There’s more reward than risk in the markets now, Canaccord Genuity says

With markets around the world tumbling over the past ten days, these are tense times for investors. Are we in a mere correction phase after years of record gains or is there a major pullback in the works? For insight on where the market is heading, Javad Mirza, analyst for Canaccord Genuity, says that the current slip in the markets brings a more favourable reward/risk ratio into play.

The rebound witnessed in the markets last Friday continued on Monday, after one of the worst weeks in years, which saw the S&P drop 5.2 per cent and the TSX composite finish down 3.7 per cent last week. The wild swings are enough to make any investor seasick, but there’s a light at the end of the tunnel of this corrective phase, says Mirza, who predicts more market volatility before things start to settle down.

“We anticipate choppy trading into late February, before a low is established, similar to the corrective phases that occurred in late 2015/early 2016,” says the analyst in a note to clients on Monday, February 12.

Concerning the short-term, Mirza expects to see a nice counter-trend bounce over the coming week, although the two-to-four week forecast is for more market correction. Mirza says to watch the 50-day moving averages on the exchanges.

“Given the oversold nature of most stocks we anticipate a near-term counter-trend bounce to develop this week, which should challenge the 50-day moving averages on the S&P 500, Nasdaq 100, and Russell 2000, and the 200-day average on the TSX Composite,” says the analyst.

And while the intermediate-term view still looks to involve a one- to three-month corrective period, Mirza says the signs still point to an ongoing bull market over the long-term, with the tech and financials sectors leading the way.

“Global equity indices broke out of secular bear markets in 2013 and are in new secular bull markets,” says the analyst in a note on January 14. “Information Technology and Financials remain the overarching theme within this new secular bull market and we favour indices with a strong tilt towards both.”

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