And to my friends in America, this week's report will discuss how I empathize with your process of denial; I am suffering the same syndrome in Canada with Stelco.

The Fed reported Thursday (4:30pm ET) another big increase in the money supply growth of the U.S..

For the quarter ending Jan-16-06 (last figures available), the growth of M3 was +9.0 pct, which is a gain from the corresponding previous week figures of +7.6 pct, and of +7.5 pct the week before that.

So if you are watching the M3 numbers, you will have noted a significant rise, which is a clear indication of the reflation underway today.

Despite the huge run-up in money available in the system, the U.S. 4Q05 GDP (economic activity) grew by only +1.1 pct, down from the Wall Street consensus estimate annual rate of +2.8 pct.

Clearly there is a problem here that the U.S. public is not being properly informed about. The economy is sliding into recession in spite of the money available to it. In fact, higher real estate prices, higher commodity prices and higher U.S. equity prices, and probably ADRs, which are foreign stocks that trade in the U.S., are sucking up that money.

The extra money is also being invested back in U.S. Treasury debt (which is needed to keep the country afloat), in such large amounts that yields are being kept under control for the most part.

But, without a major rise in U.S. GDP, which itself would create new money, the moment that government stops printing it like they are today is the moment that interest rates will pop.

So what's your poison? Will it be a devalued currency or higher interest rates?

So far, it happens to be a devalued USD because the Administration and the bankers on Wall Street know to a man and woman that higher rates would soon pass the tipping point to destroying the booming real estate market.

The bottom line is that there is a credit bubble (where Americans can borrow no more against assets and incomes) and a slowing economy.

So you have to understand the balance here: (i) the Fed and the Treasury cause the M3 to grow enough to keep rates down, in which case precious metals, commodity prices and real estate continue to boom, or (ii) the Fed raises the Bank Rate, which further inverts the yield curve, in which case they push the economy into recession and soon pass the tipping point where precious metals, commodity prices and real estate begin to fall.

But the key is this: commodity prices will fall in recession; real estate prices will fall because of lower personal incomes and rising interest rates (especially mortgage rates), and precious metals will fall if the economy picks up (real wealth created) and/or the short-term interest rates increase and/or M3 declines (as all three support a stronger USD).

My premise here is that a U.S. recession will significantly impact the growth rates of most other nations, which then impacts their buying of U.S. Treasury paper, as well as their purchases of U.S. exports, U.S. real estate, commodity prices and precious metals prices.

There you have it. It's why I have been focussed on data like U.S. GDP and personal incomes, PPI and CPI (which if they stay high will soon lead to demands for wage increases unless the people are prepared to accept a lower standard of living), and M3.

At some point the U.S. economy has to start growing quickly again, which would take the pressure off the need for the authorities to reflate, or else corporate earnings will fall. That is a driver for lower equity prices. And higher interest rates mean lower discounted cash flows in equity pricing models, which also mean lower equity prices.

The U.S. economy is like an ocean liner, which once it slows or stops or reverses is a long time getting into fast-forward again. In the meantime, the ship is sailing through dangerous waters.

But last week's economic summit at Davos Switzerland was just like the Titanic, with the champagne flowing as the ship was bouncing off icebergs.

I say it's a matter of "All Hands On Deck!" It's just that all the partygoers don't know it yet. How many are going to survive?

This is not a good time to be in a state of denial. The economy is not healthy; the underpinnings of a seemingly strong equity market are starting to snap.

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Global Market Summary

U.S. Equities : U.S. broad equity markets were up strongly this week: the Dow 30 (up +2.3 pct almost regained the prior week's loss of "2.7 pct), S&P 500 (up +1.8 pct vs. down "2.0 pct) and Nasdaq (up +2.5 pct vs. down "3.0 pct). The small cap Russell 2000 was up +3.9 pct, which seems to me to be like early October 1987, where caution was thrown to the wind.

International Equities: Japan was up about +7.0 pct and Europe and Canada up about +3.0 pct this week. The party was in Davos, but revelling went on around the world.

Dow 30: 19 up and 11 down. One would think there would be more winners on such a big week for the indexes. When a week ago there were similar losses, the corresponding losers in the Dow 30 totalled 25. Besides the big leader in the Dow 30 winners this week was GM (up +18.7 pct). Is GM really the General leading the Bulls into war, or a Pied Piper leading them to their death?

U.S. Sector ETFs: 9 up and 1 down. XLU was 1 of 2 winners a week ago and is the only loser this week. Maybe it's because these companies are debt-laden and bonds had a bad week?
10: Energy (XLE): Over-weighted: The # 1 winner a week ago, but 9th best this week
15: Basic Materials (XLB): Over-weighted: This week's big winner; a metals play
20: Industrials (XLI): Market-weighted: 5th best performer (CAT, UTX and HON)
25: Cons. Discretionary (XLY): Under-weighted: 7th best; DIS and MCD were no help
30: Cons. Staples (XLP): Market-weighted: up +1.6 pct to reverse loss of week earlier
35: Healthcare (IYH): Under-weighted: 3rd worst performer; JNJ down "3.4 pct
40: Financial (XLF): Under-weighted: up +2.7 pct vs. week earlier down "3.7 pct
45: Technology (SMH chips): Market-weighted: up +2.4 pct vs. week earlier down "6.7 pct
50: Telecom Services (IYZ): Market-weighted: 2nd best; up +2.8 pct vs down "1.3 pct
55: Utilities (XLU): Market-weighted: At 32.35 failed to beat 6 week old high (32.75)

Bonds: TLT lost "2.0 pct W/W; bond traders don't like those M3 so they trashed the bond market a day ahead of the Fed numbers

Commodities: The index was up just +0.5 pct, but recovered Friday (+1.0 pct) after being down big on Tues/Wed

Oil & Gas: NY Crude oil lost "1.0 pct W/W to 66.68 (-$0.69), possibly due to a major oil company forecasting 2006 average price of $40 to $50, which, if true, would mean quite a drop to come. The 40-Week Moving Average is $60.06

Gold: Gold gained +$5.06 (+0.9 pct) W/W to $559.56. Friday was a big day, possibly due to Thurs. evening's report of M3 jump

Goldminers: $XAU jumped +4.75 pct W/W to 146.79, while the better technical indicator the TSX XGD (Canadian miners) was up +2.1 pct to 69.65. Rallies start off high RSI levels, which is a bullish sign

Forex: A week ago Fri, the trade-weighted USD went down "0.46 pct and the Euro (in USD) went up +0.36 pct, but this week was a party in Davos, and the USD, which had been down through Thur., jumped +0.8 pct Fri., to help close the USD up +0.4 pct W/W to 89.32. The Euro went in reverse as it closed down "0.2 pct (in USD) W/W, after falling "0.8 pct on Friday

---

Sector ETF:

Here are the ETF charts I follow for the ten sectors of the U.S. equity market:

10 (energy: XLE)

15 (basic materials: XLB)

20 (industrial: XLI)

25 (consumer discretionary: XLY)

30 (consumer staples: XLP)

35 (healthcare: IYH)

40 (financial: XLF)

45 (technology, semiconductor: SMH)

50 (telecom: IYZ)

55 (utilities: XLU)

Here is the weekly performance of my favorite ten Sector Index Funds. The table is sorted by price performance Week over Week (W/W), i.e. 1W%N, but is otherwise unsorted.

Symbol	Close	Net	%Net	1W %Net	2W %Net	4W %Net	YTD %Net	3M %Net	6M %Net	Yr %Net
XLB	31.60	0.22	0.70%	4.95%	3.57%	3.30%	2.20%	16.82%	11.15%	10.88%
IYZ	23.87	0.24	1.02%	2.84%	1.53%	3.83%	3.92%	5.02%	-0.42%	2.67%
XLF	32.17	0.03	0.09%	2.71%	-1.05%	0.94%	-0.09%	7.95%	6.84%	8.83%
SMH	38.23	0.13	0.34%	2.36%	-4.45%	2.14%	0.82%	14.53%	2.52%	22.69%
XLI	31.62	0.13	0.41%	2.13%	-0.35%	-0.13%	-0.03%	8.36%	3.50%	5.89%
XLP	23.53	0.19	0.81%	1.55%	0.09%	0.00%	0.38%	3.66%	0.64%	1.12%
XLY	33.43	0.15	0.45%	1.46%	-0.39%	1.70%	1.30%	8.64%	-3.58%	-0.57%
IYH	64.25	0.66	1.04%	1.10%	-0.48%	1.13%	0.97%	8.59%	2.72%	11.84%
XLE	56.65	0.97	1.74%	0.43%	5.26%	12.20%	7.50%	20.56%	18.19%	50.83%
XLU	32.35	0.15	0.47%	-1.10%	1.25%	2.31%	1.09%	6.27%	0.90%	15.41%

This week there were 9 up and just 1 down (XLU) for the ten U.S. sector ETF's I monitor. I saw a seismic shift into U.S. equities that started from the pre-open on Wed., but there was no overnight news or prior afternoon's news on the U.S. scene that would have touched off that rally. But it did occur immediately after the USD took a leap on Tuesday, after a plunge on Monday, so I'm going to speculate that it was the infamous Plunge Protection Team (PPT) at work.

I am assuming that the U.S. Admin and Treasury (as of Bush 2, now part of the Admin. :-)) worked hard to stabilize prices. After all, a crashing USD wouldn't look too good in Davos!

Please ignore the cynicism and focus on what's important here: negative economic data and volatile capital market prices are indicating a shift in long-term trends. The typically strong sectors late in a Bull Market are strong here too (oils and metals and gold). My trend and cycle work shows a continued topping out process, which is being extended only by actions being taken by the U.S. Administration and Fed.

At some point, the strength of the U.S. Financial sector (lending institutions) has to die, which will then take equity prices down into the start of the 2006 Bear Market. Also, the oils and metals can only continue to be strong if the global economy, which is now in a contracting phase, starts to turn around.

---

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

Here's the XLE Weekly, Daily and Hourly data charts:

XLE Weekly data:

XLE Daily data:

XLE Hourly data:

XLE was up +0.43 pct W/W to close at 56.65. That's just 24 cents, and it follows a week earlier where XLE jumped +4.8 pct, and the one before that up +1.9 pct.

I still think it is wise to scale back positions by selling into this strength.

Crude oil in NY (Light Sweet Crude) at $66.68 is still close to the late August 2005 cyclic highs of 70.85 on the weekly data. Once the Nigerian situation is put under control, and there are further reports of economic slowdown, it is likely that oil prices will pull back further.

And I continue to believe that this is a good time to write covered calls to take in options premium, and maybe allow your portfolio to have the XLE taken away from you at record high prices.

This is not to say I'm bearish on XLE (I'm still over-weighted); but the economic signs, and technical (momentum) indicators are weakening.

---

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

Here's the XLB Weekly, Daily and Hourly data charts:

XLB Weekly data:

XLB Daily data:

XLB Hourly data:

Interesting to me were the numerous "analyst downgrades on some of the quality stocks in this sector," which pulled down the XLB a week ago by "1.31 pct W/W, were looking silly this week, as XLB was the week's number one performer by far, up +4.95 pct to 31.60.

The point is: it's better to watch the actual prices than read the stories that Wall Street publishes.

Yes I like the metals, but please, don't get caught like the foolish man trying to swim holding gold bricks in both hands. Raise your stops. And if you get taken out, wait until the price drops further and the RSI (7) drops to a cycle low before buying in again.

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

Here's the XLI Weekly, Daily and Hourly data charts:

XLI Weekly data:

XLI Daily data:

XLI Hourly data:

XLI was up +2.13 pct W/W to 31.62. The big winners were CAT (up +11.11 pct), UTX (up +6.80 pct) and HON (up +5.50 pct).

These are major exporters, which in an expected period of falling USD will have an easier time selling products abroad.

The 800-pound gorilla of the group, GE, was down "1.26 pct W/W after being down "4.66 pct the week before that. About 40 pct of GE's business is financial, and that is the part that is hurting right now. In fact, they cannot lop off the re-insurance operations fast enough.

My complaint here is that the insurance business for years was the major contributor (the only one?) to GE's earnings growth, and now that things have turned sour (weather and hostilities), they want out. They call it "Discontinued Operations" so that analysts only tell you about earnings from continuing ops.

I say stop the jiggery-pokery and restate earnings. Either recover the executive bonuses under Jack Welch's final years, or stop the unfounded bonuses under Jeff Immelt's watch.

You do recall I hope when I wrote a couple weeks ago that "I warned that the market's "General" GE would be the leader on the big down day to signal the start of the 2006 Bear Market? Take it from me, the Bull is dieing, and smiley Jeff Immelt is sitting astride the Bull. I hope it doesn't roll over on him."

So a week ago (on a bad week for the market), GE was down big time, and this week, which was outstanding for the Bulls, GE was still down "1.3 pct.

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

Here's the XLY Weekly, Daily and Hourly data charts:

XLY Weekly data:

XLY Daily data:

XLY Hourly data:

There is something of a major credit bubble in the U.S. that is starting to cause the Administration and Corporate America some worry. Consequently, the Admin is printing tons of new money to try to keep the economy on the rails. The problem is that GDP growth for 4Q05 is down to +1.1 pct (annual rate).

That means, personal incomes have to be suffering, which added to the unlikelihood that consumers can squeeze more debt out of their homes and their stocks and bonds (although I suppose they could pawn their jewellery), adds up to tough sledding for the Consumer Discretionary companies, which worries traders of the stocks in this sector.

XLY was up +1.46 pct W/W to 33.43, which was the 7th best performer. Yes, when the market is being cheerleaded to another run to Dow 11,000, even turkeys fly.

But not for the long distance in a contracting economy.

---

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

Here's the XLP Weekly, Daily and Hourly data charts:

XLP Weekly data:

XLP Daily data:

XLP Hourly data:

XLP (Consumer Staples) was up +1.55 pct W/W to 23.53, which is the same story as XLY.

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

Here's the IYH Weekly, Daily and Hourly data charts:

IYH Weekly data:

IYH Daily data:

IYH Hourly data:

IYH (Healthcare) was up +1.10 pct W/W to 64.25, aided by Pfizer (NYSE: PFE), which was up +5.18 pct.

And of course, PFE was aided by the song and dance of CEO Hank McKinnell in Davos this week, telling VIP's that his company was getting key approvals from the FDA when that wasn't true.

But it made for a good story until he decided (i.e., was warned by his legal team) to come clean in a follow up interview he asked for on CNBC. Quite something, that was.

JNJ, of course, took a hit of "3.44 pct, when they lost the Guidant deal. Normaly when these over-priced acquisitions don't go ahead, there is a pop in the stock, but in this case, the JNJ shareholders are left wondering where's the beef. What operations in this company are going to power JNJ forward?

I guess we'll have to ask Cramer, who had this stock on his Best of the Best list ("Back up the truck!") right at the top of the stock cycle.

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

Here's the XLF Weekly, Daily and Hourly data charts:

XLF Weekly data:

XLF Daily data:

XLF Hourly data:

A week ago the Financial ETF (XLF) was down "3.66 pct. So the rally this week, closing XLF up +2.71 to 32.17 didn't quite cut it for me.

I am still cognizant of the analyst downgrades in this sector, which they are likely to continue in (i) a credit tightening cycle, and (ii) an economic contracting cycle, and (iii) a negative yield curve environment.

I doubt you'll find too many Financial stocks in the Dow 30 monthly or weekly top five list for a while.

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

Here's the SMH Weekly, Daily and Hourly data charts:

SMH Weekly data:

SMH Daily data:

SMH Hourly data:

Pretty soon we'll all have MP3 and Home Entertainment Centers because we can no longer afford to go to theatres and entertainment venues outside our homes and personal space. And we'll be buying cell phones with video because misery likes to keep company.

So these technologies ought to do well. But for the rest, I am not so sure. A contracting economy means a slow-down in sales, inventory build-up, pricing pressures, and hence falling corporate profit margins, and possibly profitability.

But last week, the SMH (U.S. chip stocks ETF) was up +2.36 pct to 38.23.

It seems that a Davos Darling was Microsoft (NDQ: MSFT), where the story was " if I have it right " that Microsoft has been reborn, and U.S. conservatives (or Conservatives) should pick up MSFT by at value prices. Hmmm.

You know, at the top of a market cycle, the strangest stories will be offered to those who suffer Credulity Syndrome.

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Sector 50 (telecom: IYZ, VOX and IXP)

Here's the IYZ Weekly, Daily and Hourly data charts:

IYZ Weekly data:

IYZ Daily data:

IYZ Hourly data:

The Telco Service ETF (IYZ) was the 2nd best ETF out of ten, after being 3rd best each of the two weeks before that. What's happening here?

IYZ was up +2.84 pct W/W to 23.97.

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

Here's the XLU Weekly, Daily and Hourly data charts:

XLU Weekly data:

XLU Daily data:

XLU Hourly data:

Two weeks ago I noted: "a price correction is needed before these prices become attractive. Longer-term, I have to think that water utilities, and wind and nuclear-powered utilities are going to be favored. With crude oil at very high prices (staying above 55 going forward), I also think that the natural gas utilities will continue to do well for traders in the equity market."

A week ago XLU was 2nd best performer, but this week it was dead last, and the only one of 10 to suffer a loss. XLU was down "1.11 pct W/W to 32.35.

But six weeks ago I opined that XLU would not likely surpass its cycle high of 32.75 in this Bull Market cycle, and it has not.

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Bonds:

The message here continues to be: "If there is going to be a recession in the U.S. in 2006, which is an indication of a flat to inverting yield curve, then bonds ought to relatively out-perform equities. Still I would not expect too much. Total return from bonds in 2006 will likely prove a disappointment."

Weekly data charts:

Daily data charts:

Hourly data charts:

US Treasury Bonds

Maturity	Yield	Yesterday	Last Week	Last Month
3 Month	4.24	4.23	4.16	3.76
6 Month	4.34	4.32	4.25	4.12
2 Year	4.48	4.46	4.33	4.34
3 Year	4.45	4.43	4.29	4.32
5 Year	4.43	4.42	4.28	4.31
10 Year	4.50	4.50	4.34	4.37
30 Year	4.69	4.69	4.52	4.52

Municipal Bonds

Maturity	Yield	Yesterday	Last Week	Last Month
2yr AA	3.01	3.01	2.98	2.98
2yr AAA	3.00	3.00	2.96	3.01
2yr A	3.04	3.03	2.99	3.08
5yr AAA	3.15	3.13	3.10	3.22
5yr AA	3.16	3.14	3.10	3.23
5yr A	3.27	3.25	3.23	3.33
10yr AAA	3.55	3.50	3.45	3.58
10yr AA	3.52	3.48	3.44	3.56
10yr A	3.68	3.57	3.51	3.77
20yr AAA	4.02	3.99	3.95	4.01
20yr AA	4.00	3.96	3.92	3.97
20yr A	4.07	4.01	3.97	4.21

Corporate Bonds

Maturity	Yield	Yesterday	Last Week	Last Month
2yr AA	4.62	4.60	4.46	4.49
2yr A	4.66	4.65	4.53	4.52
5yr AAA	4.67	4.65	4.55	4.62
5yr AA	4.75	4.73	4.59	4.63
5yr A	4.81	4.80	4.68	4.70
10yr AAA	5.13	5.10	5.04	5.14
10yr AA	5.08	5.07	4.95	4.99
10yr A	5.16	5.15	5.03	5.04
20yr AAA	5.49	5.47	5.42	5.37
20yr AA	5.66	5.75	5.57	5.59
20yr A	5.69	5.71	5.59	5.54

This week, bond yields rose 10 basis points to 15 bp across the range of U.S. Treasurys. That means that bond prices went down. The ten-year TLT's dropped "2.02 pct W/W to 90.51, after a really bad Wednesday.

I just don't understand why there was a seismic shift into USD Tuesday, after a free fall on Monday, but the bonds did not improve. I'll speculate and say it was a decision by Ben Bernanke to raise rates at the upcoming FOMC meeting.

Then this week there was a massive sale in the 10-year Treasury's by foreigners, and CBOT traders took on record long positions. I have a feeling that something is ready to burst.

You know, this bond market needs minute-by-minute monitoring, which is why, for income accounts, I would rather stick to high dividending equities. I understand those better and don't have to stay watching the ultra-highly levered bond market where the hot money in the big bank trading rooms moves much faster than me.

Interest rates and bond yields.

US Bond Funds -- Monthly Data Charts

SHY Monthly data series chart:

IEF Monthly data series chart:

TLT Monthly data series chart:

AGG Monthly data series chart:

LQD Monthly data series chart:

TIP Monthly data series chart:

US Bond Funds -- Weekly Data Charts

SHY Weekly data series chart:

IEF Weekly data series chart:

TLT Weekly data series chart:

AGG Weekly data series chart:

LQD Weekly data series chart:

TIP Weekly data series chart:

US Bond Funds -- Daily Data Charts

SHY Daily data series chart:

IEF Daily data series chart:

TLT Daily data series chart:

AGG Daily data series chart:

LQD Daily data series chart:

TIP Daily data series chart:

US Bond Funds -- Hourly Data Charts

SHY Hourly data series chart:

IEF Hourly data series chart:

TLT Hourly data series chart:

AGG Hourly data series chart:

LQD Hourly data series chart:

TIP Hourly data series chart:

Consumer Finance -USA -- Weekly Data Charts

Consumer Finance -USA -- Daily Data Charts

Consumer Finance -USA -- Hourly Data Charts

This week, the interest-sensitive GSE's (Govt Sponsored Enterprises) like Fannie (FNM), Freddie (FRE) and Sallie (SLM) all had huge jumps on Thursday am and again on Friday am. I see that as a move by the Admin/Fed to pump these stocks before they raise interest rates further, which would hurt the profitability of these GSE's.

CIT had a big day on Friday, along with the broad market, but did not on Thursday, and Countrywide Financial (CFC) did not do well at all, which is usually an indicator of where interest rates are headed.

You see, a Plunge Protection Team (if there is such a beast) would not be pumping the CIT's and CFC's. But FNM, FRE and SLM are a different story.

And with existing home sales growth coming to an end, and credit tightening ahead of a round of bad debts backed by real estate, I'd say CFC is not likely to have any power left.

---

Commodities:

The commodities markets were down big on Tues. and Wed., but up even bigger on Friday. Oil had a down Tues. through Thurs., but rebounded Friday.

$CRB closed the week at 346.96, which was up +0.52 pct, caused by a strong Friday up +1.02 pct.

Weekly CRB Commodities Index:

Daily CRB Commodities Index:

Weekly Crude Oil:

Daily Crude Oil:

$WTIC, which is the continuous contract for Crude Oil, closed the week at 66.68, which was down "1.02 pct W/W, after reaching a cycle high of 68.65 on Monday.

But the big news was on Friday, where Crude Oil futures prices zoomed +1.57 pct.

The 40-Week MA is 60.06 and the 50-Day MA is 61.16, so there is lots of support in the low 60's.

Interestingly one of the major oil companies this week predicted an average 2006 price of between 40 and 50. That seems to fit with a contracting economy scenario.

If oil can hang in above say 45, then the pull-back in the Canadian Oilsands oil stocks would be an excellent buy. Of course, should oil prices fall anywhere close to that, these and all other oil stocks are likely to suffer major declines in price.

The key is to protect your long positions (with trading stops and short calls) and to keep your focus on the opportunities that the market presents. The Cdn oil sands region (Northern Alberta) will be the recipient of over $100 billion in capital expenditure in the next few years " bull market or bear " and you have to be there because outside of U.S. supplies, this is the only safe supply to Americans in the world. And pipelines and other infrastructure will ensure it.

So, keep watching the RSI on the IMO, SU, and PCZ, which are the Integrateds, and CNQ, ECA, NXY and TLM, which are major producers. If there happens to be falling prices tomorrow, it's because of excessively high prices today. That's all.

The Americans need oil at $45 or higher in order to keep drilling and infrastructure investment going in order to help meet future economic needs. Economies occasionally go recessive for short periods, but not for long. That makes the Cdn oils a good long-term bet, and these stocks ought to be a core part of your portfolio.

Just don't overpay.

Integrated Oil & Gas - Canada

Oil & Gas Exploration & Production -Canada

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Gold:

Gold might have a pull-back occasionally, but not for long. The RSI reversals at or above 50 show you that. This is a secular Bull Market for precious metals. The reasons are many, but the simplest one is that money supply keeps growing faster than wealth (GDP) is being created.

Don't try to figure it out any more than that.

The $GOLD index (continuous contracts in the futures market) was up $5.06 (+0.91 pct) W/W to $559.56. Yes, the cycle high was reached over a week ago at 568.10, but this market has come a long way since the May-05 lows ($413.85), the day after I picked it as the bottom.

The 40-Week MA is still 464.36 and the 50-Day (10-Week) MA is $519.48 because the prices have risen so quickly. So there are risks.

Can gold prices continue to rocket higher? Of course " as long as all the stars in the sky stay properly aligned. Short-term there may be a test of say $530, but I don't think it will go any lower than that in this cycle " if in fact it does reach down that low.

It appears to traders that China will bring in their New Year this week with a policy change of People's Bank of China. Governor Zhou Xiaochuan will likely soon announce that Beijing has allowed the Yuan to be revalued by floating (more) freely against the USD.

Consequently, the USD will drop further, and precious metal prices will rise further. Thus, I have ratcheted up my forecasts for higher prices for gold and other precious metals " silver in particular.

Outlook for gold bullion:
Long term " very bullish (US$700 and higher)
Intermediate term " bullish (625)
Short term " bullish (580)
Spot price: 560.90 (6:00 PM ET Jan-28-06)

The implications of the Renminbi revaluation are pervasive as China now is the fourth largest economy in the world " ahead of France. But nowhere more than precious metals is this policy change being felt.

Today there has been a continued rise in precious metal spot prices. I believe the buyers include many Chinese who are rushing to buy ahead of a time when gold priced in Yuan will be more costly. If you haven't taken heed, I still believe the time is now to jump on the precious metals bandwagon before the global public sees what is happening.

Weekly Gold EOD Continuous Contract Index:

Daily Gold EOD Continuous Contract Index:

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

Weekly Silver EOD Continuous Contract Index:

Daily Silver EOD Continuous Contract Index:

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

Just after 3:00 pm ET on Tuesday, with spot Silver at $9.16, I issued an alert.

On Wed., morning, the silver stocks opened with a rocket, and I confirmed that in the morning blog article.

Spot silver was last at $9.56 (Friday). But, don't ask me how I do this because I truly don't know. I do know it's not trickery because my articles are time-stamped, and, besides, I'm not Bill Gates or Warren Buffett who are people who could possibly move markets like that.

I'm just one of the Little People. Like you.

You know I used to be skeptical about divining water too. How could a farmer find water through a practice known as dowsing? I haven't a clue but I have watched them do it, including finding the best places to drill water wells on my property.

Sometimes it's better to just accept these things.

Oh, and yes, I do have a silver-plated horseshoe. Wait for it!

Weekly Platinum EOD Continuous Contract Index:

Daily Platinum EOD Continuous Contract Index:

This interactive chart shows the recent trading for the Platinum metal index.

Two weeks ago, when Platinum closed up +3.8 pct at $1,035.10, I wrote: "Platinum is part of the precious metals complex that has broken out to the upside again."

Well this week, PLAT closed at $1.066.70, so it is still in a strong bullish phase. Spot platinum is at 1062.

Weekly Palladium EOD Continuous Contract Index:

Daily Palladium EOD Continuous Contract Index:

This interactive chart shows the recent trading for the Palladium metal index.

PALL was up just +0.24 pct W/W to 279.24, so it sits mid way between the cycle high and low on the Daily data charts (290.12 and 269.55). The spot, however, is 272.

Weekly Copper EOD Continuous Contract Index:

Daily Copper EOD Continuous Contract Index:

This interactive chart shows the recent trading for the Copper metal index.

Copper was the story of the week! And how about those copper stocks?

And after I gave you a +400 pct gain on the PD call option I recommended, do you believe I had some smart alec from Burlington ON tell me: "I invested in PD a year ago, so when are you going to tell me something I don't know?"

I told him to "Get lost. Go pester somebody else."

Because this is a free blog, I understand I am going to attract the riff-raff. But that's not going to stop me. Never has.

So copper contracts went up +$13.87 (+6.68 pct W/W) to close at $221.49. That was five straight days higher this week, including a terrific Friday, up +1.41 pct on the day.

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Weekly U.S. Goldminers Index:

Daily U.S. Goldminers Index:

The U.S. goldminer index ($XAU) closed up +4.75 pct W/W to 146.79. That is a picture of very high expectations, which requires higher stops in the individual goldminers you might be long.

XGD Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF TSE:XGD closed up +2.10 pct W/W to 69.65.

On the Weekly data, the RSI (7) is 81.7. On the Daily, the RSI is at 61.3, which means that there is some upside left. But on pull-backs, the RSI has not been dropping below 50 since Oct-05, and it did not get down to <30 since mid-May-05, when I called the turn the day before.

Here are the Weekly, Daily and Hourly data charts for the TSX Goldshares (XGD) index:

XGD Weekly data:

XGD Daily data:

XGD Hourly data:

For an interactive look, here are links to the Hourly data charts of three groups of proven goldminer stocks. You can click on the tabs for the Monthly, Weekly and Daily data charts.

List #1

List #2

List #3

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Forex:

Weekly U.S. Dollar Index:

Daily U.S. U.S. Dollar Index:

The USD had a losing week this week until Friday when it gained +0.77 pct to close the week up +0.40 pct at 89.31.It had fallen like a stone early in the week to 87.83 until one morning " in the absence of supporting economic data " it turned around.

Wow, what can I say other than I don't believe the USD can suddenly go bullish in the face of such difficult economic circumstances (1.1 pct growth in GDP in the recent quarter, plus a negative yield curve and rising rates that may hold the dollar from crashing but will also spiral the economy south).

Weekly Euro Dollar Index, priced in USD:

Daily Euro Dollar Index, priced in USD:

The Euro (priced in USD) was soft this week, although it did plunge on Friday after having some good days earlier. After a rally on Mon., the index jumped to a high of 123.8 on Tuesday. Maybe that's some added confidence by Germans in the local and regional economy? Yah?

In Canada, we say "Eh?" but the Germans and German-Swiss seem to like the expression "Yah?" like they are confirming a truth. With Canadians you are never really sure whether or not they mean anything when they say "Eh".

In any event, this week the $XEU dropped "0.23 pct to 121.08, including a decline of "0.84 pct on Friday. Which is not so great for gold, yah?

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International Equities:

Remember the concept of a Seller's Market. It's when buyers flock into stores waving money. That money can be USD, Pounds, Loonies, Euros or Yen. But when buyers want to take your stocks off your hands at prices from 3 pct to 7 pct higher on the week, you let them do it. It's called a Buyer's Panic.

But just like the top of a real estate market, there is often something called Buyer's Remorse, and they start to doubt what they got themselves into.

Cheerleading happens (by the Admin and by Humungous Bank & Broker), and then fools rush in.

So this week, the Japanese equity market was up +7 pct and the Canadian and European markets were up +3 pct. Other than Michael and Catherine and Brad and Angelina looking pretty in Davos this week, what else looks so good to traders that equity prices have to rally so much?

Japanese equity market ETF: EWJ

This week, the Japanese equity market ETF (EWJ), priced in USD, was up +7.04 pct to 14.14. Funny, but it closed Week #1 (Jan 6) at 14.19, so pardon me if I don't get too excited.

I understand why the Japanese market looks so good, what with China's economy so hot, and the Yuan ready to be revalued higher, giving pricing power to Japanese manufacturers, but there is always a time to say enough is enough.

I think it's time to stop playing the Japanese and Korean stocks " they've had a great run " and to switch into China and Taiwan.

Here is the Japanese (EWJ) equity market ETF Weekly, Daily and Hourly data charts:

EWJ Weekly data:

EWJ Daily data:

EWJ Hourly data:

U.K. equity market ETF: EWU

The U.K. equity market, as represented by EWU (priced in USD), closed up +3.24 pct W/W to 19.78. It too is getting long in the tooth.

Here is the United Kingdom (EWU) equity market ETF Weekly, Daily and Hourly data charts:

EWU Weekly data:

EWU Daily data:

EWU Hourly data:

Canadian equity market ETF: EWC

The Conservative Party under Stephen Harper did enjoy the win, as I had said was likely, and it was indeed the swan song for former Prime Minister Martin, who accepted the loss by stepping down as his Party's head.

As Minister of Finance, Paul Martin did an excellent job. I have no reason to believe that the new Finance Minister under Prime Minister Harper will not do the same excellent job. Moreover, I believe that PM Harper will distinguish himself with the respect deserving of that position.

As to the EWC (Canadian market ETF that trades in USD in NYC), it was up +3.03 pct W/W to 23.44. Like Alberta oil and Northern Ontario goldminers, the EWC has had a great run. It is toppy, and likely to commence a bear phase this quarter, like many other international markets.

The problem is that commodity prices sell off after the U.S. economy goes into recession, or aces difficulties, which is presently happening. And the only commodity I like at times like that is anything to do with precious metals " particularly if there is a downside to the USD at the time, which in this case I do believe there is.

Here is the Canadian (EWC) equity market ETF Weekly, Daily and Hourly data charts:

EWC Weekly data:

EWC Daily data:

EWC Hourly data:

(Japan, Taiwan, Hong Kong, Singapore)

(U.K., Germany, France, Italy)

(Canada, Mexico, Brazil, Australia).

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U.S. Equities:

U.S. broad equity markets were up strongly this week: the Dow 30 (up +2.3 pct almost regained the prior week's loss of "2.7 pct), S&P 500 (up +1.8 pct vs. down "2.0 pct) and Nasdaq (up +2.5 pct vs. down "3.0 pct). The small cap Russell 2000 was up +3.9 pct, which seems to me to be excessively speculative.

As to the Dow 30, there were 19 up and 11 down.

One would think there would be more winners on such a big week for the indexes. A week ago there were similar losses, but the corresponding losers in the Dow 30 totalled 25.

The big leader in the Dow 30 winners this week was GM (up +18.7 pct). Is GM really the General leading the Bulls into war? Hardly, unless an octogenarian gamer by the name of Kerkorian is the Pied Piper.

But, recall that I'm the Rat Catcher, and none of these games fool me " for long anyway. And if and when you lose your capital, it's a long time dead.

The Value Line reports this week were CAT (up +11.11 pct), UTX (up +6.80 pct) and HON (up +5.50 pct) W/W. I wish I could figure out timing so good! That's 3 of the top 5 Dow winners.

The metals were strong too, which means that AA was strong. It was up +8.68 pct W/W, which was good for 3rd place in the top 5.

This all tells me the U.S. equity market is getting close to the end of its four-year bull phase. The cycle is almost complete, and the trend is soon likely to go down, starting this quarter.

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Here is the Monthly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.

Here is the Weekly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.

Here is the Daily data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.

Here is the Hourly data chart of the Nasdaq Composite, S&P 500, Dow30, and Russell 2000 (small cap) indexes.

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

Symbol	Close	Net	%Net	1W %Net	2W %Net	4W %Net	YTD %Net	3M %Net	6M %Net	Yr %Net
GM	23.80	0.75	3.25%	18.70%	13.55%	27.89%	25.93%	-12.47%	-35.50%	-35.15%
CAT	67.53	2.36	3.62%	11.11%	8.55%	16.75%	16.83%	35.33%	27.92%	56.10%
AA	31.30	0.52	1.69%	8.68%	8.64%	5.71%	4.68%	31.13%	11.19%	7.71%
UTX	58.75	1.23	2.14%	6.80%	5.93%	3.31%	3.93%	16.54%	15.63%	15.02%
HON	37.81	0.40	1.07%	5.50%	1.97%	0.64%	0.93%	13.17%	-0.55%	4.94%
MSFT	27.79	1.29	4.87%	5.23%	2.39%	5.31%	3.54%	11.83%	8.05%	6.43%
PFE	25.99	0.94	3.75%	5.18%	5.74%	10.13%	9.29%	23.18%	-2.66%	5.31%
T	25.89	0.38	1.49%	4.78%	3.73%	5.16%	4.78%	32.09%	31.96%	32.09%
KO	41.97	0.52	1.25%	4.69%	1.28%	2.92%	2.62%	-0.43%	-4.64%	0.50%
JPM	39.75	0.16	0.40%	4.47%	-0.50%	-0.40%	-1.09%	10.32%	12.45%	8.16%
MRK	34.70	0.75	2.21%	4.36%	3.64%	8.74%	5.95%	28.90%	11.15%	11.29%
VZ	32.14	0.46	1.45%	3.88%	0.09%	6.25%	5.79%	4.49%	-6.30%	-10.40%
AXP	53.30	-0.02	-0.04%	3.70%	-0.47%	3.64%	1.37%	9.00%	-3.00%	0.99%
PG	59.74	0.92	1.56%	3.28%	2.28%	2.05%	1.63%	8.58%	7.89%	7.99%
BA	68.56	-0.16	-0.23%	3.11%	-1.62%	-3.38%	-2.53%	7.04%	2.79%	34.51%
C	46.87	-0.14	-0.30%	2.58%	-4.41%	-3.30%	-4.91%	3.22%	5.59%	-3.48%
WMT	45.84	-0.48	-1.04%	1.87%	0.22%	-4.18%	-0.84%	2.46%	-7.95%	-13.64%
XOM	61.29	1.34	2.24%	1.26%	2.77%	8.96%	4.82%	10.23%	2.84%	18.43%
DD	39.83	0.02	0.05%	0.78%	-1.02%	-7.93%	-7.50%	-3.72%	-4.51%	-15.20%
AIG	66.65	0.21	0.32%	-0.09%	-5.14%	-2.57%	-4.27%	5.58%	9.64%	0.38%
MO	74.73	0.98	1.33%	-0.15%	-2.12%	-0.56%	-0.33%	1.81%	12.29%	19.32%
INTC	21.67	0.18	0.84%	-0.41%	-16.56%	-14.85%	-15.25%	-5.08%	-19.92%	-2.87%
IBM	81.02	0.30	0.37%	-0.42%	-3.05%	-2.50%	-1.27%	-1.57%	-3.40%	-11.92%
HD	40.00	-0.40	-0.99%	-0.42%	-5.99%	-2.65%	-3.01%	1.55%	-7.73%	-1.62%
GE	32.95	-0.06	-0.18%	-1.26%	-5.86%	-6.15%	-6.84%	-1.88%	-5.32%	-7.47%
HPQ	31.29	-0.31	-0.98%	-1.39%	0.87%	8.65%	8.76%	16.75%	26.27%	60.54%
MCD	35.05	0.11	0.31%	-2.26%	0.75%	2.52%	4.56%	11.09%	16.52%	9.12%
DIS	25.08	0.00	0.00%	-2.49%	-2.18%	3.94%	2.79%	7.09%	-2.90%	-11.38%
JNJ	58.71	0.01	0.02%	-3.44%	-5.63%	-2.83%	-4.74%	-4.44%	-9.03%	-8.58%
MMM	72.65	-0.05	-0.07%	-3.44%	-6.50%	-7.10%	-8.17%	-2.89%	-1.36%	-12.35%

This performance chart of the Dow 30 shows 19 stocks up and 11 down this week. And some of the losers (GE in particular) made one take note.

Like I say that's not very impressive on a week where the broad market indexes were up from +1.8 to 4.0 pct. Let's take a look at what happened:

The Dow 30 winners this week:
GM, up +18.70 pct
CAT, up +11.11 pct
AA, up +8.68 pct
UTX, up +6.80 pct
HON, up +5.5 pct
MSFT, up +5.23 pct
PFE, up +5.18 pct

Don't ask me why!

The Dow 30 losers this week:
MMM, down "3.44 pct
JNJ, down, -3.44 pct
DIS, down "2.49 pct
MCD, down "2.26 pct
HPQ, down "1.39 pct,
GE, down "1.26 pct

Don't ask me why they weren't down a little more.

Here are the links to interactive 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)

The Value Line reports for this week are attached to the Community Chat blog.

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Wrap up

Silver had quite a run this week. I thought it might, so I produced this photo a week ago, but the file size truncated it, and my edit missed that fact.

Here is the photo of my silver horseshoe and crystal ball.

My crystal ball is telling me I have a margarita coming. Just what the doctor ordered!

BCara@BillCara.com