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.

• 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.

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INTEREST RATES, VALUATIONS, SENTIMENT, AND MARKET ACTION HAVE FULFILLED REQUIREMENTS FOR A BOTTOM. HOWEVER, WE STILL NEED THE CRITICAL DOW JONES UTILITIES INDEXT TO JOIN THE PARTY FOR A 'FULL PULL.'

Three major factors that affect the market are: interest rates, valuations, and sentiment. With the US Fed Funds Rate at 2.25%, almost the lowest in a generation (except for 2003), no one needs a chart to see that US interest rates are very positive for the markets and the economy. The chart below shows that US equity valuations (based on forward-looking earnings) are at a price earnings ratio of 14, which is lower than it has been for over a decade. This is also very positive. Last Wednesday, I wrote a special update with a chart showing that advisory sentiment issued a buy signal. Since optimism increased there was pretty well the same level of pessimism as there was at the end of the bear market in October 2002. Putting this together with a rebound from clear double bottom since Mar. 17 means that all of the basic requirements for a market bottom are in place. Since the lows, the SP 500 has risen 5.25% percent and the TSX has risen 7.1%, which brought them to a short-term overbought level. While the rebound was nice, there was some strength missing. The DJ Industrials and Transport indexes had nice rebounds from depressed levels but the DJ Utilities Index, which usually leads the markets higher, has stubbornly refused to budge. I do not know why this is the case, but the Utilities index needs to ‘join the party’ in order to give any upside momentum the power it needs to verify that a new long term up trend is beginning. Fortunately, the long-term oscillator for the DJU turned up from an extremely oversold level as the DJU rose 1.18% today. Perhaps this will produce the extra strength that has been missing since Mar. 17.

Since the equity markets are now overbought for the short-term there could be a pause to consolidate the recent gains. At the beginning of a rise, the initial corrections are often very minor. While there are many diverging opinions about the future, the action of the equity markets and the DJU Index during the next week or so should provide further evidence of how strong the rebound we have experienced really is.

Bonds – Bond prices are holding firm, as investors are reticent to assume risk. However, bonds are overvalued while equities are undervalued. While government bonds could be safe, they may not provide an acceptable rate of return in the future.

Commodities – Many commodities are correcting after a sharp rise. This could continue for weeks as money shifts from commodities, which had a good run to record highs, to equities, which are undervalued and still near the lows.

Currencies – The USD$ should gain strength as the equity markets gain a stronger foothold. However, to date, these rallies have been minor rallies in a longer-term bear market. With US interest rates much lower than many competing currencies, these is very little to indicate that this rise will be any different.

This chart shows that forward looking earnings for the SP 500 is very low, especially when you consider how low interest rates are. At a PER of 14, it is well below the 3-year average of 16.6% and the 10-year average of 19.8%. US stocks have not been this cheap in many, many years.

For the very short term, equity markets have used up their upside momentum and need a rest before moving higher. If this is the beginning of a new long-term up trend, this pause should be short with minimal downside action.

For the longer term, the markets are still just rising off of the lows and have a long way to go before reaching the overbought level. This supports the comments for the short-term chart above.

The long-term oscillator for the DJ Utilities Index turned up from an extremely oversold level today. This may be the missing link in concluding that the corrective phase, which began eight months ago, is over. A strong rebound here could be the extra spark to really add some strength to the overall advance.

The peaks for the long-term oscillator for the Volatility Index have been lower and lower even as the VIX had a triple top. This also supports the case that the worst is over. Downside volatility has subsided for over a week now.

This up trend/downtrend chart for the VIX has been green (meaning higher volatility and risk) for over a year now. When this chart turns red, it will be another clear sign that the character of the market has changed for the better.

The long-term oscillator for bonds is moving lower, implying that bond yields should trend higher (and prices lower). Even though prices appear strong, this suggests that there is the potential for weakness.

The long-term oscillator for gold has some distance to go before reaching the fully oversold level. This would normally takes another month or so. This suggests either more downside, more time, or a combination of both before another rise can begin. However, stocks can often follow the equity markets more than the price of the underlying commodity so this does not necessarily mean that gold stocks follow the price of gold.

Oil is also vulnerable to a decline since the oscillator peaked and is now declining.

The CAD$ is weak after being relatively strong since the end of 2007. This weakness could continue until the oscillator turns back up again. Weakness should be mild if it follows past patterns.

The USD$ is oversold and turning up against the euro which has had a huge rally so far this year. Previous rallies by the USD$ have been half hearted. With US rates so low this pattern could be repeated.

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