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

THE TECHNICAL INDICATORS HAVE BEEN MUCH MORE HELPFUL THAN LISTENING TO THE NEWS OR THE CONSENSUS OF INVESTMENT EXPERTS.

There has been no shortage of negative news, earnings shortfalls, and dire predictions during 2008. Yet the markets have made meaningful headway since the US markets bottomed on Mar. 17 and the S&P/TSX bottomed on Jan. 22. When facing a dilemma, following the consensus of experts such as medical specialists, engineers or mechanics is usually the best course of action to take. However, when it comes to investments, over and over again the consensus of experts is often dead wrong. Most analysts tend to be optimistic at market tops and pessimistic at market lows. It is no different this time either. As of last week there were still slightly more bears than bulls in the Advisory Sentiment survey, yet the SP 500 is up 113 points or 10.6% and the TSX is up 2,226 points or 18.5% and only 410 or 2.9% away from an all-time record high. Over a quarter century of experience as a professional in the investment industry has taught me that the best way to determine market prospects and make prudent, profitable decisions, is to follow reliable technical indicators, not news reports or the consensus of investment experts. In all my years of examining market indicators, I have found the oscillators and trend charts used in my updates to be the best in the world - bar none. That is why I produce them for you here.

The sharp market sell-off on Friday, Apr. 11 when GE missed its earnings forecast turned out to be a temporary "storm cloud" as forecasted in last week's update. While North America markets rose more than 4% last week, the long-term trend indicators for the US market averages have still not turned green, but are close to doing so. When that occurs, it will give the "all-clear" signal. The trend indicators for the Volatility Index and the TSX turned positive two weeks ago.

The indicators have also been very helpful for analyzing gold and silver. As the price of gold approached $1,000 an ounce on Mar. 10, the oscillators were suggesting that the risks of a decline for precious metals had increased just as gold was making front-page news. Gold promptly fell 10% right after closing above the $1,000 record high mark. While gold and silver seemed to be making a comeback with some major gains after correcting, the indicators were showing that this was just a short-term rise in a longer-term downtrend. Late last week the price of gold and silver fell as equity markets held on to solid gains. Please see the gold charts and comments below for the latest update.

In summary, the action of bonds, precious metals, and equities suggests that investor confidence and the appetite for risk have increased. All that needs to happen now is for the red and green trend charts to turn green (positive) for all the US market averages. The markets need to stay very close to current levels for a little longer, or rise a little more for this to happen. I will keep you posted.

Bonds - Bond prices fell (yields increased) as confidence in an economic recovery improved. Bonds are usually a poor investment at this stage of an economic slowdown.

Commodities - gold and silver seem to be in the final short-term declining stage. The charts for oil still look positive.

Currencies - the long-term oscillator for the CAD$ has bottomed and turned up, suggesting that the Loonie should now rise compared to the US$. The euro looks strong versus the USD$ and yen as the long-term oscillators are still rising. I will display euro charts again next week.

After a brief consolidation phase, the short-term oscillators for the market averages turned up last week suggesting that the markets should have another two-week spurt to the upside.

Last week the short-term oscillator for the US Financial Services Index and US Banking Index turned up from the oversold position. This is very significant, as this is where the problems are and the financials comprise the biggest sector in the SP 500 Index.

The long-term oscillators for the US market averages have not been this strong since the rise after the Aug. 16,  2007 low. This suggests that this rise is different than the rallies experienced since November 2007.

The fact that the long-term trend indicator for the Volatility Index has turned red (when the Volatility Index turns red it is positive for equities since volatility peaks at market lows) is giving a clear signal that the character of the market has changed for the positive for the first time since February 2007.

However, the trend charts for the US market averages (other than the DJT which has turned positive weeks ago) have not turned green (positive) yet. That could happen soon, which would give the all-clear signal.

The TSX turned green two weeks ago and is within a few percent of a new all time record high. This very clearly shows the relative strength of the TSX compared to other North American and global markets. I have been a strong advocate of investing primarily in Canada since May 2002.

After being in limbo, bond prices finally gave way as investors sold overvalued bonds to move into equities. It is not close to being oversold yet.

The short-term oscillators for gold and silver peaked last Thursday so the short-term rise in a longer-term downtrend seems to have ended. This means that there could be further declines/consolidation in the period ahead.

The long-term oscillators for gold and silver are declining and are getting close to the oversold level. When it turns back up again, that will suggest that the corrective phase is likely over.

The long-term trend chart for gold is still green (or positive) as it has been since July 2007. If it stays green throughout this corrective phase, it will indicate that this is only pause in a longer-term up trend.

The price of oil and the long-term oscillator continue to reach higher highs. Nothing negative so far.

The long term oscillator for the CAD$ has just turned up suggesting that the Loonie should rise again after being in a consolidation phase since last November after it hit $1.10 US. The Loonie usually follows the price of oil, so it is no surprise that the CAD$ should finally make some headway to the upside.

Data supplied by

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.

Data supplied by