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Top Picks from Keith Richards: Consumer Staples Select Sector SPDR ETF, BCE, and CurrencyShares Euro Trust

Tags: Market Call

Keith Richards, portfolio manager, ValueTrend Wealth Management of Worldsource Securities

FOCUS: Technical Analysis

MARKET OUTLOOK:

The good news for stock markets is that the S&P 500 cracked its near termed resistance of 1940 recently. Shortly after that upside breakout, the bulls pushed that index to technical resistance at around 1990. That resistance point represents both the old neckline of last summer’s double bottom, and the support levels from the late 2015 highpoints.

The market remains below its 200 day moving average (DMA) (which is sloping down), and below its old highs of 2135. As such, it remains in an intermediate bear market trend, with a near termed bullish bias – albeit an overbought one. For the market to be considered in an intermediate uptrend, it will need to take out the 200 day moving average, break the old high, and work off some of the currently overbought conditions. The nearest objective is the 200 DMA. Can the S&P move above that key indicator? The market often pauses whenever it approaches or hits the 200 DMA. My bet is that the U.S. market will find some resistance as it nears or hits that moving average – which currently lies around 2020.

Playing into that has been oils recently strong correlation with both Canadian and U.S. stock markets. As goes oil, so goes the market, at least lately—although the TSX has had some additional strength from gold’s upside of late. WTI Oil’s weekly chart shows us that there is convergence of resistance points about to come into play around $38 to $42. In plain language, this suggests that oil may be in for a pause in the nearterm, which in turn should put some neartermed pressure on stock markets.

This is not to say that you shouldn’t buy into this rally –but holding a bit of cash at this time remains a prudent strategy at this time – given the potential technical resistance points discussed above.

Top Picks:

Consumer Staples Select Sector SPDR ETF (XLP)

The Consumer Stables Select Sector SPDR ETF is just breaking out from a long consolidation. This is a defensive sector, and we just bought it, having rotated out of the consumer discretionary SPDR (XLY) a few weeks ago.

BCE (BCE.TO)

This stock has been in an uptrend for several years. It’s a defensive name that is supported by a solid dividend.

CurrencyShares Euro Trust (FXE)

This is a counter-USD trade. The Euro has been basing for a number of months, as illustrated by this ETF’s tight range between the low $100’s and $113 over the past year. If the U.S. dollar does begin to weaken, this ETF will break out. In the meantime, your downside looks pretty contained to the bottom of the trading range. As such, the risk/reward ratio for holding this defensive position is favorable.

Disclosure:

Personal

Family

Portfolio/Fund

XLP

Y

Y

Y

BCE

Y

Y

Y

FXE

Y

Y

Y

Past Picks: February 2, 2016

iShares S&P/TSX Global Gold Index ETF (XGD.TO)

  • Then: $8.84
  • Now: $11.88
  • Return: +34.39%
  • TR: +34.39%

CurrencyShares Euro Trust (FXE)

  • Then: $111.58
  • Now: $109.30
  • Return: -2.04%
  • TR: -2.04%

Cash

Total Return Average: +10.78%

Disclosure:

Personal

Family

Portfolio/Fund

FXE

Y

Y

Y

XGD

Y

Y

Y

CASH

 

 

 

 

 

 

 

Fund Profile

ValueTrend Managed Equity Platform

Performance as of: As of February 29, 2016

1 Month: Fund -2.50%, Index* 0.20%

6 Month: Fund -3.30%, Index* -6.40%

1 Year: Fund -5.10%, Index* -14.50%

* Index: North Ameircan Index: 85% S&P TSX300 total return index and 15% S&P500 USD total return index.

* Returns are gross of fees. All dividends are reinvested.

Company Twitter Handle: @ValueTrend

Company Website: www.valuetrend.ca

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