Market Update
Stocks Walking Tight Rope As a bull market ages, it tends to “thin out”. Meaning it advances even though there is a decreasing level of participation among all stocks. All year I have been writing about how stock market internals (market breadth) were progressively deteriorating. This was a warning sign that the market was in the process of topping out. That topping process was confirmed last month when stocks fell hard through the sideways channel they had been in all year.
After last week’s dramatic stock market fall, stocks became oversold and bounced (see hourly chart below). We now have support, which in a strong market would act as a backstop for stocks. The problem is that we don’t have a strong market. Declining global growth is not a problem that will resolve itself quickly. China’s stock market is down over 30%, emerging markets are suffering from the effects of falling commodities prices, domestic corporate earnings are declining and Canada is in a recession.
Next week I will be watching to see if support holds. The market is neither oversold nor overbought. Market risk is high and capital preservation has been our focus this year.
Client Update
Currently, we have most client accounts invested primarily in money market funds. Money market funds are safe investments that do not fluctuate in price and are a good place to park our money while we wait for stock and bond market conditions to improve.