I'm going to look at equity and debt markets, plus commodity and forex markets, because they are inter-dependent. There are implications to business managers as well as to the owners of capital.

Before I start, I'd like to remind the reader that what follows is strictly a personal view. Moreover, it is broad-brush assessment only.

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At this point in the capital market, people are questioning whether or not a secular trend reversal process is underway.

For me to have an opinion, one way or the other, I have to study long-term market prices (i.e., the monthly data series for stocks, bonds, interest rates, forex rates and commodities), all within the paradigm of cause and effect.

For example, take the shares of a U.S. importer like Wal-Mart, which if it were a country would be the eighth biggest importer nation in the world. A falling USD (which is the currency for the majority of its revenues) is a negative for Wal-Mart because it has to buy most of its products abroad. So, if China, where Wal-Mart imports most of its goods, does revalue the yuan upwards by say 20 percent, that simply means Wal-Mart has to pay 20 pct higher costs of the goods it sells elsewhere. Some of the added costs will be passed on to the customer and some will show up in narrowing profit margins, which is a negative for WMT share prices.

As an aside, WMT investors will not likely see the shares go much higher until after the yuan is freed from its peg to the USD, and the subsequent impact on profits is understood, and accepted. Then it will be a new ball-game for WMT.

As to my assessing movements in capital market prices, the ‘Cause and effect paradigm' simply means: (1) I have to see changing technical indicators for the long-term data (i.e., the monthly data series), and (2) if there is a trend reversal, I have to be able to understand the probable cause(s).

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Stock market direction is the main topic for today and tomorrow. To make that call, I follow a protocol, as follows:

First, I look at the equity markets across the world, spending more time on the most important markets (USA, followed by UK, Germany and Japan). Then for the broad equity market (dominated by U.S.-based companies), I look at the sectors.

Then I look at (1) the fixed income (bond) markets, (2) the most important commodity, which is oil, (3) gold, because it gives me a clue as to forex market trends, and finally (4) forex, and mostly the key USD.

Today, I will give you the data to look at, plus links to interactive charts so that you can follow along. The interactive charts also facilitate your studying this data in its shorter time series, such as bi-weekly, weekly, daily and intra-daily, in addition to monthly.

But, the key is monthly, which covers about seven or eight years data. In fact, trend and cycles analysts like Ian Notley study annual data (i.e., the price series of securities and economic data) going back, where available, hundreds of years.

If I had the data at my fingertips, so would I.

Finally, tomorrow, I will spend more time trying to interpret this data. But, for now, let me say that I believe the data indicates that investors (1) are shifting capital out of the U.S. ahead of the Peoples Bank of China revaluation of the yuan, (2) gaining concern for the impact of higher commodity costs, and interest rates, on equity valuations, and, (3) taking solace that the global economy is strengthening, which is partly driving increases in commodity prices and which will ultimately lead to higher corporate profitability and hence share prices.

So, for now, let me state up front, that I believe the bull market that started in March 2003 (my assessment, which many disagree with) is intact, but there is a near-term pullback of about a further 15 pct in U.S. equity market prices (S&P 500 at 1200 back to about 1000) expected now until after China revalues its currency, probably this September. Then I believe equity prices will improve quickly to close the year at about where the index stands today.

Now, let's look at the data, and tomorrow, I'll comment further.

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Global Equity Markets:

Here are the (non-S&P 500) monthly price data charts for the USA broad markets. Also note the interactive chart links.

(Dow 30 Industrials)

( Nasdaq Composite)

( Russell 2000)

Here are the individual Dow 30 monthly price data charts.

(list one)

(list two)

(list three)

(list four)

Now, here are the monthly price data charts of three key international country equity market indexes. I look at the Japanese, U.K., and German equity markets first because they are, next to the U.S. market, the most important. For periods of weakness, like this month, you can also look to the emerging economy markets, like Brazil and Mexico, which I'll cover tomorrow in the Week #11 In Review:

(Japan)

(U.K.)

(Germany)

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U.S. Equity Market Sectors:

The following monthly data charts are for the 10 industry sectors as illustrated by trading in ETF's:

10 (energy: IYE)

15 (basic materials: IYM)

20 (industrial: IYJ)

25 (consumer discretionary: XLY)

30 (consumer staples: XLP)

35 (healthcare: IYH)

40 (financial: IYG)

45 (technology: IGM, IGV and IGW)

50 (telecom: IYZ)

55 (utilities: IDU)

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Bonds:

In fixed income markets, there are now (in the past couple weeks) falling bond prices, and rising yields, across the board. It appears the bull market in bonds is over.

The simple reason is that bond investors are getting more concerned with rising interest rates " due to an expanding economy, as reflected by a widening yield spread (3-month to 30-year U.S. Treasuries) " and rising commodity prices, some of which are due to "hot money" speculation and some due to economic expansion.

Equity investors are watching the rise in interest rates and studying the solvency ratios of balance sheets of U.S. equities. Some of the high tech companies, for example, have not had a rally in their stock prices since the popping of the 2000 Internet bubble, so they never, unfortunately, built up their cash reserves since then.

Guess what? Those companies are going to fail, or be taken over in the next two or three years, at distressed share prices " because interest rates are going high, and getting refinancing will get increasingly tougher.

And if companies are importers of commodities, things will get worse for a while too.

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Commodities:

It's all about oil when commodities are being discussed.

Oil is one of the principal drivers of capital flows today. The "fix" was in the day George Bush was first elected President of the U.S., and brought with him to Washington his close friends and associates from Texas, where oil is king.

How long this charade goes on is a question I cannot answer. I believe that stock charts will give us the clue. In my first impression, which is usually correct, oil prices will stay high until the USD firms up, which is not likely until after the PBOC revalues the yuan, and currency markets get back to normal.

But share prices reflect major capital flows into and out of sectors, which typically precedes the trend change in the underlying drivers by several months. So, I believe that oil stocks will not continue to lead the broad market higher. They may not fall in price as fast as other sectors, but they will also no longer be the "wind beneath my wings" "thank you Bette Midler.

The charts of the entire oil sector reflect a change in the winds. But, investors cannot ignore the improved operating performance, and stronger balance sheets of these companies, and the future strength of the global economy, so energy sector 10 stock prices will not likely collapse, even though they might fall steeply for a couple weeks in the current pullback, I believe.

10101010 Oil & Gas Drilling Drilling contractors or owners of drilling rigs that contract their services for drilling wells.

10101020 Oil & Gas Equipment & Services Equipment manufacturers, including drilling rigs and equipment, and providers of supplies and services to companies that drill, evaluate and complete oil & gas wells.

10102010 Integrated Oil & Gas Integrated oil companies engaged in the exploration & production of oil and gas, as well as at least one other significant activity in either refining, marketing and transportation, or chemicals.

10102010 additional list.

10102020 Oil & Gas Exploration & Production Companies engaged in the exploration and production of oil and gas not classified elsewhere.

10102020 additional list.

10102030 Oil & Gas Refining & Marketing Companies engaged in the refining and marketing of oil, gas and/or refined products not classified in the Integrated Oil & Gas or Independent Power Producers & Energy Traders Sub-Industries.

10102040 Oil & Gas Storage & Transport Companies in storage and/or transportation of oil, gas and/or refined products. Includes diversified midstream natural gas companies facing competitive markets, oil and refined product pipelines, coal slurry pipelines and oil & gas shipping companies.

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Gold:

This is the iUnits S&P/TSX Capped Gold Index Fund, which trades under the ticker symbol TSE:XGD.

With the strength in the USD over the past couple days, there has been a pullback in gold prices, but the USD is expected to continue weakening, so I believe gold prices will move higher, possibly into the $475 range this summer.

Longer out, I do not believe gold is in a strong bull market, and will not be until there is a confirmed inflation cycle. The latter is getting harder to do unless there are major wars in the world, because production from China and India etc will quickly move products at lower prices to consumers in markets abroad.

The key for gold traders is to watch the share prices of the goldminer stocks in Africa and Australasia, rather than the North American miners.

North American producers

African and Australasian producers

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Forex:

The USD still has a ways to fall because of its twin deficits problem. But the issue of debt doesn't just stop with government; the increase in personal debt in the U.S. (and Canada too) has become quite serious in recent months.

A lot of debt has been incurred to buy real estate. The building of condos in many cities is no longer about individuals buying new homes, but about speculators buying assets in hope to flip the deal to people less intelligent.

The City of Miami (and Miami Beach) has seen incredible new construction of condos, and realtors are now saying that maybe 85 percent of purchases are done for speculation. That is a sign of a bubble soon ready to burst.

The reality is that until the events of 9-11-01, America was growing quickly because of illegal immigration. That market has been cut off. Most people are living month-to-month, some week-to-week, and many have moved into these condos after buying for nothing down. They purchased with Adjustable Rate Mortgages (ARMs) because they couldn't afford long-term permanent mortgages.

When interest rates rise, many of these people will not be able to afford the cost burden when the ARM financing has to be paid at much higher rates. This is a recipe for disaster. Everybody but the bankruptcy lawyers will be hurting.

Of course the data is anecdotal, and perhaps the scenario may not play out as I expect, but the yellow flag has been put away and the red flag is now waving. The next one out is colored black.

Forex markets move one way or another in reaction to the monetary authorities in the various countries to the real problems that build up in those countries. In America, the problem is debt. If the debt had been tied to future wealth building engines then there would be no real concern because that would be "good" debt, but it is not. These debts in America are growing because foreigners see that the U.S. administration is funding wars and nation building exercises the rest of the world largely disapproves, and by speculative investors in U.S. real estate that is likely to blow up.

If the U.S. Fed, at its next FOMC meeting in a couple days (March 22), does not take real steps to tighten credit expansion, then the USD will fall rather quickly. What foreign investors are now saying to Greenspan, "The ball is in your court, Alan. Don't blow it."

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This may not be a good news report, but it is a realistic one based on actual price data. Traders cannot afford to ignore the hard evidence of market prices, and the technical indications of price direction. That is particularly so, when there are cause-and-effect reasons for equity prices to be acting as they are.

Two weeks ago, I forecast the market events that are now starting to play out. One of my blogger colleagues wrote that I had thrown down the gauntlet, which I thought, at the time, was a good assessment of a situation where most people took an opposite view. Then another blogger wrote that of about 50 trading blogs on his list, I was "the first one voted off the island" " which I took as being recognition by my peers that maybe I am the strongest of opinion, and the one with the most accurate track record.

But subsequently my readers have asked me not to pay any attention to what anybody else thinks and to please keep this blog "pure". That is an easy promise to make.

Have a good day.

BCara@BillCara.com