Market Outlook June 13, 2011

What a negative week for equity markets. The TSX 50 day moving average is at 13,721 and the 200 day moving average is at 13,258. It closed this week below either of those at 13,084. This is not a positive development. However, looking at summer 2007 or summer 2010, the same thing happened and didn’t necessarily translate into a downtrend. In each of those years, the summer months were weak and volatile, but not particularly negative.

Market momentum continues to favour gold over equities. Having owned gold over the last week didn’t avoid losses, but the gold price dropped about half as much as stock prices. This coming week, I will continue to own gold. In fact, the stock market momentum has dropped to the point that even bonds have better momentum. It appears to be time to take protective action.

Looking only at the stock market, its valuation appears cheaper than any time over the past year. The outlook is uncertain, which is why money has been flowing out of the market and into other investments. This has brought down prices to a point where they may seem more attractive to investors. I know that many of my stocks have fallen to levels that I haven’t seen in months and likely since last year. I didn’t ever want to see them back at these levels, but since I’m investing for income, I will continue to own them and will even consider buying more.