In the wild west of the CDNX, what we’re seeing right now is par for the course. Bullets are flying all over the place, so does one quickly cash in his chips, run and hide? Not a chance – this is a time, we believe, to be aggressive and jump right into the battle. Hopefully you have plenty of ammo stored up.
As of 10:30 am Pacific time, the CDNX is down a whopping 51 points to 1615, the Dow is off 236 points and the TSX has dropped nearly 200 points. Undoubtedly, there are some scared investors out there and we all know emotion rules the market. The hardest thing to do is control your emotions and keep a level head when you see this kind of a drop. The natural instinct is to go with the crowd. Right now the crowd is saying, “Let’s sell in May and go away.” The crowd is often wrong.
A minor correction has clearly set in with the CDNX but we’ve seen this pattern several times before over the last year-and-a-half and each time it has been a great buying opportunity. A wise and prudent investor should always maintain a healthy cash position in their account to take advantage of situations just like this.
The CDNX is closing in on its rising 50-day moving average (SMA) which is just above 1600. The market will find strong support there, and any breach of the 50-day SMA will find secondary HUGE support at the rising 100-day SMA (1560) which the CDNX has consistently stayed above since early 2009.
RSI readings on the CDNX right now are very close to where they were at previous market bottoms in July of last year and February of this year.
The CDNX is certainly overdue for a major correction of 20% or more, but the timing of that is uncertain. Given the strength of Gold and the overall commodities markets right now, that kind of a steep correction at the moment seems very unlikely. The much greater probability is a downside move to the 50 or, at worse, the 100-day SMA. Since we’re already quite close to that right now, it is the time to be a BUYER in this market and not a seller.
Gold is down $15 to $1,167, but Gold’s overall technical picture is still very strong and an imminent minor pullback was something we stated over the weekend was likely going to happen. Gold has been pretty relentless in its advance recently, and the TSX Gold Index was clearly overbought, so the fact Gold is taking a breather right now is nothing unusual. In fact, it’s a welcome development in the sense that it helps unwind overbought conditions and set the stage for a fresh move to higher levels.