The last week was a very profitable one for investors in the stock market. The TSX rose 1.23% in just five days, reaching almost to the highest level since the crash of 2008 – 2009. This is what technical traders refer to as resistance. Will people be willing to drive the price up above the previous high? Time will tell, but to me the indicators look supportive. I wouldn’t be surprised if we saw a new high this week. In fact, this is a development I’ve been awaiting for quite some time. My greatest caution lies in the fact that this is the final week for RRSP contributions in Canada, which often increases demand for investments and drives up prices. Even if this week appears likely to be positive, chances are that purchases will drop off in the beginning of March and prices will begin to fall back. It’s hard to say what will happen after that.

Stocks are in favour over bonds by quite a margin, and balanced portfolios should certainly prefer stocks at this time. Inflation has increased somewhat, although it is still below the 2.0% target of the central bank. Interest rates have barely moved. Those indicators are also supportive of stocks, although it doesn’t appear that the economy is particularly hot.

Of all the asset classes (ETFs) that I watch, Canadian small caps (XCS) present the greatest momentum. Gold is close behind, followed by US small caps. As has been the case consistently over the prior year, certain individual stocks are performing better than ETFs and I continue to own (and be very pleased with) Valeant (VRX).

Market Outlook February 24, 2014

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