Volatility has dropped, which bodes well. Over the past few weeks, it’s been just under 20 (which isn’t alarming), but it’s fallen back to close to 15, which is reassuring. Bonds weakened slightly over the past week, but stocks performed relatively well. Not well enough to gain greater momentum than bonds, but still present a much less pessimistic outlook. Bonds and stocks have roughly the same momentum at this point, so it’s hard to say where the market will go from here.

Asset rotation is clearly in favour of Hong Kong stocks (EWH), which have done really well over the past few weeks. I will be trading from FXI to EWH today. As far as Canadian dollar assets, European stocks (XIN) suddenly show the best momentum.

The market continues to appear quite overvalued. The average P/E of the TSX is an elevated 18.38, and the only reassuring point is that the average yield is 3.05%. I would be very hesitant to recommend investing all in stocks at this point.

Market Outlook November 26, 2012

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