So far (at least) today we have bounce day for equities and some commodities. While metals and the Canadian dollar are down hard again as I write.
Bounce days are a natural recurring phenomenon in on-going bear markets. But it will take more than a few bounce days to reverse recent trends.
Dropping through the key level of 12,750, the TSX is now hovering around its last bull cycle peak reached in September 2000:
If the TSX cannot hold at the 11,300 to 12,000 range, the next leg down would look to the psychological 10,000 for potential support. For the past couple of years, my technician partner has told me that 10,000 was the potential downside target for the TSX and the Dow this contraction. Hopefully the broad markets will hold there.
If I had to hazard my guess, I would guess that broad indices may not hold at these levels in the weeks ahead. But that is just my guess. If equities do bounce off support in a meaningful way we will get some buys and that will be fine. Having not lost any capital in this downturn with lots of cash at the ready, we are happy to look for re-entry points in the weeks or months ahead.
Meanwhile with all the fear and talk of government bail outs in the world, one may have guessed that gold would have performed better over the past few months. But after our sell in May, gold has so far failed to break out again in a meaningful way:
At this point, gold would have to close through $940 in a meaningful way in order for us to wager on a further leg up.
At the same time the US dollar has continued its bullish reversal over the past 12 months. It is enough for us to acknowledge and manage our capital to benefit from this trend. But if I am asked to guess why the U$ has broken out through all of this, I would guess it is because the world is now finally realizing that the economic contraction ongoing is global not American. America started into the downturn first. They have more GDP and relative wealth in their population. They may well weather the present storm better than many other nations now finding themselves in the eye of this storm.
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In the book the Money Masters, the author devotes each chapter to one of each of the all time great investors, Templeton, Price, Buffet, Fisher and others. He writes about the man and his methods. The last Chapter “Conclusions”, the author writes “The investor can make exceptional profits by buying authentic growth stocks during market collapses; that, indeed, is in my opinion the most practical strategy for the substantial experienced investor. And once he has acquired a portfolio of issues during a bear market washout, the investor can if he likes forget the vagaries of the market and stay aboard the growth escalator.”
I will do what the great ones do.
Danielle, keep up the good work. Ricky
Danielle, the chart 'Emotional Cycle Diagram' posted at VenablePark.com suggests we are currently between Disbelief and Rationalize. Yesterday I thought we were about to go into full blow panic mode but then today, remarkably the market bounced back. So my question to you is this: How does an investor determine when panic has truly set in – and to start buying?
Thanks in advance – and like many others this is my favorite blog – Ray
Ray, thanks for the reminder that I needed to update that chart. I have done so on venable park and may add it to JD shortly. I think we are in the rationalize nervous stage for most investors, I do not see depair and panic yet, although a few more horrible days or weeks could do it. We watch carefully these extraordinary times. As for when to buy we will get buys on our own rule set and we will buy when we do. If it breaks down from that point again though, we would also sell again. So we need to keep an open nimble rule set here. I will blog about any buys we get though to give readers some sense of what we are seeing. D