The major North American stock markets continue to exhibit day to day extreme volatility yet the indices are in the same place as they were just over a month ago. There has been a lot of market movement and nothing to show for it. If an investor were to take the three main indices in the United States (Dow, S&P and Nasdaq) and the Toronto Stock exchange and plot them on a graph, not only would their movements be the same but they would show virtually no decline or growth over the last month.

There are two ways that money managers can look at researching investment ideas. One would be from a bottom up perspective which means they take each company on its own and analyze its fundamentals to see if it would be a good investment to purchase regardless of what sector of the market the company falls under. The other approach is to take a top down look at the different areas of the market to assess which parts of the economy or stock market are doing well and choose an investment from that area. Both methods make sense in most markets and thus it is a matter of preference which one you choose.

In today’s unusual volatile market, where investments are moving on emotion and panic, it is the top down method of investment selection which makes more sense. There are a lot of good quality company’s with strong fundamentals that are falling in price everyday even though reported earnings are above expectations. These companies seem to get caught up in the day to day volatility of the market as a whole and are not judged on their own results. Thus fundamental analysis is not working at this time. Today, looking at the stock market from a top down view, investors have an easier time figuring out how the markets are behaving.

A three month chart tells us that the all North American markets are moving in tandem. Their charts are practically identical. This means that whether the market goes up or down, all the major indices in North America are moving as one. Investors are not really looking at a particular index or sector. Whether it is the commodities heavy Toronto Exchange or the tech heavy Nasdaq or even the 30 companies that make up the Dow, the major North American indices are going up and down together. Thus this current investor panic is wide spread and across all regions.

Looking at today’s charts, there is cause for some optimism. There are patterns forming that could possibly signal a reversal and a positive breakout on the North American stock exchanges. However, time will tell if this is the case or if the markets are just pausing before the next step downward.

Looking forward, investors should expect the North American markets to continue to trade in tandem in the short term. As investor sentiment turns positive again, you should see all indices move higher. Therefore as investors, don’t worry so much which part of the market is doing well right now. You should research investments from any index or sector and choose the ones that appear to be good quality. Owning good quality investments in any North American index is the key for future returns.

If you have any questions regarding the above article or how to invest during these difficult times please send me an email at asmall@dundeesecurities.com. I will be glad to speak with you!

Allan Small is an Investment Advisor with Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities and the author is not a Dundee Securities analyst. The views expressed are those of the author alone, and are not necessarily those of Dundee Securities or Metro.