Navigating toppy markets

I’m watching Canada’s Toronto Stock Exchange (TSX) these days, since the exchange is heavily weighted in and materials. I think the blue chip S&P500 and Dow are overwatched, and what goes on in Canada is under reported:  It’s commodities that are running this market.

And on that front, the bears took control yesterday, sending the TSX down two percent in the fourth consecutive decline in as many days, the deepest in seven months. Oil, gold, and copper all tanked. The usual suspects were spotted; financial troubles in Europe, this time a Moody’s downgrade for Spain, an earthquake in Japan, and trade imbalance figures from China. The composite index fared a little better, dropping 1.8% with financials down 1.3. Bonds prices rallied though, along with the USD.

Asian markets sold off overnight, and the FTSE and DAX appear to be languishing in afternoon trading in Europe.

Whatever. Big moves in the market are good, and it doesn’t really matter to me which direction they’re in. What I’m hoping for in the coming weeks is the kind of whipsaw price action we typically see in ‘toppy’ markets — very good for making extremely short-term capital gains. Epic global events such as peak oil, Middle East unrest, and alternating good/bad news from China should fuel market volatility going forward, and don’t forget that 1st Qtr. earnings season is on the horizon. Market goes up, market goes down, market goes … well, you get the picture.

There’s nothing quite as exciting as throwing a couple hundred G’s into your favourite deal and reaping a 30%-50% gain a week later. Woo hoo! But when bargain hunting in a market like this it helps to really define what a bargain is. A stock which falls to what you can reasonably expect it to bottom at is not a bargain; it is only when it falls below that expectation that you’re getting more than your money’s worth. That’s my rule of thumb.

As for the predictions from some corners of bear market doom and gloom, well it doesn’t hurt to hold a stock does it? I have one that was underwater from 1997 to 2006, when I finally sold it and made a 300% return.

Time can be your friend and ally, or your enemy.

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