While the Dow, the TSX and the TSX Gold Index all climbed higher today, the CDNX fell another 16 points to 1882 but on relatively light volume. The correction since March 7 has now wiped nearly 24% off the value of the CDNX which is very much in line with historical major CDNX corrections.
Based on historical patterns and market intuition, it appears the CDNX is in the final stage of a bottoming process. Yes, the Index has fallen through its 300-day rising moving average (SMA) which is currently at 1893. But major market bottoms in 2002, 2003, 2004, 2005, 2006, 2007 and 2010 (seven of the last nine years – there was no major correction in 2009) – all occurred after the CDNX fell marginally below its 300-day SMA, typically by no more than about 6% (2007 was the only exception when the Index suddenly plunged more than 15% below its 300-day and then quickly jumped more than 30%).
As readers know, the CDNX can be extremely volatile. As an investor, how you respond to that volatility and manage it is critical. Many people, guided by their emotions and driven by greed or fear, panic the wrong way in both directions.
This has been a difficult market to maneuver in over the last few months but we’re convinced the long-term bull market remains intact and that there are better days ahead, even this summer. There is ample technical and historical evidence to support that view. Over the last decade, the average gain in the CDNX from the end of a major correction to the closing year-end value is nearly 30%. So the final six months of 2011 have the potential to be very profitable for those who can keep their emotions in check right now and view the current situation as one of opportunity.
John updates the CDNX chart below with support levels. While the Index is already quite oversold technically, that doesn’t mean it can’t become even more oversold. But there are strong support levels and a decade of trading history to give bulls comfort that a summer turnaround is in the cards.
