Young and Frederick - ScotiaMcLeod Whitby

TSX Market Analysis and Forecast May 2010

Sell in May… and go away?

This old technical analysis saying looks again to be the case for the TSX in the days and weeks ahead.  In the previous issue of this report we forecast   that markets could move lower.  We also advised that this correction could present investors with a very low risk buying opportunity when the time is right.  Well the market action of the last few days suggests this will in fact be the case.

Falling commodity and crude oil prices as well as the European sovereign debt (i.e. Greece and others) issues are impacting the Canadian market.    Commodity prices have broken downward through important technical support levels.  Most notably base metals, steels, energy, and industrials have led the decline.  As these are the sectors that have led the last market advance it raises warning flags.

The huge volumes traded on NY yesterday (25 billion shares) also can be seen as an indicator that the market leaders have lost faith.

WHERE DO WE GO FROM HERE? 

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With the key short term support level of the 50 day moving average having been broken just before April month end defense is the order of the day.  Major support for the TSX lies first at the 11,337 level and if that is broken the next support lies at 10,848.  Movements of these magnitudes would represent the most significant correction in over a year and clients and friends alike should prepare for such a possibility. 

In the very short term over the next week or so a snap back rally could occur as most indicators are deeply oversold.  This would represent a great opportunity to lighten up on weak positions in a portfolio to ensure cash is on hand to take advantage of the low risk buying opportunity discussed last month.      

In the intermediate term (next several months) the best buying opportunity of the 4 year cycle will emerge. We believe the next rally will be a market of stocks and not a stock market.This means stock selection will be the key to your portfolio success.  The ability to identify which sectors and stocks to invest in will separate successful portfolios from underperforming portfolios in the coming years. 

If you are a client, access is guaranteed simply contact Jay Cannings in our office and we will walk you through our state of the art webpage located at www.onestrategy.ca .  We encourage you to visit and view the featured video of the month on the topic of Wealth Accumulation. 

BOTTOM LINE    Investors can expect a short term rally to start any day, and should use that as an opportunity to reduce weak positions within portfolios and to build cash.  As the market approaches the intermediate term low put the cash back to work at a very low risk entry point to position your portfolios and your future for growth. 

If you need advise as to which securities to review or to consider purchasing we encourage you to call any member of our team to discuss your specific needs and objectives.  Once again our profiles can be viewed on our webpage located at www.onestrategy.ca 

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Until next month Happy Investing

Respectfully

Stephen Frederick  

This publication is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee of ScotiaMcLeod, a division of Scotia Capital Inc. ("SCI"), but the data selection, analysis and views expressed herein are solely those of the author and not those of SCI. The author has taken all usual and reasonable precautions to determine that the information contained in this publication has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles in the investment industry. However, the market forces underlying investment value are subject to sudden and dramatic changes and data availability varies from one moment to the next. Consequently, neither the author nor SCI can make any warranty as to the accuracy or completeness of information, analysis or views contained in this publication or their usefulness or suitability in any particular circumstance. You should not undertake any investment or portfolio assessment or other transaction on the basis of this publication, but should first consult your investment advisor, who can assess all relevant particulars of any proposed investment or transaction. SCI and the author accept no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon or use of this publication in contravention of this notice.