MARKET ACTION IN Q2 2011

Our friends at MoKa Investors recently discussed the markets and potentially tagged it "The Most Challenging Market in 100 Years". To coin the markets choppy and lethargic would be accurate depictions to say the very least. For all market participants, especially trend followers, frustrations can easily run high in these environments.

So far for 2011, price/volume seems unusually deceptive, and leading stocks that hold strong fundamentals often sell off hard when the major indexes go down even a couple percent. Most strategic investment solutions are flailing this year. The TSX closed 2010 at 13,443. It closed below that level on June 6th at 13,318….highlight the chopping/sideways markets of 2011.

One might ask what can be done in this environment which seems unusually challenging. Fortunately, such periods eventually come to an end, and a new trend emerges when most investors least expect it since the market likes to surprise the masses. It is during such periods that it is best to stay vigilant and watchful of market conditions since markets can turn on a dime. New trends, either up or down, can begin with only subtle warning that calls for strategic investment management.

But instead, many investors stop investing altogether when the market falls, and take their eye off the ball as bear markets are notorious for pushing away many investors. Obviously buy and hold investors get hurt severely in bear markets. So, while staying out of bear markets is a good strategy, active money management requires us to hone our investment ideas on individual stock selection & Exchange Traded Funds (ETF’s). We maintain such a list so that when the market switches back to an uptrend, we can choose to act on any stocks that are issuing buyable points which can be bought. These are often the stocks that well outperform the major averages during the next uptrend.

Investors must absolutely understand that often, the next bull market's big leaders and hence best investment opportunities show their first positive characteristics during a market correction or outright bear market. As the market goes through its paces, declining as much as 15-20% or more during a bear phase, future leading stocks are often consolidating (i.e. trending sideways) at the same time they are steadily showing improving fundamentals, such as improving and/or accelerating earnings and sales growth, improving profitability, and an increasing institutional following.

Further, many investors fail to realize that good money can be made on the short side, especially now that many inverse ETFs exist that did not exist three years ago. And time value on the short side has terrific promise since general markets and stocks tend to drop much faster than they rise. Such is the emotional nature of fear versus greed and hope.

In this current trendless market strategic investment management is paramount. We patiently await the next big move in the ETF and/or stock space. As we enter June it appears it could be to the downside – time will tell.

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