LONG TERM TREND INDICATORS FOR THE DOW JONES INDUSTRIAL AVERAGE AND DOW JONES UTILITIES INDEX TURN POSITIVE, WHILE LONG US BONDS TURN NEGATIVE FOR THE FIRST TIME SINCE JULY 2007. THIS IS POWERFUL EVIDENCE THAT THE OUTLOOK FOR EQUITITES IS CONTINUING TO IMPROVE AS RISK ABATES.

After rising 1,461 points or 11.8% during four consecutive weeks, the S&P/TSX gave up 133 points last week. However, it is still the only major global market average with a gain (even if it is only 2%) for 2008. The loss for the TSX and some commodities last week was the US market's gain, as the DJIA and DJU Index long-term trend indicators finally joined the DJT, TSX and Volatility Index by turning positive.

Looking back, bond prices fell sharply (yields increased) in the Spring of 2007 as investors expected strong economic growth to increase inflation. This was before the subprime problems surfaced. Bill Gross of PIMCO, the largest bond manager in the world shorted long bonds, expecting that inflation and yields would continue to trend higher. Surprisingly, the long-term oscillators for US and Canadian bonds issued a buy signal on June 18, 2007 as recorded in my update of that week. The signal proved to be very accurate as the subprime problems became more and more visible. This radically altered the outlook to a slowing economy and a flight away from corporate debt to the safety of government guaranteed bonds. The result was that bond prices rose sharply from June 15, 2007 until January 25, 2008. Since the long-term trend indicator for 30-Year US Government Bonds have now turned negative for the first time since last summer, it is another clear signal that the outlook for economy, equities, and the appetite to assume risk improved more than any other time since the current financial crisis began 10 months ago. Unfortunately, PIMCO produced very poor results for bond investors in 2007.

If you examine the charts below for yourself, you can see that when they all turn positive together, they are very reliable indicators. While no indicator is perfect, they are the best tools I have discovered to provide a discipline for making important investment decisions. Ignore them at your peril.

For a month I have been stating that the charts for gold and silver have been indicating that they are in a longer-term down trend in spite of brief rallies to the upside. It was interesting that Dennis Gartman of The Gartman Letter (perhpas the most popular investment newsletter right now) surprised his followers by selling all his gold positions last Monday, Apr. 21. While you and I may never have the ability to play hockey against Sidney Crosby, gold against Tiger Woods, or basketball against Steve Nash, the past record shows that together, we can compete against some of the biggest names in the investment world and end up performing quite well.

Bonds - Sell signal issued for government bonds. As mentioned numerous times, bonds usually perform poorly at this stage of the stock market/interest rate cycle. The long-term trend indicators have turned negative for bonds which suggest that bond prices are now in a down trend.

Commodities - Gold and silver have been correcting since mid-March. The oscillators are getting close to the fully oversold level but have not turned up yet. The long-term oscillator for oil is extended on the upside.

Currencies - The long-term oscillators suggest that the CAD$ should gain against the USD$ and euro. The USD$ should also gain compared to the euro and that the euro is still strong versus the yen.

Catch the trend.

If you look closely on the far right you can see one green dot, which shows that the indicator has turned positive for the DJIA for the first time since last fall. You can see that this has proved to be a good buying point every time except for mid-2004 when it was too early. Using this together with the indicators for other market averages helps to reduce those imperfect signals.

The long-term trend indicator for the DJ Utilities Index also just turned positive.

The indicator for the DJ Transports Index turned positive weeks ago along with the TSX.

The indicator for the Volatility Index also turned positive for equities weeks ago, confirming that the character of the market had changed for the better for the first time in a year.

The long-term trend for US long government bonds turned red, issuing a sell signal after being positive since the summer of 2007. A buy signal was issued on June 18, 2007 when the yield on a 10-year GOC bonds was 4.65% (3.73% today) and the yield on 10 US bonds was 5.15% (3.83% today). This suggests that the flight to quality trade that raised bond prices into over-valued territory is unwinding.

Last week the short-term oscillator was turning down from a peak so the comment stated that there could be further declines or a consolidation in the period ahead. Gold fell from $919.50 on Monday to close at $891.50 on Friday. The Silver Trust also fell from $176.71 to $166.85. See the next chart.

The long-term oscillators for gold and silver are still declining but are in the fully oversold area. They need to turn up to suggest that the corrective phase is over. The gold oscillator last turned up and issued a buy signal on July 9, 2007 at $663 per ounce. That was around the same time that the well-respected Eric Sprott bought gold according to a recent report by the Globe and Mail.

The long-term trend chart for gold is still positive suggesting that this is a pause in a long-term up trend move that, so far, still seems to be intact. The indicator turned green last summer and has stayed that way.

The same holds true for silver. Again, you can see how accurate this indicator has been in providing selling and buying points. The last buy signal occurred around $130 last fall.

In the past, the price of oil declined within weeks after the long-term oscillator had risen above the 0.9 over-bought level on the left hand scale. The oscillator turned up on Feb. 11, 2008 at $93.38 per barrel. It is now up $25.62 or 27.4% in 11 weeks since Feb. 11.

It looks like the CAD$ could rise compared to the US$. It would be more convincing if it was fully over-sold though.

The oscillator for the Japanese yen is still in a down trend compared to the euro.

Data supplied by