Pulling back

Today world markets are so far continuing the pull-back that began yesterday. As I have written a couple of times in the past couple of weeks, technically a pullback has been overdue for some time now given the incredible rally since March 9. Incredible is probably the most appropriate word for the past 9 weeks; incredible as in unbelievable. Too far, too fast? Likely. This price action seems over-exuberant in its 90 degree spike; not typical of the early stages of recovery from a bear market bottom.
I would like to get back to longer term optomistic, but in the short term we must remain leary. A regular healthy, mild, correction here could be up to 10%. Beyond that a retest of the November lows is also within the realm of possibilities over the next few weeks or months. Last case scenario remains a revisit of the March lows. This too is within the realm of possibility although we suspect that because this bear is getting longer in the tooth (2 years in October), buying pressure may well kick in on a further plunge to prevent the ultimate lows from coming back. This should all make for a very interesting summer.
Some things that caught my eye today:
“U.S. railroad freight traffic is running about a fifth lower than a year ago. It's one of several less obvious indicators that all is not well, despite the strong financial market rally since early March.” See WSJ today: Reasons to be wary of the rally.
“An international think-tank says the first tentative indicators of a rebound in the global recession are appearing in some countries, although Canada is not among them.” See: Canada's recovery lags others
Remember this for your future reference: in Canada “we lag, we don't decouple!”
Meredith Whitney still does not like bank stocks here:

“I would not own bank stocks” mmmm…not a statement to take lightly from a world-renowned bank analyst.
And Art Cashin: 'We're Severely Overbought':

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3 Responses to Pulling back

  1. Anonymous says:

    Hi Danielle,
    The market continues to pull-back as you expected. This is actually a good sign to someone like me, who has not re-allocate funds to the market since March. At this point, I guess we don't know if the market will pull back about 10% of re-test Nov low. So, what would be a prudent way, in your opinion, to allocate funds to the market? I was thinking of investing 50% when 10% pull back is reached, and then wait and see what the market does. Your thoughts are greatly appreciated.
    Also a quick question regarding your firm, looks like your min. portfolio requirement is 1 million?
    Andrea

  2. Anonymous says:

    A, this pullback is just started I would suspect. It is wise to give it a little more space and time to complete, a few days or perhaps weeks before we have a sense of where it is headed next. When you are ready to make your first allocation to equity I would suggest that you toe in by thirds rather than halves; and that you be ready to sell again if another major test breaks down. Yes 1m min for VPIC.

  3. Anonymous says:

    Hi Danielle,
    Thank you so much for your insights.It's amazing that you always respond so fast to your blog viewers- just want to let you know that it's greatly appreciated.
    You have mentioned that you like to invest via ETFs for sectors rather making individual stock picks. I completely agree, especially when funds are limited. I look at ETF space in Canada, it is hard to play the Tech, Health Care, Industrials and many other sectors. For someone who doesn't have USD to invest in USD ETFs, would it be just a good idea to invest in XIU (TSX 60) or would it still make sense to buy some USD ETFs (currency risk potentially an issue).
    Thanks,
    Andrea

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