Well guys and gals, it's Wednesday - day four of the market's current bullish effort - and as always I've got some thoughts for you about what today's action (or inaction) means. As I promised yesterday, however, we're going to devote the bulk of today's newsletter to getting a handle on gold and silver. We know not all of you are active in the metals market, but even if all you trade is stocks, gold and silver are still worth keeping tabs on since they can affect what happens to the equity market. Anyway, I figure the best way to do this is just start at the beginning. So... We'll get this out of the way for you up front - we're still bearish on gold for the long-term. And by 'long term' we mean months, and maybe longer. That doesn't mean we won't see gold futures rally in the short-term en route to lower lows, but now that gold's vulnerability has been revealed, the market's love affair with the metal is withering. Our (ok, my) ultimate target for gold is $1190 per ounce. That's a key Fibonacci retracement line, which are natural/logical profit-taking levels. Specifically, $1190 is a 61.8% retracement of the 2008-through-2011 rally. It's also the proverbial 'scary' point for gold's permabulls, meaning when we get there, fear will be at its worst. That's usually when bottoms are made. Take a look at this monthly chart. In the meantime, I'm not surprised the low from earlier in the month was around $1321 per ounce. That's a 50% retracement of the 2008-2011 runup, which isn't technically a Fibonacci line, but a key psychological hurdle nonetheless. Indeed, I'd be surprised if the floor around $1321 didn't pop up again as a psychological support level again. Ultimately though, we're looking at $1189 before it's all said and done. If you're wondering about any underlying reasons we're looking for more downside from gold, we've got three: Gold began the great rally based on expectations of rampant inflation, but we never saw anything close to rampant inflation. If anything, deflation is the bigger risk now. Time to reverse the trade. The U.S. Dollar is rising, and is apt to keep rising - the things that push the dollar upward (like inflation, interest rates, and relative economic strength) are supporting the move. Those trends don't start and stop easily, so now that the move is underway, we expect it to remain in motion indefinitely. Traders are getting tired of the gold trade. Don't laugh - it's never clear in the stock market if it's the dog wagging the tail or the tail wagging the dog. Either way, sentiment, patience, and interest can turn on a dime, and sometimes for no reason at all. As proof of the idea, redemptions of gold ETFs - namely the SPDR Gold Trust (GLD) - reached a record pace earlier in the month when gold was getting crushed. Fine, but what about the near-term? Although the post-plunge bounce has already started to slow, we can't tell you this is the beginning of the next leg lower. Based on the strength of the pullback, I'm willing to bet gold futures will need to move a little higher before the second big salvo of selling kicks in. The 38.2% Fibonacci retracement level at $1476 is where that retracement line is currently resting, and the semi-important 20-day moving average line will also be somewhere around that level by the time it can be retested as a ceiling. I doubt we'll get there in a straight line, but there's still quite an undertow of sympathy for gold out there. As for silver, well, silver's a big part of the reason we're still on the bearish side of the fence when it comes to gold. Silver took the same hit gold did in early April, falling from $27.70 per ounce to $$23.65 in just two days. Unlike gold, however, silver didn't even attempt to stage a rebound. It's continued to fall, reaching $22.86 today. It matters because gold is far more apt than silver is to draw the amateur - and fickle - trading crowd. Silver isn't as sexy, and most of the silver we dig up is used for industrial purposes. [A surprising amount of the gold produced every year is used for jewelry and investment speculation.] In other words, silver is a better barometer of true investor demand for precious metals. Given how oversold silver is at this point, I'm counting on some sort of near-term bounce. I won't say exactly where that bounce will lead silver prices, but I'm willing to estimate something around $26.00. That would fill the second and bigger bearish gap. It would also hit the 20-day moving average line. The good news/bad news is, silver has already moved under its key 61.8% Fibonacci retracement level at $24.12, so we don't have a clear downside target for it. But, there's a confluence of former resistance (two lines, actually) around $17.50. They're apt to become support lines now. Again though, I've got a feeling we're going to move higher before making that ultimate move lower. That's it for now in terms of the outlooks, but I do have one more word to say on the matter of gold and silver speculation - don't fall into the trap of assuming gold's prices are always rational, or always based on the so-called fundamentals. Gold speculation and hedging is rarely about logic or inflation or currency wars or anything else many pundits like to think it is. As I said to you back on April 15th, gold is a philosophy more than a physical asset. There's nothing wrong with that, but if you forget it and start to rely on the market remaining rational, it can often come back to haunt you. Anyway, as far as stocks are concerned Wednesday, I'm considering today - in golf parlance - a 'mulligan', or a do-over for Thursday's session. The Dow closed a little lower, the S&P 500 closed a little higher, but mostly everyone was taking a break to digest Apple's news. While the inability to follow-through on the early bullish effort is a slight hint of brewing weakness, I wouldn't take it to heart. Everything I said to you guys yesterday about today should be re-applied tomorrow. Talk to you then, when we put the focus back on the stock market.