(Just before gold and silver assets got slammed last week, we received the following alert from our friend Chuck Cohen, a New York-based financial consultant with a laser focus on junior mining shares.  Although the broad averages came down too, Chuck thinks the worst lies just ahead. Bullish sentiment is almost literally off-the-charts, he notes, and the bank stocks in particular, with B of A leading the pack,  have been acting positively creepy, opening each day with head-fakes that have given way much of the time to heavy selling and lower prices.  Chuck says the price action in these stocks is indicating there is something “seriously wrong” with the banks, and that he would not be surprised to see another financial crisis requiring heavy government intervention.  )

Meanwhile, the jury is still out on whether bullion has more correcting to do. Chuck says it  will depend on whether the dollar gets short-squeezed higher. We agree, and have been using 78.69 as a breakout threshold for the Dollar Index. It was just missed on Friday, but if DXY exceeds our number this week, we would be reluctant, go-along dollar bulls ourselves, if only briefly as the technical rally plays out.  If you want a more detailed report from Chuck, click here and he’ll e-mail you his latest. RA)

Here’s Chuck:

Everything is in place for something extraordinary in the markets. Silver is one of the keys, since it is a primary beneficiary of QE2.  Even a novice technician can see an exhaustion spike and reversal in the chart below.  Plus, the sentiment in silver was recently at the highest level since March of 2008. Yipes!  Meanwhile, the broad stock market is ripe for an incredible decline, most likely a mammoth panic. Be careful here.

“The QE2 game that has driven shares ever upward is over, and the next move is going to be violently down. Besides the extreme optimism reflected by sentiment indicators, we see stocks that almost never sell down, especially in the final hour, and charts that have been building one of the longest wedges in history.  All of these factors are setting up for an avalanche one day soon. The decline will appear to come out of nowhere, but the market is running on the fumes of a public determined to recoup losses suffered over the past decade.