Over the past month the S&P/TSX Composite (Toronto) has done as expected but the Dow Jones Industrial Average (New York) continued its assent in spite of some strong signals against this type of action. It appears I was wrong in expecting a more significant correction in New York. The system is awash in cash, and the markets find support on the most modest declines. We are still looking for a high sometime next year, and for the next while should be focused on buying on weakness and selling into long-term strength.
As the Dow Jones Industrial Average looks at breaking to new high (record is 11,750 set Jan. 2000) there are many indices that are lagging including the Transportation Index, S&P 500, the Mid Cap Index and the Small Cap index and also the S&P/TSX. This is usually a sign for disaster, and should not be discounted. However, it appears that most of the usual technical rules have been wrong over the last several months. We need to look at current valuation, which is pretty good, and realize that there could be opportunity on the upside. This doesn’t mean that I expect low volatility or that there won’t be big negative days. October could be a very volatile month, but it will be hard for the Indices to get back to the recent lows of June and July in the US. This would be a decline of 8% from month end levels.
I should also note my surprise that the Amaranth Hedge Fund loss of $6 Billion did not have a more dramatic affect of the market. See…, Betting on Weather and Taking an Ice-Cold Bath
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