By Pam and Mary Anne, Posted Friday, May 21, 2010

The turmoil continues and it's now taking a heavy toll on the markets. All of the markets are falling... stocks, commodities, currencies, even gold and the other metals. They're all getting hit as ongoing concerns over Europe, China, the Gulf oil spill and the global recovery are keeping investors nervous and jittery (see Webchart). The U.S. dollar and bonds have become the safe havens for now. This may not last long, but we'll soon see. Here's the current situation...

The stock market sold off sharply today. Some called it a blood bath and stocks are clearly getting hit the hardest. Despite the carnage, the stock market has not yet turned technically bearish. Most of the U.S. indices are still holding above the February lows and above their long-term moving averages. This tells us that so far, the decline has been a steep and sharp downward correction, but not a major trend change. The same is true of most of the global stock markets. This, however, could change and we're watching the markets closely. Meanwhile, our recommended stocks have suffered. But with the exception of gold shares, nearly all of our stocks are super oversold. This means the downside is limited and they're due for at least a rebound rise. If the stock market turns technically bearish, we'll sell our stocks at a better price, ideally during a rebound. On the other hand, if the major trend stays up, we'll continue to hold them. The next important support is the February low at 9900 for the Dow Industrials, 3800 for the Dow Transportations and 2125 for Nasdaq. If they can stay above these levels, it'll be the first concrete sign that the market is likely beginning to stabilize.

Gold, silver and their shares are holding up the best. In spite of the over $50 fall this week, gold remains exceptionally strong within a soaring seven week rise by staying above $1180 (see Webchart). Even if gold were to test the $1140 level, it would still be strong in a C rise. Gold has been a safe haven during these turbulent times and it still is, in spite of the recent weakness. Silver is similar. Its rise is solid above $17.40. Our gold and silver shares are firm. They are solid with the HUI index above 422. Platinum and palladium fell sharply this week and more in line with the resource and energy sector. Their strong rise this year is now taking a calmer course in the bull market. Let's see if their respective $1475 and $398 February lows hold. Keep your positions. The resource and energy sector have been hit hard. Copper and most base metals are still above their February lows, but others like oil, zinc and lead have fallen to a new low for the year. Copper (July) has support at $2.85, just as July crude has strong support at $69. Keep your positions because they are extremely oversold.

The U.S. dollar index continues to be a safe haven as it shot up this week to an over one year high. The currencies fell. The euro dipped below its March, 2008 low but the German 'intervention' yesterday pushed the euro back above this low again. With the euro now extremely oversold, as many currencies now are, we are likely seeing a bottom in the making, but it's too soon to say. If the euro now stays above 1.22 and closes back above 1.28, the lows are in. The Aussie and Canadian dollars fell sharply today as concern for the economic recovery continues. The Aussie is testing its mayor trend at .8300 while the Canadian is well above its MA at 91.50. The U.S. dollar index may be at the onset of a mega trend change to the upside, if it now stays above 83.50 (see Webchart). The yen is also benefiting from this week's nervousness. It closed at a 2½ month high today and it now looks good. Let's watch the currencies.

Talk about an about face. Interest rates are on the decline and this could continue for a couple of reasons. First, U.S. bonds are benefiting as a safe haven in the current volatile environment. Second, the Fed wants to keep interest rates low, especially considering the renewed vulnerability to the global economy. For now, interest rates are correcting downward but the major trend has not confirmed that interest rates are going to drop a lot further. On the contrary, the Libor free market interest rate continues rising and it's at a 9½ month high, but we're watching the market closely (see Webchart). Our two interest rate recommendations, TBT and RRPIX, are extremely oversold and they're due for a rebound rise. We'll sell these during the rebound if the major interest rate trend turns down. If it stays up, we'll keep them. The first sign a rebound rise is getting started would be a move above 4.30% on the 30 year yield.

Please note: Several of you have written asking why we don't recommend storing physical gold in a safety deposit box at a bank. We'll discuss this more in our next issue, but it's essentially for additional security. Banks can go broke, safety deposit boxes can be temporarily closed and so on. And while we don't think this is an immediate concern, it could intensify, along with the financial crisis we see coming in the years ahead due to the debt situation.