EQUITIES COULD CORRECT FOR ANOTHER WEEK OR SO, BUT US STOCKS ARE ALREADY AS OVERSOLD NOW AS THEY WERE IN MID-MARCH. US MARKETS ARE ALSO FOLLOWING THE SAME PATH AS THEY DID IN 1991. THIS COULD IMPLY ANOTHER 2.5% DECLINE THIS WEEK FOLLOWED BY AN 18% RISE IN THE FOLLOWING MONTH. THE OVERSOLD CONDITION OF THE MARKETS MAKES THIS FEASIBLE.

US markets gave up all of the gains made the previous week by falling 2.7% last week while the TSX declined 1.7% after closing above 15,000 for the first time last Tuesday. Oil and the TSX are due for a pause. However, even though the SP 500 is up 10% from the Mar. 17 lows, there is data which indicates that the US markets are now as oversold as they were at the market lows in the middle of March, right after Bear Stearns collapsed. For many weeks, Hays Research has been pointing out that the US market averages have been following exactly the same path as they did after the Savings and Loan Crisis correction in 1990. If this pattern was to continue, the markets would decline another 2.5% this week (after Jan. 2, 1991 the markets correct 5% in two weeks) and then rise 18% in the following month. Since the markets are already so oversold, another week of declines could realistically produce the conditions similar to the fall of 2005, the summer of 2006, and January 1991 which were followed by long, powerful advances. In January 1991 it was the US attack against Iraq that sparked the spike to higher levels. Technical and statistical data does not give an idea of what may cause a major rise, they just point out that market conditions could be developing that typically result in positive market action. Time will tell.

Many sectors have risen nicely off of the lows reached earlier this year. Now the financials need to do their part by showing some strength and doing some "heavy lifting." There are many signs that the worst of the financial crisis is over. The financials need to act in a way that confirms this. The next few weeks could be very interesting.

Bonds - The long-term oscillators for bonds turned up last week and issued a buy signal. This means that yields should decline while prices rise.

Commodities - Oil's relentless climb is forcing out short sellers. Conditions in oil and natural gas markets are just the opposite of the conditions in the US equity markets. A decline in oil prices would likely be very positive for equities at this point because the valuations of many oil stocks are based on $90 oil. The fact that oil stocks fell last week as oil continued to make record highs, shows that investors do not think that oil will stay in this price range. The oscillators issued a buy signal on gold and gold stocks last week. This week a buy signal for silver was confirmed. After a year long correction, uranium stocks have been acting much better even though the price of uranium continues to trade at the recent low of $60. It is usually safer and more profitable to find areas to invest in that have been depressed for a while and then improve, than sectors that are making news headlines with record highs.

Currencies - The CAD$ still looks stronger than the US$. The US$ showed some strength against the euro two weeks ago, but it maybe just another "dead cat bounce." The euro seems to be stabilizing versus the yen.

Catch the trend.

The long-term oscillator for the Volatility Index turned up from a very oversold position implying that risk has increased. Corrections occurring early in a new long-term up trend are usually minor. What happens in the next few weeks could clarify for the masses if this is a new bull market or bear market rally.

The short-term oscillator for the Volatility Index is already more than half way to the overbought range so it could be there by next week. It would be very positive if the VIX can stay well below the high levels reached in August 2007, January and March.

The long-term oscillators for most markets have now peaked after a two-month rise. However, the oscillators should be used primarily for buying, not selling. They can, however, at least indicate that a pause is due.

The long-term oscillator for the TSX has also peaked. As you can see, the markets have often continued to rise when this has happened before. This is why they should not be used for selling. It usually indicates a pause in the up trend.

Bonds appear oversold and ready to rise in price even though inflation concerns are mounting. It turned up issuing a buy signal last week.

The long-term oscillator for gold and gold stocks turned up last week issuing a buy signal.

The long-term trend chart for gold stayed green during this correction, confirming that this was merely a normal correction in a longer-term up trend.

Last week the oscillator for silver had bottomed, but not turned up yet. This week it followed the action of the gold oscillator by turning up. This indicates that the worst-case scenario has been factored into current prices. Sometimes there can be a double bottom.

The long-term oscillator for oil has peaked but oil keeps on gaining without a pause so far. It is much more difficult to know when to sell than when to buy.

The oscillator suggests that the CAD$ should move higher relative to the US$.

The US$ has had another half-hearted rally versus the euro. It may be coming to an end unless there is more upside this week.

The euro seems to be staying in its trading range with the yen.

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