As the market is like life itself (We are the market!), I often quote Ecclesiastes, Chapter 3, when thinking of such matters.

I have again at the conclusion of this post.

Bill's Portfolio:

On March 2, I issued a ‘sell' recommendation on the broad market. I was immediately "voted off the island" by fellow bloggers, but subsequent events proved I was correct.

Then April 30, I called a short-term rally that started in early May from strength in the Consumer Discretionary sector, even telling you about GM and Maytag before there was anything to talk about:

"For all my negative talk here, XLY is now over-sold, and could be ready for a rally next week. Wouldn't that be something if GM and your friendly Maytag repairman MYG were to lead the charge down Wall Street?"

The problem, I have noted, is that readers have different time horizons. Some are Extra-Year Traders (i.e., trade their portfolio less than once a year); some are Intra-Year Traders (i.e., trade it more than once a year but not less than once a month); then there are Intra-Month, and Intra-Week and Intra-Day Traders.

People operate in different cycles, so I have started to make an effort to better explain my perspective on markets when I take positions.

My take on equity markets now is that the probabilities of moving into a long-term cyclic bear phase have moved up to 50 pct this week, and that the initial revaluation of East Asian currencies like the Chinese yuan and Malaysian ringitt upward against the USD may be the driver.

I have urged the Intra-Year and Intra-Month Trader to exercise extreme caution in the near-term.

But rather than have readers start calling me a perma-bear, yesterday I reminded readers that two months ago in Week #19 in Review, I recommended acquiring two tech companies (SanDisk Corp and Linear Technology) and two chemical companies (Lyondell Chemical and Dow Chemical). Here's what I wrote May 14 (and the follow up on July 21):

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"Let's have a look at two Tech companies that made it to the Cara Global Best 100 companies list: SanDisk Corp and Linear Technology Corp. Not very exciting maybe " certainly not rocket science technology " but solid, well-managed companies with growing business prospects.

Here are some charts (first for the past week's trading, and then the Weekly data chart) that reflect the bottoming out in their price cycle.

I hope you were listening.

And did you catch the trade I gave you that day (in mid-May) in the two Chemical stocks? For two months, I think you will see a superlative annualized return percentage for both the two tech companies and the two chemical industry companies."

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Let's ring the cash register " or at least calculate the performance and see where we stand at this point (because some of these stocks are likely headed higher, depending on your time horizon):

All four stocks were up significantly since recommended 10 weeks ago for purchase. The average percentage gain is 14.1 pct, and the annualized Return On Invested Capital (ROCI) is 73.1 pct.

This performance exceeds my personal objectives.

You may also note another trade recommended March 2 in SNDK, which was another successful trade.

After reading this blog for a while, I think you will start to catch on to the art of trading. At least that is my hope.

Now, here are the charts for the four stocks I recommended for purchase May 14.

Note that the RSI indicates all four stocks have room to grow for Extra-Year traders (i.e., average holding period greater than one year), as seen by the Monthly data charts, but are candidates for sale for Intra-Year traders (i.e., average holding period less than one year).

Daily Data charts:

Weekly Data charts:

Monthly Data charts:

I'm not always right, but even in the midst of the personal challenges I've faced this year, I feel I've had a fairly accurate sense of the market's pulse. For that, I've had to keep examining the inner workings of the capital markets, watching the drivers push and pull different types of securities in various directions.

In order to trade the small picture successfully, I know that you first need a big picture perspective. That starts with my equity sector review.

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Sector ETF:

Here are the ETF charts for sectors 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) and 55 (utilities: IDU).

This week you will see that five of the ten equity sector ETF's that I monitor were up, and 5 down. The five most economic-sensitive sectors (energy, basic materials, industrials, consumer discretionary and tech (semiconductors) were up.

The problem I have with that is that the current rally is hanging onto the fact that corporate earnings have been coming through with mostly upside surprises, but the next quarter guidance is being tempered quite a bit.

I'm watching to see what traders are prepared to do with high energy costs, rising interest rates and falling bond prices, and a lower USD (which is another driver of higher costs). The jury is still out, but the prospects of a long-term bear phase have clearly grown.

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Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)

Here's the XLE Hourly and Daily data charts:

XLE Hourly data:

XLE Daily data:

For there to be a trend develop in any market, whether it be short-, mid- to long-term, there needs to be an important driver at work.

For global equities the most important driver for the past two years has been the oil and gas market. Traders have correctly surmised that rising crude oil prices have a basis in economic expansion, which has been the case, and is usually a good backdrop for equity prices.

But oil prices that rise too high can become a negative. The commodity price is a cost element for both the industrial and retail segments of the economy, and at some point a rising oil price starts to crowd out the market. Producer prices have to rise or else corporate margins fall. And, high charges to fuel an automobile restrict the normal spending behavior of the retail consumer.

All these circumstances affect corporate profits and hence equity prices.

There has been a hope that crude oil prices would start to reverse trend after reaching their all-time highs in the past month. But, now another factor has entered the big picture; the East Asian currencies are starting to be unpegged against the USD, and revalued higher. This is yet another driver for higher inflation rates.

A month ago I convinced myself that XLE "hit the cycle high of 46.15. Yes, that was the top; the cycle has peaked. XLE is now done like dinner. Then, XLE traders liked the prospects of $60+ crude oil so much, they bid it up from the 44's in June to a new high weekly close of 47.30."

This week, XLE closed up higher at 47.40, up +4.47 pct W/W, including up +3.61 pct on Friday alone.

So just as it appeared to be a topping out oil market, along comes a falling USD to push it up yet again. Can oil prices stay so high? I doubt it, but that depends on how fast the USD value drops, and if the U.S. economy can pick up its growth to say a +4 pct annual rate, which would create lots of demand for oil.

One thing seems certain and that is that crude oil prices will remain speculative.

Bombings in recent days in London and Egypt as well as the usual hot spots in the Middle East plus the specter of China govt-controlled CNOOC (NYSE: CEO) acquiring important U.S.-shareholder controlled oil assets, are factors. Another one is the prospect for a bad hurricane season again in the Caribbean, which may impact the Gulf of Mexico oil fields.

So late this week, the oil and gas industry in the U.S., particularly the drillers and the well equipment and services companies, plus the operators and integrateds, enjoyed higher equity prices.

Like the overall equity market, I think we've entered the danger zone. The energy rally is over-extended. Friday's strong move put the sector into a technical over-bought condition. Intra-Week Traders should not chase it higher here.

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Sector 15 (basic materials: IYM, XLB, IGE and VAW)

Here's the XLB Hourly and Daily data charts:

XLB Hourly data:

XLB Daily data:

Last week I said that: " XLB, unlike XLE, has a potential to rally here; however the long-term outlook for most of the components in this Basic Materials sector is negative. It is tough for certain industries, like chemicals, paper and forest products, and the industrial metals, to remain bullish if the global economy is not firing on all cylinders."

So I was wrong on XLE (due a terrific rally on Friday), but XLB also rallied. It was in fact the second best performing ETF on my list, up +3.12 pct W/W to 28.77.

XLB is now nudging up to the M40 resistance line (28.92), and so the rally may not continue for long.

Some of the industries in this sector, like the chemicals for example, had a good week, but now may be extended on the upside. Gold, however, still looks good, now that the Pacific Rim currencies are strengthening against the USD, and PPI/CPI inflation numbers are likely to start higher in the U.S. again, as they had been in countries like Malaysia and China that took steps this week to stem the inflationary tide by revaluing their currencies.

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Sector 20 (industrial: IYJ, XLI, VIS, and IYT)

Here's the XLI Hourly and Daily data charts:

XLI Hourly data:

XLI Daily data:

The Industrials ETF (XLI) was the third best performing ETF, up +1.57 pct W/W to 30.50, which is now just over the 40-Week Moving average (M40=30.13).

Like XLB, and probably XLP, there might be a further small rally in the days ahead, because of the pressures on a lower USD, but the long-term cycle is pointed down.

A month ago, I wrote: "Traders in this Industrials sector (and the Basic Materials) have to be closely watching the USD action in the next month. I believe that the over-bought USD will come off, which could help these two sectors for a couple weeks anyway."

A week ago the USD finally cooled, off -0.59 pct, but XLI failed to move up as much as the broad market, and I had to admit I was wrong. Then I added, "But let's see what happens next week."

Well, this week the U.S.-based exporters in the Industrials sector were pretty happy with the falling USD, and the near-term prospects for share prices. The USD was down "0.1 pct W/W even though on Friday it rallied +0.9 pct as speculators started to think that maybe China might have stopped in the process of currency readjustment after a single tiny move this week. Hmmm.

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Sector 25 (consumer discretionary: XLY, IYC and VCR)

Here's the XLY Hourly and Daily data charts:

XLY Hourly data:

XLY Daily data:

Consumer Discretionary Spending stocks (XLY) were up +1.35 pct W/W to 34.57, which is now well above the M40 (33.40).

I still expect XLY to correct to the downside soon. Last week I wrote that I thought it might even start this week. The RSI for the Weekly data is very extended on the upside. There could still be a small rally here, perhaps 2 to 3 pct at most, but not for long.

I feel that after earnings season is over and traders start to focus on lowered corporate guidance for this quarter, plus the prospects of higher prices coming out of Pacific Asia now that the USD is starting to head south, there will be an end to the rally in XLY.

Interest rates showed lots of signs this week of rising quickly, at least until Friday, and I have pointed out that "most Americans will have an increasingly difficult time paying debts if interest rates continue to rise. Many are already having a challenge paying down the principal on their increasing mortgage debt, and, as I have said before, they cannot even afford to gas up their aging automobiles to drive to Wal-Marts to cash in on the sales that are being held before the Yuan is revalued higher, which will make goods from China even more expensive."

Well the yuan revaluation process has now officially started. It may even take a couple years to complete, which will tick off Washington.

Foreign made goods will become more expensive. And if the lower and middle classes cannot afford price hikes, there will be a quick pullback in top line and bottom line corporate growth, and hence share prices in this sector.

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Sector 30 (consumer staples: XLP, VDC, RTH and IYK)

Here's the XLP Hourly and Daily data charts:

XLP Hourly data:

XLP Daily data:

The most defensive sector for traders, Consumer Staples (XLP), was down "0.34 pct W/W, to 23.28, despite a rally of +0.30 pct on Friday.

The current price for XLP sits just above the M40 (23.02), but the ETF appears to be starting a price decline.

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Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)

Here's the IYH Hourly and Daily data charts:

IYH Hourly data:

IYH Daily data:

Last week I wrote: "A month ago, IYH was up to 62.42. This week, the healthcare sector index fund was up +0.69 pct W/W to 62.35, so it is trying to hang in. I think you can buy it cheaper in the weeks and months ahead."

This week, IYH closed at 62.22, down "0.21 pct W/W. Yes, I think the rally, pushed up by incredible strength in the biotech group (due to excessive hype on financial entertainment TV), is now essentially over.

MRK and PFE had a terrible week. IYH is headed lower.

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Sector 40 (financial: IYG, IYF, XLF, VFH, IXG, VNQ, RWR, IYR, and ICF)

Here's the XLF Hourly and Daily data charts:

XLF Hourly data:

XLF Daily data:

Last week I wrote: "I'm surprised the current XLF price can stay above the M40, particularly as interest rates are rising. You want to buy financials when interest rates are falling and avoid them when rates are rising."

Well, despite a big rally Friday (+0.53 pct), the XLF was down "0.72 pct W/W, as interest rates trended higher.

The M40 is now at 29.38, which is just a bit lower than the close this week for XLF (30.15).

Should the U.S. bond market continue to fall in price (and rise in yield), the XLF will continue to come down this coming week. I expect that to be the general market direction for a while, and you ought to know by now that financials and tech are the broad market leaders.

So what happened to tech this week?

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Sector 45 (technology: IGM, IGV, IGW, XLK, VGT, IYW, IGN, IXN, MTK and SMH)

Here's the SMH Hourly and Daily data charts:

SMH Hourly data:

SMH Daily data:

After a spectacular +4.08 pct rise the previous week, this week the semiconductor index (SMH) was up just +0.65 pct W/W, which was not bad considering the -5.5 pct beating INTC took this week.

However, on Friday, the gain in SMH was +0.30 pct, so the rest of the week was not as strong as it might appear.

And the other tech groups are not doing as well as the chip stocks, which themselves are topping out after being quite over-extended on the upside.

Exporters should do well here, but tech companies that import from Pacific Asia will experience higher costs in the months ahead.

Is there still a reason for U.S. Senators to be talking 27 pct tariffs on Chinese goods?

Well, I'm just waiting for some of those people in Washington to begin complaining that the currency revaluation in China that started this week is much too small, and too slow, and yada, yada. You haven't heard the end of this issue by a long shot, and it's going to get worse when the U.S. stock market starts to drop.

What traders have to be concerned about is more talk of U.S. protectionism, and trade war. Of course, politicians will say that these two concepts are mutually exclusive, but of course they are not.

Here's a look at the leading chip stocks. They have had a heck of a two-week run.

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Sector 50 (telecom: IYZ, VOX and IXP)

Here's the IYZ Hourly and Daily data charts:

IYZ Hourly data:

IYZ Daily data:

The Telco Services sector (IYZ) was the biggest ETF loser of the week, being down "1.30 pct W/W, to 23.55, which is barely above the M40 (23.40).

I still see signs of a major showdown in the U.S. coming between traditional telco operators (who are rapidly going into VoIP and mobile) and the CATV companies that figure to extend their TV service with telco.

Traders will need to exercise caution. The values in this sector are better found offshore.

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Sector 55 (utilities: IDU, XLU, and VPU)

Here's the XLU Hourly and Daily data charts:

XLU Hourly data:

XLU Daily data:

The Utilities (XLU) sector is still extremely over-bought, but at least it was down a little this week. XLU was down "0.69 pct W/W to 31.80.

There was a rally attempt Friday, and XLU did manage to go up +0.57 pct on the day, but I wouldn't think this strength is likely to continue into next week. The strength in utilities came from strength in the bond market Friday, which rallied sharply on speculation that the Chinese govt were not likely to sell as many U.S. Treasuries as first thought. At least that's the speculation.

The trend, however, is for bonds to continue lower, which will hurt the utility equity prices increasingly. A lower oil & gas price "reflecting economic slowdown " will also pull down equity prices in this sector. Double whammy " at least for a while.

Longer-term, the bond market, based on strong corporate credits, will not likely continue to fall (significantly) unless the USD sharply sells off. That means that utility stocks will not likely fall as fast as I earlier thought.

My thinking now is that interest rates will ratchet up slowly, and that China will continue to buy U.S. Treasuries (although not as many), which will hold down the rate of growth in U.S. bond yields and interest rates.

I hesitate to refer to the concept of Chinese water torture, which now is a ridiculous stereotype, but the slow and steady dripping of falling bond prices and its erosive impact on real estate prices and equity prices makes the expression come to mind.

Wouldn't everybody rather see the ax come down swiftly to get the damage over with, and then have capital markets quickly readjust accordingly? Unfortunately, I think 2005-2006 could turn out similar to 1973-1974 (which I recall all too well!), which was a disaster for traders in that the pain went on soooo long.

So let's now have a look at the U.S. bond market to try to figure out what's happening there. Remember, last week I wrote that I was going to replace my focus on energy to a new focus on interest rates because that is the next great problem facing equity markets.

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Bonds:

Last week I wrote: "If you have been watching the bond market this past month you will see that rates are rising, but also that the yield spread is narrowing. Both are important situations to watch."

Expect more of the same, unfortunately.

Hourly data charts:

Daily data charts:

I also wrote that "At some point " which is called the tipping point " higher interest rates, which are presently knocking down bond prices, will begin to impact stock prices. " I'm starting to think that a 10-year U.S. Treasury Note that yields above 4.60 pct (and trending higher) might be that point.

Presently, the bond market is back to a 4.21 yield, after a rally on Friday, so we are still a bit removed from the point where I think that rates will really hurt equities.

Still, we have to be vigilant.

From the U.S. Fixed Income (Bonds) Yield Table at Yahoo Finance, the 30-year T-Bond (actually 26 years) is now yielding 4.43 pct, up from 4.21 pct just four weeks ago, which is a significant move. At the same time, the 3-month T-Bill yield moved up strongly, and relatively faster, from +2.82 to +3.21 pct, over that time, including up from +3.08 a week ago.

Combine these two actions, and you see the spread between 30-year T-Bonds and 3-month T-Bills presently stands at +122 (which has dropped from almost +200 basis points two to three months ago), and is the lowest for years.

A yield spread of 300 basis points (between the 30-year and 3-month Treasuries) reflects a healthy economy in the U.S.. But, a yield spread that is zeroing in on +100 bp is rapidly showing that there are things running amok in the economy, contrary to what you are hearing from Mr. Greenspan and the commentators on CNBC.

But the problems are greater than mundane things like jobs and spending. They are interest rate related, which has more to do with international money flow this time around.

The concern here is that the forex system is electronic and 24 hours long. Changes here happen at the speed of light, and private capital pools can move across borders silently and immediately.

Before you know it, a nation's currency could be devastated, as in the case of George Soros and the Bank of England several years ago.

Here is the nub of the problem: (1) short rates cannot be held down or else international buyers (like China) will not place their funds in the U.S., (2) U.S. consumers continue to buy foreign goods, which exacerbates the situation, and (3) the U.S. real estate market requires low short rates to continue to sustain growth in residential home buying (which is so important to the economy), and any other strength in the U.S. economy will require corporations (which are at basically full occupancy of plant and equipment) to borrow extensively to expand, which will raise long rates as well as short rates further.

This is a serious problem. The only way for equities to stay strong is to continue to grow earnings at a high rate, but rising interest rates, high energy costs, and inflation-building declines in the USD, all mitgate against it.

It's only a matter of time before interest rates rise enough to tip the balance. Once that point is reached, the forex markets will become the biggest poker game in the world, with every major bank bankrolling their most highly skilled proprietary traders.

As a case in point, one of my readers -- a young fellow who today is not much older than my son -- worked at Humungous Bank a few years ago where he traded a book that sometimes exceeded $1 billion, where he personally was expected by the Bank to return an annual trading profit of $70 million.

Good on him, but what does this say about the pressures his employers put him under, or the info from my account and yours that they would provide to him in order that he consistently beat you and me in the market.

Hell, what did it say about me when I was in that position, when I provided our firm's capital to our proprietary traders and demanded they return over 100 pct returns, else they be terminated?

This is what I mean when a while back I referred to The Trading Wars. It's a case of my computers against yours, backed up by the best traders in my mega organization against yours.

There will be billions, if not trillions, won and lost.

And afterwards, the regulators will sit down with the legislators, and everybody will agree that the system is broke -- something I have been saying for a couple years now.

As I pointed out recently, as the yield curve flattened moreso over the past many months, to the degree it has, traders became aware of the fact that, rather than "it's the economy, stupid", it is really international money flows that are increasingly needed to keep the U.S. real estate and capital markets game afloat.

"Should the bond market start to stumble here, it could dramatically affect the U.S. economy in a negative way, and quickly pull down the equity market."

So, let's start to monitor the crucial interest-rate sensitive securities every week from this point onward. You know that the oil game is huge; but forex and bonds are much, much bigger.

US Bond Funds -- Weekly Data Charts

US Bond Funds -- Daily Data Charts

Canadian Bond Funds -- Weekly Data Charts

Canadian Bond Funds -- Daily Data Charts

Consumer Finance -USA -- Weekly Data Charts

Consumer Finance -USA -- Daily Data Charts

You can see that rising interest rates caused a topping out of these securities in June and a serious decline starting at the start of July. Should this one facet of the capital markets continue to worsen over the next month, there will be a serious decline in the broad equity markets of the U.S. that follows.

Now, rising interest rates are going to rise even faster if commodity prices continue to rise. So, let's look at the picture for commodities, which are costs that burden most sectors of the economy " unless you live in countries that are major exporters of commodities, like Canada, Australia, Brazil and so forth.

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Commodities:

Commodity prices have stayed essentially flat now for four weeks since the time the $CRB index rebounded to move up to 312.

If you recall, right at the short-term cycle top, I was concerned that the $CRB index could not sustain its rally to move up to new cycle highs, and since then it did not.

This week, $CRB closed at 304.25, down "1.72 pct W/W. The M40 is 296.30, so the index is still in a rising intermediate-term trend.

The crude oil price, and not the gold price, continues as the primary driver moving the $CRB commodity index, which gained +1.16 pct on Friday, as oil & gas prices rallied, and gold was off on the day.

During my Week #25 in Review, I stated: "Can oil go higher from here? I'd say the speculation is ripe to see crude oil contracts trade well up into the mid-60's in the next couple weeks. There may be little to no fundamental reason for oil to be trading in the 40's, or even the 50s, nevertheless the 60s, but there is also no technical resistance on the charts. And, boy, do those oil traders like to trade on their charts."

So, yes, crude oil contracts did trade up into the 60's for the past couple weeks, but weakness is starting to show in the oil futures. It seems to me that $WTIC (Crude Oil), and hence $CRB, are headed lower in the next week, and perhaps after that.

Lower commodity prices will be promoted by the market bulls as a sign that costs will soon be falling and profits rising. The bears will point out that a failing economy is the reason for lower commodity prices, which will soon hurt top line (revenue) growth, which in turn will negatively impact corporate profits.

The market is always a glass half full or half empty situation. For this reason, I like to keep my eye on the ball as to where stock prices have been, and to the likelihood of a 'reversion to the mean' scenario playing out.

For a look at commodities, and the economic impact, I have every week for some time been printing the following list of oil stocks in sub-industry groups. I let you know that would occur, "until another market driver, like interest rates, takes the lead."

Recently, I have been suggesting that oil is looking tired, and will decline, and that interest rates will start to rise and take the place of oil as the major worry of equity and fixed income traders.

I have been early on the oils for a couple months, but the bond market started to break down this month, after topping in June, so this week I have switched focus from the oils to the interest-rate sensitives.

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Gold:

When I wrote this report a month ago, $GOLD was up to $440.08, well above the M40 (429.97). I warned at that time, that Gold like Commodities would likely have difficulty going much higher without a period of consolidation.

Let's review what I wrote then for the Week in Review:

"Yes, I've been more bullish on gold since mid-May, saying that I see gold bullion up to $450 this summer (and it's now summer), but really there is a seasonal strength after the summer that moves into the winter. And the USD remains strong here, and China is not likely to revalue the Yuan until the 3Q05 (which I started saying in 1Q05). So traders ought to be nimble here. As to the immediate direction for the gold market, the recent cycle highs are 447.05 (short-term) and 456.87 (intermediate-term), which are targets. There may be a pull-back in the gold markets (both the metal and the miners) before the next major advance. If next week, bullion ($GOLD, the EOD continuous contract) does not close above 447.05, I'd be nervous, because the pull-back could be at hand."

That was fair warning.

This interactive chart shows the recent trading for the Gold Bullion index.

Gold closed this week at 424.99, up +0.84 pct W/W. The M40 is now 430.67, so the current price is still below the technical resistance level, but the short-term price trend is up.

The $XAU closed this week at 93.18, up +3.43 pct W/W, which is very strong. The current price sits just below the M40 (94.94). It could be closing in on an upside breakout, or perhaps just pushing up to a resistance level before backing down again. I think the former.

The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF, which trades under the ticker symbol TSE:XGD was up +3.59 pct W/W to 49.67. Excellent.

The M40 for XGD is now 50.16, so a small rally could easily overcome the technical resistance level. I have been telling you my thinking that XGD would take out the M40 in July. So far, a strong USD has been a deterrent, but now the China yuan and Malaysia ringitt have revalued higher against the former USD peg. That is a start to a currency readjustment that may see the USD fall some from here.

Last week I gave very good advice, I think, when I wrote: "It appears then that the goldbugs will have a couple weeks to accumulate or add to positions in precious metals share holdings. On weakness, I like to write puts in the hopes that I get some stock put to me, and where I get to earn the premiums on the other option contracts that expire worthless. Always I am trying to lower my cost base for my core portfolio -- whether it is goldminer stocks or whatever. Writing puts after extreme price weakness helps to accomplish that objective."

Here is the Hourly data chart for the TSX Goldshares index.

Here too are the interactive charts of the leading goldminers on the board.

List #1

List #2

List #3

Also, for you goldbugs, here is a neat website that is well organized for research purposes: www.goldsheetlinks.com

This is the time to start getting involved if you are not.

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Forex:

The U.S. Dollar weakened this week again. The USD closed at 89.65, down "0.08 pct on the week, even though on Friday it was up +0.87 pct.

Last week I wrote: "A turning point could finally be at hand as traders start to focus on the upcoming Chinese yuan revaluation."

And you doubted me when I said I had a pipeline to Mr. Joe in Beijing at the People's Bank? Don't ever doubt me!

Why I even got birthday wishes this week from Mr Xiaopeng, in the form of a comment to my blog! Apparently he uses Hotmail. :-)

Ka-ching!

The $XEU closed up +0.16 pct this week to 120.73, even though it was down "0.87 pct on Friday. A few pennies here and there start a trend, I think.

Last week I wrote: "Charts of the $XEU are looking like a bottoming pattern has completed, which would be a godsend to goldbugs."

The debt issues facing Americans are not going away. Now that the USD is headed south, it could be time for precious metals to take on a little glister.

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International Equities:

The Canadian equity market remains really strong, and the Japanese and U.K. markets look comparatively listless. With Canada, it's been a matter of the oils and the financials, which have been so very strong, and for now staying that way.

Japanese equity market ETF: EWJ

Japan (EWJ) was up +0.39 pct W/W to 10.26, which is just about the same level of four weeks ago.

Last week I wrote: "The Japanese equity market has declined modestly for over a year. The operative words are ‘declined' and ‘year'. I have said before that if China and the U.S. were not such hot trading partners, this country would not be doing so well. Until I see a pattern of global economic expansion, however, I remain mildly negative. "

I was going to show the Monthly data series charts for these markets for the next month or so, so that you could look at the changing RSI values of the most important data series. But I'm rushing to get this blog finished and posted. Unfortunately I took a screenshot only of the Daily data charts. You'll have to do the rest.

I do see, especially for Japan and the U.K. market ETF's, a long-term data topping out -- and declining from very high values -- of the MACD, Stochastic and RSI indicators. That is a reason why I say that longer-term (i.e., for the Extra-Year Trader), the technical picture looks negative. In that kind of scenario, it is just a matter of time for the intermediate-term and short-term data to begin showing a breakdown of the trends and cycles.

This is a time for caution.

Daily Data for EWJ:

U.K. equity market ETF: EWU

The U.K. market (EWU) was down -0.50 pct this week to 17.85, but a second round of mass transit terror in two weeks will do that. Still, I remain mildly negative.

Daily Data for EWU:

Canadian equity market ETF: EWC

The EWC had a terrific week, making up for the loss of "1.01 pct a week earlier. This week the EWC was up +2.78 pct W/W to 19.22.

Again, this rally was owing largely due to the oil stocks having yet another rally.

Daily Data for EWC:

Compared to the U.S., I think the Canadian economy and stock market (and the Looney) is in fairly good shape. The Looney, which is the Cdn Buck, ought to be trading above 85 (presently at 82) before year-end 2005.

For an interactive look, here are the hourly data charts of the various international equity markets as represented by the U.S.-listed and dollar-denominated ETFs:

(Japan, Taiwan, Hong Kong, Singapore)
(U.K., Germany, France, Italy)
(Canada, Mexico, Brazil, Australia).

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U.S. Equities:

Here is the 60-minute data chart of the Dow, S&P 500, Nasdaq Composite, and Russell 2000 (small cap) indexes.

Here is the Weekly data chart of the Dow, S&P 500, Nasdaq Composite, and Russell 2000 (small cap) indexes.

For the week, the $DJX (Dow 30) was up +0.09 pct to 10651, the Nasdaq Composite up +1.06 pct to 2179.74, and the $SPX and $RUT up +0.47 pct and +2.12 pct respectively, all W/W.

That was a so-so week, except for the late Friday rally, which kept the broad market indexes positive on the week.

The notable feature of the week was the big pct gain in the small cap stocks. But, Friday's small cap rally of +1.60 pct covered off most of the weekly gain.

What I think happened here (without actually looking) is that the junior oils and chip stocks caught the end of the week rally. I don't expect to see more of it next week.

This may be little more than Wall Street throwing a bone to Mom and Pop as interest rates are rising in their faces. You know the old story; end of the week and a dollar short. So why not try to humor as many as possible.

You can see that I remain unimpressed with the U.S. equity market.

The following charts for the Daily data series of the broad U.S. equity market indexes indicate that RSI and Stochastic data values (both are similar calculations by the way) are at very high levels, which typifies the topping out of a bull market. Last week I showed you the same charts or the Monthly data series that illustrated the same feature.

This is the time to be ultra cautious.

A month ago, every Dow stock was down on the week and I thought that the long-term bear cycle might have commenced at that point. Then three weeks ago there was the first terrible bombing of the mass transit system in London, which caused an emotional reaction that shot equity prices higher. Now there is a second bombing in London, and one today in Egypt, and in other locations in the Middle East. Moreover, the Saudi authorities have discovered a huge weapons cache.

Nerves are tightening, and oil prices are starting to rally again. That will help a couple equity market sectors in the U.S., plus a wider swath of the equity markets in Canada and Brazil, but it is not a good omen for the broad equity markets.

Risk premiums will rise and take interest rates higher. Commodity prices will move up, i.e., gold (or at least hold up, i.e., oil) too. That's all bad for the majority of stocks.

So, I continue to warn that the end of the bull cycle is near and readers ought to be taking steps to protect their portfolios.

There are many ways you can do that, such as:

· Selling stocks that have given you exceptional profits, or are up significantly since 1Q03

· Buying put options against core portfolio stocks you don't want to sell but would if you believed they were to fall say 7 to 10 pct at the start of a bear market. That way, if the market does rally, you keep the stock, but your cost base rises by the cost of the puts.

· Buying counter-cyclical stocks that have already had a major bear phase or those that appear ready to start a new bull. Gold stocks would be in that category.

As I say, "successful portfolio management is as much protecting against losses as it is positioning for profit opportunities. Whether or not you care to accept this advice, a bull market that began in 1Q03, or 4Q02 as some believe, going into 3Q05, is a lengthy cycle, in historical terms. In addition, most stocks are up 50 pct to 200 pct or more in that time frame. When you calculate the total pct return on capital over this time, including dividends; that happens to be a spectacular piece of history. There will definitely be a reversion to the mean; so I say lock in your profits, and sit in cash if you want to. Inflation presently is so low that the cost of waiting out the balance of the cycle and into the bottom of the next bear cycle is not prohibitive. At the end of the day, I believe you will be far ahead of the game."

The following table shows the weekly price performance of the Dow 30 stocks, which I sorted by 1-week price change.

A week ago, there were 26 Dow components up and just four down. But this week, it was 19 down and 11 up.

The five biggest winners were: HD, up +4.47 pct; HON, up +4.46 pct; AA, up +4.04 pct; CAT, up +3.43 pct; and IBM, up +2.50 pct.

HD was up +3.82 pct the week earlier too, so it's been on a hot streak.

Otherwise I haven't noted why the moves up or down for the majority of the Dow stocks this week. Obviously though, earnings season plays a big role in these weekly moves.

For the five Dow losers this week, INTC led the pack, down "5.48 pct. Then there was C, down "4.31 pct, PFE down "3.88 pct, HPQ down "3.05 pct, and MRK down "2.41 pct.

Observant readers are going to see the smile on my face re INTC. But, together with HPQ also being down, the tech stocks were not showing leadership this week. (As an aside, the continued strength this week in IBM is more rebound from an extreme 2Q05 over-sold condition in that stock.)

And C being off so much, and interest rates on the rise, the financials also were not showing their usual leadership.

Leaders also lead the way south as well as north, you know.

And during the week, I made an innocuous remark about maybe biotech and healthcare stocks looking tired and possibly ready for a pullback. The fact that both PFE and MRK were down an average of over 3 pct shows that this sector is not strong.

You can do this table yourself by copying the following list of the Dow 30 stocks and entering them in the window for "Summaries" at Investertech.com.

AA AIG AXP BA C CAT DD DIS GE GM HD HON HPQ IBM INTC JNJ JPM KO MCD MMM MO MRK MSFT PFE PG SBC UTX VZ WMT XOM

After you bring up the list, click on the Performance tab. To sort for the relative price performance for any recent period, you just need to click on the column header of the period that interests you.

Here are the Dow charts from Investertech.com that I broke into groups of ten, which you can add technical indicators for as well. (list one) (list two) (list three)

(AA) (AA) (Here is the Jul. 22 Value Line report on AA: next one is due Oct. 21)

(AIG) (AIG) (Here is the May 27 Value Line report on AIG: next one is due Aug. 26)

(AXP) (AXP) (Here is the May 27 Value Line report on AXP: next one is due Aug. 26)

(BA) (BA) (Here is the Jun. 24 Value Line report on BA: next one is due Sep. 23)

(C) (C) (Here is the May 27 Value Line report on C: next one is due Aug. 26)

(CAT) (CAT) (Here is the Apr. 29 Value Line report on CAT: next one is due Jul. 29)

(DD) (DD) (Here is the Jul. 22 Value Line report on DD: next one is due Oct. 21)

(DIS) (DIS) (Here is the May 20 Value Line report on DIS: next one is due Aug. 19)

(GE) (GE) (Here is the July 15 Value Line report on GE: next one is due Oct 14)

(GM) (GM) Here is the Jun. 3 Value Line report on GM: next one is due Sep. 3)

(HD) (HD) (Here is the July 8 Value Line report on HD: next one is due Oct 7)

(HON) (HON) (Here is the Apr. 29 Value Line report on HON: next one is due Jul. 29)

(HPQ) (HPQ) (Here is the July 15 Value Line report on HPQ: next one is due Oct 14)

(IBM) (IBM) (Here is the July 15 Value Line report on IBM: next one is due Oct 14)

(INTC) (INTC) (Here is the July 15 Value Line report on INTC: next one is due Oct 14)

(JNJ) (JNJ) Here is the Jun. 3 Value Line report on JNJ: next one is due Sep. 3)

(JPM) (JPM) (Here is the May 27 Value Line report on JPM: next one is due Aug. 26)

(KO) (KO) (Here is the May 6 Value Line report on KO: next one is due Aug 5)

(MCD) (MCD) (Here is the Jun 10 Value Line report on MCD: next one is due Sep. 10)

(MMM) (MMM) (Here is the May 20 Value Line report on MMM: next one is due Aug 19)

(MO) (MO) (Here is the May 6 Value Line report on MO: next one is due Aug 5)

(MRK) (MRK) (Here is the Jul. 22 Value Line report on MRK: next one is due Oct. 21)

(MSFT) (MSFT) (Here is the May 27 Value Line report on MSFT: next one is due Aug. 26)

(PFE) (PFE) (Here is the Jul. 22 Value Line report on PFE: next one is due Oct. 21)

(PG) (PG) (Here is the July 8 Value Line report on PG: next one is due Oct 7)

(SBC) (SBC) (Here is the July 1 Value Line report on SBC: next one is due Sept 30)

(UTX) (UTX) (Here is the Apr. 29 Value Line report on UTX: next one is due Jul. 29)

(VZ) (VZ) (Here is the July 1 Value Line report on VZ: next one is due Sept 30)

(WMT) (WMT) (Here is the May 13 Value Line report on WMT: next one is due Aug. 12)

(XOM) (XOM) (Here is the Jun. 17 Value Line report on XOM: next one is due Sep. 16)

The new reports this week were on AA, DD, MRK and PFE. Happy reading.

To new readers of this blog, I urge you to print out and file a hard copy on each of these Dow 30 components. Value Line does an excellent job of analyzing and reporting on these important companies. I keep this list in hard copy, and I review the pages every few days.

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Due to death of my father-in-law, this was another difficult week. But, I'm a survivor, and now I can say that after the funeral on Monday I am looking forward to better days ahead.

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Ecclesiastes, Chapter 3
1 To every thing there is a season, and a time to every purpose under the heaven:
2 A time to be born, and a time to die; a time to plant, and a time to pluck up that which is planted;
3 A time to kill, and a time to heal; a time to break down, and a time to build up;
4 A time to weep, and a time to laugh; a time to mourn, and a time to dance;
5 A time to cast away stones, and a time to gather stones together; a time to embrace, and a time to refrain from embracing;
6 A time to get, and a time to lose; a time to keep, and a time to cast away;
7 A time to rend, and a time to sew; a time to keep silence, and a time to speak;
8 A time to love, and a time to hate; a time of war, and a time of peace.
9 What profit hath he that worketh in that wherein he laboureth?
10 I have seen the travail, which God hath given to the sons of men to be exercised in it.
11 He hath made every thing beautiful in his time: also he hath set the world in their heart, so that no man can find out the work that God maketh from the beginning to the end.
12 I know that there is no good in them, but for a man to rejoice, and to do good in his life.
13 And also that every man should eat and drink, and enjoy the good of all his labour, it is the gift of God.
14 I know that, whatsoever God doeth, it shall be for ever: nothing can be put to it, nor any thing taken from it: and God doeth it, that men should fear before him.
15 That which hath been is now; and that which is to be hath already been; and God requireth that which is past.
16 And moreover I saw under the sun the place of judgment, that wickedness was there; and the place of righteousness, that iniquity was there.
17 I said in mine heart, God shall judge the righteous and the wicked: for there is a time there for every purpose and for every work.
18 I said in mine heart concerning the estate of the sons of men, that God might manifest them, and that they might see that they themselves are beasts.
19 For that which befalleth the sons of men befalleth beasts; even one thing befalleth them: as the one dieth, so dieth the other; yea, they have all one breath; so that a man hath no preeminence above a beast: for all is vanity.
20 All go unto one place; all are of the dust, and all turn to dust again.
21 Who knoweth the spirit of man that goeth upward, and the spirit of the beast that goeth downward to the earth?
22 Wherefore I perceive that there is nothing better, than that a man should rejoice in his own works; for that is his portion: for who shall bring him to see what shall be after him?

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I'm not a particularly religious person in that I ceased being a regular churchgoer in my late teens. But I did study world religions while attending a Lutheran university, and I was married in the Catholic Church. My children were baptized, and went to Catholic schools.

My take-away from those experiences is that it helped me better understand society, and myself as a part of it.

I truly believe that those who struggle for understanding of the meaning of life are doomed to a difficult journey. The market is like that too because the market is just people acting like people.

BCara@BillCara.com