新年快樂! Happy Chinese New Year! The year of the Dragon is expected to be a year of power and success. Of course, superstition has no place in investment (which includes much of technical analysis), so I plan to make my own luck by jumping at opportunities as they arise. On Wednesday, I’ll share a story about jumping at an opportunity and being lucky.

Markets looked a little happier over the past week. Each day was mostly uneventful, but almost consistently positive. By the end of the week, the market had risen by 1.36%. That stability is reflected by the VIX having fallen to almost 18, coming close to 15, the level that would suggest a return to “normal.” Investors appear less fearful, and even my small cap stocks are beginning to rise, admittedly from very low levels.

Although bonds still show more momentum than stocks, all asset classes are positive this week. A conservative investor will continue to overweight bonds, and a more aggressive portfolio of asset rotation will continue to own real estate (XRE). Having said that, XRE shows the highest momentum by only a fraction, with gold and emerging markets almost tied. Next week will certainly be interesting.

The market continues to discount corporate earnings. The market valuation implies that earnings will drop almost 2% over the coming 12 months. That’s not impossible, but it would be a departure from the current trend of growth. Because market value has risen, stocks appear to be slightly less undervalued than last week. Personally, I’m looking forward to the TSX hitting 14,000 again.

Market Outlook January 23, 2012

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