Well, the stock market continues to struggle to make any headway. Perhaps investors are just waiting to see how the earnings reports look for the past quarter; Alcoa kicks off earnings season on October 9. Over the past week, however, the market seemed to lack direction. Part of the trouble may be that the market continues to appear overvalued. GDP numbers for the most recent period were lower, at just 1.9%.

Still, stocks continue to outpace bonds. The outperformance has been especially clear over the past three months. There is nothing to indicate that the trend will soon reverse, barring unexpected information releases. Volatility remains low and interest rates appear relatively stable.

In an asset rotation strategy, the indication is a little less clear. Hong Kong stocks (EWH) appear to offer the most potential, as they did last week. I’ll trade from IWM to EWH. But in Canada, each sector appears to have performed very similarly to the others over the past three weeks. The indicator points to emerging markets (XEM), which corroborates the call on Hong Kong stocks. However, the momentum isn’t very different from the other classes, so I’ll avoid making trades and hold XIU.

Market Outlook October 8, 2012

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