COMMODITIES AND THE EURO CORRECT AS THE US DOLLARS IS IN VOGUE AGAIN AFTER A LONG BEAR MARKET. IT LOOKS LIKE THE TSX, AND NOW GOLD AND OIL, CAN TURN UP ANYTIME.

The value of the US dollar increased during the 1980's and 1990's as the Americans won the Cold War and gained global superiority in many way, culminating with the technology achievements in 2000. Due to overvaluation, a peak in optimism and a host of new problems for the US, the greenback has been in a steady decline for most of this decade. While much of the increase in the value of commodities has been due to the rapid growth in China and a shortage of supply, part of the increase in prices is due to the fact that most all commodities are priced in US dollars. As the US dollar falls, commodity prices rise. The current financial crisis emanating from the good old USA caused even more funds to flee from the US dollar and move into the euro, oil and gold in recent months, to the point where the euro and oil were grossly overvalued.

The special update on energy which I wrote on July 18 forecast that energy prices were peaking, with oil prices at $130 a barrel. Oil closed at $114 on Friday. The headline in the July 18 update stated that "Indicators suggest that gold has joined oil's downtrend" when it was trading at $928. In the following three weeks, gold has experienced a precipitous decline, falling below $800 to close at $792 an ounce on Aug. 15, a hefty loss of 14.6% in only three weeks. After commenting that the Canadian dollar and euro were stronger than the US$ for quite some time, the currency comment in the July 29 update stated that the US$ seems to be stronger than the CAD and the euro in a tight trading range. The currency comment on Aug. 5 reported that "the euro may have finally peaked after a long up trend versus the yen." The indicators are usually accurate in forecasting what should happen, but they do not explain why things will happen. It was, therefore, very interesting to see that the indicators were extremely accurate for gold and oil, as prices for oil and gold would usually rise after an event like this in a region with major energy pipelines. This time they fell.

There are certainly economic and financial challenges in the US, but at least they have been dealing with them. In the last month or so, investors have come to realize that Europe seems to be following the US since it is now facing similar economic problems. The recent invasion by Russia caused a sudden shift in sentiment as investors all of a sudden realized that Europe has some problems that the US does not have. What seems like just a normal move within a trading range may have turned into a major trend change for the overvalued euro. Some of the money that moved into commodities and resource stocks when the US dollar was weak has returned to the greenback for the time being. Even though it may seem insignificant, I include comments for bonds and currencies in these reports because they can have a major impact for investments at certain times.

After being weak during the first half of August, the long-term oscillators for the TSX Index, the Dow Jones Utility Index, gold and oil are very low and oversold which indicates that prices have now declined enough to have factored in the worst case scenario. This usually happens just before prices bottom and rise again. Stay tuned for more market action!

Bonds - The outlook for bonds is mixed. See chart of the 10-year GOC bond for more information.

Currencies - The euro could still fall further. The CAD is close to being fully oversold versus the US$.

The long-term oscillators for all the US market averages are still rising off of a very oversold level reached three weeks ago.

Similar to the US financials, the trend of the DJ Utility Index can have major implication for US stocks. The long-term oscillator for the DJ Utility Index is very oversold and ready to rise. The DJU often leads the markets so a reversal to an up trend here could add some much needed strength to this move.

The TSX lost 1.8% last week even though it appeared poised to turn up during the week. Now that gold and oil stocks are also fully oversold, perhaps we can have a lift-off soon.

You can see that the oscillator for the TSX Energy Index is already bottoming. An up trend, or at least a period of stability could being any day.

The long-term oscillator for gold stocks is also extremely oversold. You can see that gold stocks have always had a sharp rebound for at least a month when the oscillator has turned up from these levels since 2004.

Ten year GOC Bonds are approaching the highs that they reached during the Bear Stearns collapse in March. Since the TSX seems like it is bottoming, bond prices could decline if the TSX starts a convincing up trend from here.

The long-term oscillator for gold is now very close to the oversold levels that have marked the lows of other corrections since 2004. However, it is possible that there could still be another week or two of volatility before an up trend or period of stability begins.

After selling off for two months, oil is now extremely oversold. A rise or a period of stability could begin anytime. This indicator has been very reliable.

The short-term trend chart has been very accurate for gold, especially when used together with the long-term oscillators.

The CAD$ is in the fully oversold region and has stabilized here but has not turned up yet.

The euro vs. USD$ has turned red for the first time since 2006. The long-term oscillators for the euro are not in the oversold area yet.

The euro vs. yen fell sharply since turning red on the short-term trend chart two weeks ago. The euro is not fully oversold here either.

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