Meanwhile during this terminating bullish phase for equities, which started on June 29, I believe that commodities will also rally, and will reach new highs for gold and silver, and perhaps (but not as likely) reach new highs for crude oil as well.

Economic conditions in the U.S. have also peaked and should now decline, which will provide conditions that will stabilize bond prices, where a cycle bottom will soon be reached.

Until a new currency regime is established in the world, the U.S. Dollar will also seek to reach a cycle bottom, but that process will take longer. During this period of $USD decline, gold and silver prices will continuously move higher, with gold likely to peak above $1,000 per oz.

Global Market Summary

International Equities: For the most part, the equity markets of emerging economies and advanced economies peaked May 10, which I believe was the starting point of the 2006-xx Bear Market. Two of the three most important equity markets of the world [FTSE (UK) and Nikkei 225 (Jpn)] peaked in April. The final important up leg of the 2002-2006 Bull Market started in October 2005 across the board, and that ended. The current and final upleg, which started this past week, is likely to be relatively muted.

So far this year, the leading Asia-Pacific equity indexes (Nikkei 225 and South Korea's KOSPI) are down, while Canada plus the three leading European equity indexes (FTSE, DAX and CAC) are up and so is the Bombay Sensex Index of India. But except for the FTSE, which peaked a couple weeks earlier, the whole lot of them peaked right at the time of the May 10 FOMC announcement. Everyone, it seems, is concerned about the plight of the American consumer, the lack of U.S. government fiscal restraint, and prospects for the $USD, and what that means for their exports to America.

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South Korea

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U.S. Equities: The S&P 500 Index has traded in a narrow 52-week range from a low of 1168.20 to a high of 1326.70. From Dec. 30 (1248.29), the S&P 500 has risen to a Jun. 30 close of 1270.20. The high close was reached May 10, following the FOMC decision to raise the Federal Funds Rate to 5.00 pct, which had been expected. What was not expected, however, was the Fed's indication back on May 10th that growth and inflation risks were no longer in balance, and that growth would moderate due to higher energy costs and a slowdown in the housing sector.

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Dow 30 stocks: 18 up -- 12 down over the first six months. A final intermediate leg up started on Thursday morning June 29 (either anticipating or being tipped in advance of the FOMC decision), but I hold to the notion the Bear started on May 10 (which caused me to issue a ‘Sell Alert'), and that new cycle highs for U.S. equities will not be set in the present rally. It is a rally where stocks will mostly be distributed. I believe a low in the Dow 30 Index of about 8,800, which would be a loss of -21 pct from present levels) will be reached within six months.

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U.S. Sector ETFs: Eight of 10 U.S. sector ETF's I track were up over the first six months, but three were trading up less than +1.2 pct YTD (consumer cyclical XLY, utilities XLU and financials XLF), so without this week's rally (Thursday and Friday), it could have been 5 up and 5 down for the ETF's. The two big winners were telco service IYZ (+11.7 pct) and energy XLE (+7.7 pct), while the two losers were semiconductor/tech SMH (-13.2 pct) and healthcare IYH (-5.0 pct). Following a Bear Market, I believe that the semiconductor/tech sector ETF (SMH) will be a leader on the upside.

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U.S. Bonds and Interest-Sensitive Equities: Over the first six months, interest rates in the U.S. were continually rising, which meant that bonds and interest- sensitive equities did poorly. Countrywide Financial (CFC) enjoyed a gain of +8.9 pct but there was some funny business in the trading there that screams out for an SEC investigation. CFC peaked on May 11 at $43.67 immediately after the 15 cent dividend was paid. In 9 subsequent sessions CFC dropped -15.5 pct to a low of $36.89. But, knowing that the housing market had hit the wall, with mortgage applications falling, and the Fed about to announce their concern on May 10, the preceding 11 trading sessions lifted CFC +15.5 pct from $37.81 (April 26). This was clearly ‘pump and dump' and traders who took losses ought to seek an investigation and remedies via the SEC. Other than the CFC this year, all the other interest-sensitives were down in price, and over the past month all, including CFC, were down. In fact the decline in June was such that I almost issued a "Buy Alert" opinion but for the fact the bonds did not quite drop down to my Accumulation Zone. I think the recent buying of these instruments was short-covering only, and a lower price will soon occur, which will likely generate a ‘Buy Alert'.

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Commodities: The commodities index ($CRB) started an intermediate-term rally on June 14 after reaching a cycle low of 329.61 on June 13. That statement will not be confirmed, however, unless and until $CRB exceeds the recent cycyle high of May 23 (353.31), but it is close at 346.39, and rising. Interestingly, except for the rally in the past week, $CRB has been flat on the first half. Every time (in the past three years) there was weakness in the commodities index, the technical support levels held up, and there was a confirmed higher low which went on to set a higher high. To sustain a commodities rally at this point (given a period of economic weakness ahead) will require a USD that weakens further, which appears to be the most likely scenario.

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Oil & Gas: The oil futures index ($WTIC) jumped +265 pct (a gain of $44.13) from a 3Q03 low of 26.72 to a 3Q05 high of 70.85, but in the nine months since then $WTIC is up just $2.92, and traders are wondering if a global economic slowdown will cause oil prices to peak this year. At this point, it appears that $WTIC will trade close to an inversion of the $USD, i.,e, as the USD weakens, $WTIC will strengthen, and vice versa.

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Gold: The gold futures index ($GOLD) typically lags the oil price cycle, and is typically the last of the commodity group to reach a peak. Over the past three years $WTIC has clearly outperformed $GOLD, but that situation has reversed in the past year. I hold the view that $GOLD, like $WTIC, will trade close to an inversion of the $USD for the balance of this market cycle, i.,e, as the USD weakens, $WTIC will strengthen, and vice versa, except that $GOLD will outperform $WTIC on the upside. I believe that between now and the next U.S. Presidential election (Nov-2008), the $USD will collapse, and that $GOLD will rise to over $850, possibly over $1,000. I believe that a new cycle high above $750 will be set within six months for $GOLD, which would be a gain of +21 pct or more.

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Goldminers: The goldminer shares have performed well for the most part this year. Agnico-Eagle (+5.1 pct), Meridian Gold (+32.2 pct), Lihir (+28.2 pct), Glamis Gold (+27.3 pct) and Goldcorp (+24.9 pct) are among some of the mid-cap and large cap leaders. The small and mid-cap stocks in this sector have outperformed and will continue to do that because they have the best profit:gold price leverage in the latter half of a bull phase for the miners.

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Forex: One year ago, $USD hit an intermediate cycle peak of 90.77, which was followed to an even higher peak in the next cycle (Nov-2005) of 92.63. On May 15, $USD reached a cycle low of 83.60, which was reached again in early June at 83.72. Subsequently the $USD rallied to 87.05 before closing the first half at 85.17, following a two-day plunge after the FOMC announcement on June 29. I believe that what happened that day was that traders perceived a huge jump in the U.S. money supply was needed to keep the bond market yields from rocketing up, which would have been a disaster for the housing industry. With a Fed Funds Rate now at 5.25 pct, it appears to me that any further rate hikes will have a deleterious ‘tipping point' effect on the U.S. economy that will send it into a tail spin. So the bottom line to the Administration's strategy for the past few years that increased spending combined with tax reductions was really a failure because it caused too much money to be printed, which was invested/spent/wasted abroad, thereby causing the $USD to drop like a stone in a sea of liquidity. In retrospect, I think the Administration's policy would have worked had the Fed under Greenspan opted to start raising the Fed Funds Rate a year earlier, and stopping the hikes about six months ago, with a couple pauses in between. But frankly, Congress has to tighten the reins on spending, and the new Treasury Secretary and Fed governor need to be successful in organizing an international (G-20) agreement on currencies. Until then, I think the $USD is headed much lower.

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To conclude, it is my belief that price motion in capital markets is caused by mostly natural phenomena that culminate in periods of rising and falling corporate fundamentals and quantitative results, and macro economic scenarios, all of which combine to impact market prices. While a matter of conjecture, how far prices rise and fall in cycles should not be our concern. Our focus should be entirely on the matter of trend, and with respect to equities, the selection of the shares of the best quality companies, with timely acquisition on the basis of technical indicators.

I believe that the long-term bullish trend in equity prices has reversed for reasons related to the U.S. Dollar. Until conditions are right for the $USD to trade in a narrow range for an extended period of time, enabling levels of international trade and capital expenditure to expand naturally to where wealth is created faster in America and also Europe, and at a slower pace in emerging economies (China, India, Brazil), I think the financial world will be in turmoil. It is after all, the health and wealth of consumers in the most advanced economies that put the capital markets on an even keel.

Until these issues are resolved, there could be a protracted period of extreme volatility ahead for financial markets. The forthcoming bear market in equities is likely to be just one small step forward.