FRIDAY'S GE-RELATED SELL-OFF LOOKS LIKE A STORM CLOUD. EQUITIES ARE BASEBUILDING AND CONSOLIDATING RECENT GAINS WHILE GOLD AND SILVER ARE CORRECTING.

After US markets advanced 4.2% for the week ending Apr. 4, they declined 2.7% last week. The S&P/TSX was flat for the week. The negative earnings surprise by venerable GE on Friday was blamed for the bulk of last week's slide. While the 27 point (2%) sell-off for the SP 500 and the 226 point (1.6%) clipping for the TSX seemed like market volatility was reverting back to March levels, beneath the surface, equity markets were stronger than they appeared. For example, Money Flow (which tracks buying power and selling pressure as reported by Lowry Research) rose 9 points on Thursday when the SP 500 gained 6 points but only slipped 7 points when the SP 500 fell 27 points on Friday. This confirms what the oscillators are indicating. As you can see from the charts below, the long term oscillators for equity markets are still rising after turning positive on Mar. 24 while the short term oscillators are correcting after peaking a week ago. The technical indicators, together with low US interest rates, attractive valuations, wide spread pessimism and heavy insider buying build a convincing case that this is merely a consolidation phase in a longer term rising trend off of the lows. Sometimes the markets take off like a rocket (August 1982, October 1998) while in other cases a long period of base building is required (1994, October 2002). The current experience seems to be something in the middle of the two extremes, which is very normal. It is not unusual for a market low or peak to be confirmed many months after it actually occurs.

While equity prices are consolidating in a longer term up trend, gold and silver appear to be consolidating in a longer term downtrend. The comment with the gold chart in the Mar. 10, 2008 update when gold was trading at $976 stated that the oscillator "suggests that this rise is extended and in the later stages when risk becomes greater." The price of gold peaked a week later on Mar. 17 as it broke the $1,000 barrier and has traded in the low $900 range ever since. It is usually much safer and more profitable to make a purchase when the long term oscillator is very low and turns up, than to buy after a long up trend when it has been in the high range for a long time. Equities are the oversold assets at this time.

Bonds - Bonds are in a trading range and will probably stay that way until the trend in equities becomes more obvious. There is no clear trend at this time.

Commodities - The comment in the oil chart for the Feb. 11, 2008 update was, "although oil is not fully oversold it may be bottoming here." You can see on the top of the chart that, at the time of writing, oil was trading at $93.38. The comment with the Feb. 18, 2008 oil chart stated, "it is still likely that oil could have started a new up trend last week." On Feb. 18, the oil price was $96.21. Today it closed at another all-time high close to $112 per barrel. The current charts for oil still look healthy.

Currencies - The US$ seems to be consolidating/rising slightly against the CAD$ and euro after a serious decline versus the euro.

The short term oscillators for equity markets (SP 500 here) are declining after peaking a week ago, which suggests that we should experience a short consolidation phase since the long term oscillator is still rising as you can see from the following chart.

The long term oscillator for all the global equity indexes are still rising from deeply oversold levels which suggests that markets are still in a longer term up trend. These are much more reliable than the short term oscillators.

The short term oscillator for the TSX is retreating from the highs as well but the more important factor is that the longer term oscillators are rising. It does however provide a picture of what is happening.

The long term oscillator for the TSX is also rising after bottoming in December and January. The TSX and the long term oscillator have been stronger than other markets. In fact, before Friday's 225 point decline, the TSX was the only major world market to post a gain for 2008.

Bonds are in limbo as investors try to discern whether interest rates have declined enough to strengthen the US economy later this year. Skittish investors are also parking money here until they feel more confident.

The long term oscillators for gold and silver are still declining and have more distance to travel from reaching the fully oversold area. At this point it seems like more time and/or decline is needed before the previous metals become strong performers once again.

The long term trend charts for gold are still green which means that the longer term up trend could still be in place after this corrective phase is over.

In contrast to gold, the long term oscillator for oil is still strong and is turning up again. This likely means another spurt to the upside.

It is amazing to see how long the up trend for oil has been since this chart turned green in early April 2007. This occurred after the long term oscillator for oil turned up and issued a buy signal on Mar. 26, 2007 when oil traded at $62.96US - a very profitable entry point as you can see. A gain of 77.5% in on year.

The long term oscillator for natural gas turned up from the fully oversold level on Aug. 8, 2007 at which time I issued a buy signal at a price of $6.24. Although the price declined even more shortly thereafter, at today's price of $10.06 it is up 61.2% in 8 months - another very profitable low risk trade.

A lot of capital is borrowed from Japan where rates are very low, and invested in Europe where rates are higher. In response to a question from a hedge fund manager, I have included this euro-yen chart for the first time. According to the long term oscillator, the euro is in a clear up trend and has some time to go before reaching the overbought level.

The The CAD$ is experiencing some weakness compared to the US$ but it should be very mild. The CAD$ is getting close to reaching the fully oversold level.

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