Young and Frederick - ScotiaMcLeod Whitby

Short Term Market Strategy

As the summer months have rolled along in 2008 the same cannot be said for our markets.  The bear market which has been in place since July of 2007 continues to rampage. The funny thing is that with every downturn so far the television, radio, and other media pundits have proclaimed the bear to be dead and they encourage investors to jump back in before missing a great new opportunity.  To this we say hooey.

Experience tells us that when we are in a bear market the burden of proof on whether or not the primary trend has turned back to the positive side lies with the market. So far that proof is nowhere to be seen.

The clues to the turning point for a market include a sharp increase in buying power  (new money entering the market which is experiencing increased volumes and price highs)  accompanied by a clear downturn in selling power (a decrease in the supply of stocks being offered for sale at the lower prices).   These factors combined with various technical and fundamental indicators act as reliable measures of the mood of the market and so far that mood is still bearish. 

In the short term we are about to enter the historically volatile period of Sept/Oct/Nov which has always contained most of the intense market declines.   This year given the bear market and the U.S. Presidential election, the odds are that this period this year will also be turbulent.  All of the bad news in relation to the U.S. economy is not yet out and the change in the White House will impact markets in the coming months.  We have been in good position for most of this correction and the reasons to step off the sidelines now are not compelling.

The current market is not particularly strong from a technical perspective, and fundamentally Wall and Bay Street seem to be waiting for U.S. and possibly Canadian elections to determine the respective directions of the economies.   That being said there seems to be very few reasons to step off the sidelines at this point.

The good news here is that bear markets almost always reach their greatest intensity during the final months of their existence (probably this fall early 09).   This occurs as most of the former pundits go silent and almost all of the economic news seems one sided and negative. Typically this is the time to start to wade back in. While we are not there yet that point is getting closer and as we move through the final months of this year we will be in close contact with when the time is right.  Until then we can continue to sit on our cash with the comfort of knowing that while cash does racing up in value it does not race down either. 

THE BOTTOM LINE:  We have always maintained that “The trick to making money is not to lose it during bear markets.”  While this bear has been long and difficult we are getting close to the end. I know Bear markets can be frustrating, but history proves that by maintaining our discipline and patience at this critical junction we will be rewarded when markets turn back up. So patience it is and hopefully we can enjoy some pleasant fall weather while we are waiting for this market storm to pass.