Monday, May 17, 2010

With an onslaught of fear from Europe and panic in the markets, it may be a good time to buy

Contagion fears from Europe continued today. In fact, the euro hit a 4-year low. This fear has caused the overall bearishness level in the markets to reach a high relative to recent months. The TSX closed today at 11,813, down 201.97 points or 1.68%. Commodities were particularly hard hit, with Teck Resources down $2.23 or 6.31% to close at $33.11, and South Gobi Resources down $1.30 or 11.30% to close at $10.20.

Contagion fears from Europe have caused the slide in commodities stocks, but China has also contributed. Measures by the Chinese government to cool the housing market has caused the Shanghai Index to be down 20% this year. Commodities stocks are heavily dependent on China, so stocks like Teck Resources have also seen a slide of about 20% this year.

However, despite bad news from Europe and China, it is a good time to buy. If you are currently underweight equities, it is a good opportunity to start adding commodities stocks such as Teck Resources and South Gobi Resources, especially with the former at a 6-month low while the latter is at a 10-month low . While contagion fears from Europe can have a negative impact in the markets for days or week(s) to come, with the TSX at 11,813, there is more upside potential than downside. In fact, I see strong support at the 11,600 point level on the TSX.

No comments:

Post a Comment