Many of the Asia-Pacific equity markets, and gold, may have reached a cycle bottom in the past week. If so, there is a strong likelihood that the U.S. equity market will find its cycle bottom following the next down cycle.

On the other hand, and this is my opinion, the U.S. equity market has significant tough sledding ahead as traders grapple with the notion of stagflation " that is, a higher than desired inflation rate and a lower than desired economic growth rate. As U.S. traders sell their domestic stocks, I believe they will sell their foreign holdings as well in order to build ammunition for the next bull market.

Asia-Pacific equity markets will still come off in the next bear phase of the U.S. market because of fears that a possible recession in the U.S. will hurt their economies badly.

Hence I believe that the current rally is basically a short-covering and "bottom picker's" rally. It is not the first leg up in a bull market. So caution to avoid chasing stocks here is the best advice I could give.

Gold on the other hand has in my opinion started a new leg up. I believe that the $USD will start a steady decline here as U.S. politicians start to debate the financial cost of war, war crimes, the cost of healthcare and social programs, and so forth.

I believe that the $USD has much further to go on the downside. The Canadian dollar at about 90 cents U.S., for example, will go to par (or higher) before currencies settle out. At that time I expect to see $GOLD trading in the $800 to $1,000 range, but not higher.