This month we were flooded with phone calls, e-mails and lots of questions. And we generally sensed some confusion about primary and secondary market trends. During volatile times like these, the major trends become even more important. So for now, we want to review this basic theme, which will help keep this month's and upcoming market action in perspective.

DON'T LOSE SIGHT OF THE BIG PICTURE

The major trend in any market is by far the most important and that's what we focus on for the various markets. When a major trend is up, for example, the price is headed higher and the rise will usually last a year or more, risk is low and you want to be invested to profit in those markets.

It's the same story when the major trend is down, only in reverse. In other words, you want to clearly avoid losses in markets that are in primary downtrends. It's also important to note that no market goes straight up or straight down, which often causes confusion as well.

Say, for instance, a major trend is up. Often a price will rise too far, too fast and it'll then decline in a downward correction, which is normal. But that doesn't change the primary trend. It's still up, but the secondary or not as important trend is down, which could last for a month or two. Again, it works the same way in reverse for major downtrends.

The bottom line is, it's vitally important to know where a market stands at any given time, and what would cause the major trend to change.

WHAT'S NEXT?

Okay, so what happened over the past month and what's next?

First, the stock market had a huge fall in July, which was not unusual because the major trend for stocks has been down for over two years. The U.S. Dollar is similar. Its major, primary trend is down and it also plunged along with stocks last month.

But these two markets are perfect examples of markets that declined too far, too fast, and stocks and the Dollar were both oversold. This means they're now headed higher in normal upward corrections. These secondary upmoves have been strong and they could last a month or so, but the major trends are still down. So even though the rises may be attractive, we don't recommend buying.

On the flip side, gold and gold shares provide another good example. Both markets are in major uptrends, they rose sharply this year and they've been declining in downward corrections. This is normal, but since the decline in gold shares was especially fast and sharp, it raised some questions about both markets.

The main point is, gold and gold shares are still bullish and the major trends are up. Gold's decline has been totally normal, gold shares have been more severe, but as long as the major trends are up, these corrections are secondary trends and you should continue to buy and hold.

MARKET CORRELATIONS: Also important

Another point worth mentioning are the correlations between important markets. As we've discussed before, stocks and the Dollar generally move together and gold tends to move opposite.

And since stocks and the Dollar are in major downtrends, and gold is in a major uptrend, these markets have been reinforcing each other. For the first time in many years, they're indicating that a new investment era is in place where tangible assets like gold are in, and financial assets like stocks are out.

Last month, however, when gold moved down along with stocks and the Dollar, the markets didn't seem to be in synch. But here too, it's important to note that these market correlations are general and broad. It doesn't mean these markets are going to move exactly in tandem every day.

Again, it's the major trends that are most important. And as long as the current trends stay up for gold, and down for stocks and the Dollar, they'll continue giving us the same message. And the major trend will remain up for gold by staying above $289. In fact, the current weakness could end at any time or possibly into September - and once gold rises and stays above $316, it'll be a strong sign the downward correction is over and a renewed rise is underway, and you'll want to be on board.

  By Mary Anne and Pamela Aden
  August 26, 2002

  This commentary has been provided courtesy of adenforecast.com

Mary Anne & Pamela Aden are internationally known analysts and editors of The Aden Forecast, a market newsletter providing specific forecasts on gold, gold shares and the other major markets. Click here to visit their website at http://www.adenforecast.com