and over again, our accounts are in defensive mode although I hold no shorts on anything. One potential oncoming no-brainer short is the Chinese stock market. But it has not yet blown off to target. The prospect is exciting however and I look forward to putting a chart up at some point that shows why.

Good luck and be safe.