Moving on we now consider the 2-year chart for oil. We have been rather unsure what to make of oil for some time, but now the picture is becoming clearer. It too is weakening in a similar manner to copper and the broad market. It too broke well below its 200-day moving average on the recent drop and challenged its February lows. While the pattern is not so clear as it is with copper and the S&P500, it too appears to be completing a Head-and-Shoulders top, bouncing now to mark out some kind of Right Shoulder.

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On our 15-month chart for the S&P500 index we can see why last month�s sharp drop inflicted such heavy technical damage. One reason is that it broke the market below its rising 200-day moving average, the first time that it has been below it for 10 months, which is the harbinger of a major trend change. Another reason is that it took the market down to its February low, which is the first time we haven�t seen a higher low.

Having painted the backdrop, let�s now see how the Precious Metals sector fits into all of this. We will start by considering the silver chart, move on to the HUI index chart and the S&P/TSX Venture Comp index and end with gold, the reason being that gold is the only chart amongst all those presented here that still looks, on the face of it, quite resolutely bullish, and is thus anomalous.

On the 5-year chart for silver we can see that it is now at a critical juncture. Unable thus far to break above the strong resistance approaching its early 2008 highs, it is clearly in danger of Double Topping with those highs, and with the more recent highs of last December. Early this month it had been looking poised to break out upside at last, but after the ugly turn of events of recent weeks, it is clear that the chances of an upside breakout have diminished considerably. If it doesn�t succeed in doing so on the current broad but limited recovery rally, which is thought unlikely, it will open up the risk of a plunge, especially given the current tight bunching of price and moving averages, which although bullishly aligned, will quickly swing to negative.

What this ignores is that while the ordinary Joe may be paid twice as much as the year before, if the money only buys say 20% of what it bought the year before, his purchasing power is still greatly reduced. When people stop buying, companies stop selling and earnings collapse. The recent dramatic earnings recovery was the result of massive injections of newly created money and stringent cost cutting, and it was discounted by the market some time ago now, which is why we had the strong rally from March of last year. Whilst we acknowledge that these Head-and-Shoulders top patterns sometimes abort, it looks highly unlikely that this one will, especially as this pattern is confirmed by similar bearish patterns in other markets as we will shortly see.

For anyone entertaining the notion that China will be the engine of growth that hauls the rest of the world out of the mire, the chart above for the Shanghai Composite index must be disconcerting. China�s post bubble bearmarket rally had already run its course by the middle of last year, after which it topped out with a triangular pattern, from which it recently broke down decisively. A final rally back up towards the underside of the Triangle is likely in coming weeks, which is expected to provide a last opportunity to get out of Chinese stocks and short the market.

The 4-year chart for the S&P500 index is interesting as it reveals why the index topped out where it did in April - it had arrived at strong resistance approaching the giant 2000 - 2007 Double Top. This chart also makes it abundantly clear that this so-called bullmarket was nothing more than a sizeable bearmarket rally.

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