• The trends, they are "a changing" - VIX Index, TSX, and DJT turn positive

• Remember, astute investors are not looking back at the past. They are looking ahead to see what will happen six to nine months from now.

• DJ Utilities Index finally joins the party, as expected.

• First quarter performance - Canada, you're still the one.

Some of the critical long-term trend charts are now turning positive. As of Mar. 24, 2008, the long-term oscillators indicated that the retest of the January low was successful. The long term trend chart for the Volatility Index (VIX) has now turned positive for the first time in a year. The trend charts also turned positive for the S&P/TSX and the Dow Jones Transport index for the first time in months. This all suggests that the rise since maximum fear was created when Bear Stearns collapsed is stronger and more significant than previous rallies. There are many comments stating that we are heading into a 1930’s style depression. I know from my own experience, (you can verify this if you read Alan Greenspan’s book, The Age of Turbulence) that this headline has come up in almost every market correction since the 1970’s. Anyone who can recall the severe economic strangulation caused by 20% interest rates in 1981 and 1982 knows that the overall economy is much healthier now than it was in 1982, even though the US real estate market is very depressed. Major market lows are often defined by the failure of a major company, and the failure of Bear Stearns likely caused anyone that wanted to sell to liquidate. Once everyone that wants to sell has sold, the market only goes one way – up. Thus, indicators suggest that the worst-case scenario has been reflected in current prices and we are in the early stages of a long-term rise. When the long term trend charts turn positive for the other US market averages it will give the all-clear signal. That could happen at higher prices.

Last week’s update highlighted the Dow Jones Utilities Index (DJU), which had refused to budge off of the lows. The update showed that the long-term oscillator for the DJU turned up last Monday (March 31) and the DJU was indeed a top-performing sector last week with a 5.3% gain. It is positive that all sectors are now attracting capital.

In the update of Jan. 2, 2008, I wrote, “I still recommend that you invest primarily in Canada.” Even though the S&P/TSX declined 3.5% for the first quarter of 2008, it was still the best performing index in the world. In a mirror image of what happened in the 1980’s, and 1990’s, the SP 500 declined almost three times as much with a 9.9% loss while global markets fell 9.5%. (In Canadian dollars, the SP 500 lost 7.3% and the global MSCI drifted 6.9%.) Canadian equities have provided investors with more upside and less downside compared to most other markets. The risk/reward ratio is much better for Canada and I see no reason why that will change for many years to come. During today’s trading, the TSX reached 13,833, which is where it closed on Dec. 31, 2007.

Bonds – Bond prices should perform poorly if the equity markets are on a firmer footing.

Commodities – While oil can stay strong due to political/terrorism concerns and inelastic demand, gold and silver appear to be having a short-term rally in a longer term, declining trend. Funds appear to be switching out of commodities and into equities. This could last at least until the end of April.

Currencies – After being battered by the euro, the US$ is gaining some strength against the euro and the CAD$. However, if you look at the trend charts you can see that these rallies are more like pauses in a very long bear market. This could continue until there are signs of strength in the US economy which would mean an end to interest rate declines.

If you look closely on the right side you can see that the Volatility Index has finally turned red for the first time in a year. This signifies a change in the character and trend of the markets. However, a change in the Trend charts for the SP 500, DJI, NASDAQ and Russell 2000 is needed to give the all-clear signal.

The TSX has been one of the first world market averages to turn positive by turning green for the first time since last fall. See the green dot on the far right of the chart.

The Dow Jones Transports Index turned green (or positive) three weeks ago after being red (risk) since the middle of last year. You can see that this has usually resulted in a long uptrend for markets in the past.

Bond prices have had a good run since mid-2007 when equities hit the skids. That trend could change as equity markets improve.

Gold has had a sharp rally as the US$ lost value during 2007. It is still green but the long-term oscillator for silver and gold are declining, suggesting that they are in a consolidation/correction mode.

Oil prices also rose as the US$ declined. While people can stop buying gold if the price gets too high, the same cannot be said for oil. Put that together with the supply concerns due to terrorism and a potential conflict with Iran, and it seems like oil could continue to be strong, even though it is overbought and due for a rest.

This trend chart of the US$ vs. the CAD$ shows that any rallies by the US$ have been weak and short. There is little to suggest that this pattern will change anytime soon.

A very easy trade for currency traders to just short the US$ or go long the euro every time this chart turns red. Right now the US$ is recovering slightly after a sharp drop. The US$ could have a more substantial rally as soon as there is confidence that the US economy will improve.

Data supplied by