Stocks Rip Higher Again, Gold and Bonds Lower

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Investor Boot Camp Online Director, Paul Thornton, appeared on BNN Thursday to discuss Research in Motion (RIM). You can see the interview here.

Friday September 3: Market Update

The stock market was sharply higher for the third straight session. Gold dipped $4.80.oz.  A decline in precious metals stocks restrained the TSX to a minor gain. The Canadian dollar was off 26 basis points early in the session but reversed and ran up nearly two cents intraday. The loonie remains, technically, in a down trend that started about two weeks ago.

Interest Rate Markets: The U.S. bond market was down sharply continuing a consolidation that coincided with the stock market's bottoming out. We use the U.S. long term strip bond E.T.F., EDV, as an indicator of the bond market. It has gapped down and suffered a large loss. It's current price indicates it has found support at the intermediate term trend line (the 50 day moving average). If the up trend in bonds is going to resume, at some point, the EDV will need to hold at its current level. If not, a deeper decline is indicated.

Stock Action: The market's "leaders", as we call them, are in excellent shape. There has been massive buying in a number of new entrants to the three day rally and many stocks that had sold off hard over the last month have recovered to their long term trend line. These are all signs of a new rally. You don't need three months to act. Good timing requires acting now if you are a growth investor. Feeling good about it will come later. In fact, there is less risk to deploying cash in the right stocks and E.T.F.'s early in the cycle than there is later. But be aware, if a number of the larger mutual funds and pension funds decide to start selling after labour day some stocks may be crushed. Remain alert for the possibility the rally may fail. There are some headwinds ahead and the market's three day advance was on noticeably low volume.

Fiber optics stocks Finisar (FNSR) and Oclaro (OCLR) have undertaken big gains on very heavy buying. They are also reporting significant turn arounds in their underlying fundamentals. These two stocks, like most fiber optics, are well under their all time highs which were ten years ago at the height of the internet feeding frenzy. But their action looks like they might be about to make their first move out of their range. Keep an eye on them for a potentially bigger than normal profit.