The market pulled back to test the breakout level today on light volume. The fact that the 200 moving averages are in the neighborhood probably had a little something to do with it as well.

I would classify the action in stocks today as bullish. But it's what happens next that matters more now. Are the bears going to be able to crash the breakout party and trigger the downside stops that are surely in place, or will the bull maintain full control of the situation.

Until proved other wise, the bulls have floor. I should also mention that the inverse H&S pattern in the S&P was triggered on the breakout and is now active. It counts WAY up. Your homework is to send me the count the way you see it.

But a pattern is NOT a guarantee, so keep that in mind.

I'm going to upset some of you now so I'll apologize in advance. I'm bearish on gold and the ZAU and bullish on the dollar, at least for a trade. I'd be VERY bullish on gold if it surpasses its all time high from March 08.

I sense that everyone is breathing a sigh of relief that deflation has been defeated and the good times are here again. I'm sure the same relief was being felt in the spring of 1930. It was a false sense of security then and there's a good possibility we're experiencing a similar phenomenon now.

The banks having adequate capital (assuming they do) isn't going to defeat deflation, although it's one requirement for sure. It's the expansion of credit that's needed to defeat this foe and that's not going to happen like it has in the past for a very, very long time.

There is just too much bad debt that has to be liquidated and too many bad lending habits that aren't coming back for credit expansion to get a toe hold. The government trying to force feed credit into the system isn't going to be powerful enough to replace the lost credit from the private sector. It just won't work. Therefore I expect another round of deflationary pressure to emerge soon.

The dollar going to new lows and gold going to new highs will be a clue that I'm wrong.