Last March 12, 2009 with the TSX at 8011 we discussed “the recognition point”. This is a component of Elliott wave (3) or - a second up-leg advance which is usually the largest and most powerful wave in a trend. The market ignores bad news and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat.
A buying panic can occur when the prices in wave (3) exceed the peak of wave (1) sometimes called wave three's midpoint, "the crowd" will often join the new bullish trend.
The chart below now displays the TSX Comp poised just below the recognition point
So where from here? A big run supported by sideline cash and short covering, or do we hit resistance and correct down to “re-test” those March lows?
Look at the technical evidence in favour of a burst above the recognition point.
The “safe” places such as sovereign debt, telecom, health care, utilities and consumer staples are weak relative to the “risky” places such as the financials, technology, energy and materials. Clearly the market has a renewed appetite for risk
Cash is Trash