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

Focus: Technical analysis
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MARKET OUTLOOK
It’s true that the U.S. markets may be getting ahead of themselves. While we still have plenty of U.S. exposure, and expect to keep that exposure until the end of the “best six months” period (May), we are concerned that there is room for a significant correction over the summer in North American markets. At the same time, some of the other world indices seem to be breaking out of base formations. Perhaps it will be a good time to diversify a bit of our capital away from the U.S. market as we enter the “sell in May and go away” seasonal period. Keep in mind that the U.S. market does influence most world indices (the U.S. market is the dog that wags the tail). Still, it doesn’t hurt to add some diversity in what may prove to be better opportunities within our portfolios. I should note here that we haven’t yet moved on a transition into these ideas — given that we still expect U.S. markets to perform well for the next month or two. But we do expect to rotate at least some capital into the ideas below when we reduce our North American holdings. Let’s take a look at a few examples of attractive international stock charts — indices that were out of favour, and now appear in better shape. Please go to my blog at http://www.valuetrend.ca/international-opportunities to view the charts for the ideas presented below:

EUROPE
A lovely breakout on the iShares Europe ETF (IEV) suggests a $45 target. The German index looks particularly interesting right now — although the next level of overhead resistance isn’t too far away.

EMERGING MARKETS
It’s hard to paint the emerging markets with a broad brush. After all, there is such a diversity in productivity, economic states of development, and chart formations that it’s probably best to buy individual country ETFs rather than a broad EM ETF. Nonetheless, the broad market ETF (EEM-US) chart does show some promise given the nice base breakout recently. Overhead resistance isn’t too far away — so I’d probably pick the index apart a bit and buy the better index ETFs that comprise this one. For example, I quite like Brazil. This market looks to have much higher resistance levels, offering the potential for more upside.

SHANGHAI
Despite worries surrounding Trump’s trade negotiations with China, Shanghai continues to motor along. I recently listened to an economic commentary with Benjamin Tal of CIBC, an economist who I hold in high regard. He felt that many of Trump’s policies could be accomplished (e.g. the “wall,” immigration policy, etc.). However, it will be quite difficult to change the new economic reality of free trade and to bring back American unskilled labour. China, emerging markets and India will likely continue to supply much of our low-skilled labour in the foreseeable future. The Shanghai chart agrees with that assessment; it suggests a double-digit return potential in the coming months.

TOP PICKS

BMO EQUAL WEIGHT U.S. BANKS HEDGED TO CAD INDEX ETF (ZUB.TO)
Coincidence or not, the recent sell-off on U.S. banks occurred on schedule with the seasonal chart for the sector — a point that has been a good spot to enter for a final thrust on that sector, historically. The current technical profile on the daily chart lines up with this seasonal tendency. Momentum is hooking up from an oversold level and this ETF is bouncing from support. We’ll probably sell this ETF in one to two months. It’s a technical trade. We last bought this on March 29.

BMO JUNIOR OIL INDEX ETF (ZJO.TO)
Oil has had a rough go of it lately, and the sector is oversold. The energy sector is typically strong right out until May or June from a seasonal perspective. Given its oversold conditions, I’d expect a positive move out into the late spring. The junior oils are a good way of leveraging that potential. We’re about 15 per cent exposed to the energy sector through this ETF and a few individual names. We bought this in early March.

BLACKSTONE GROUP (BX.N)
Blackstone holds investment vehicles focused on private equity, non-investment grade credit, secondary private equity funds and multi-asset class strategies. We like the management and the stock looks to be moving out of a base into a new uptrend. We bought this in mid-February at $30/share.
 

PAST PICKS: FEBRUARY 6, 2017

RIO TINTO (RIO.N)
We still hold the stock. Metal/mineral producers like RIO tend to be good into the late spring. We bought last December at $38, and will likely sell it in a month or two.

• Then: $42.78
• Now: $40.47
• Return: -5.40%
• TR: -2.72%

CP RAIL (CP.TO)
We sold this stock at the end of January for $202/share as it came into technical resistance, having bought it in November of last year at just over $193/share. Small but quick profit.

• Then: $193.50
• Now: $197.02
• Return: +1.82%
• TR: +2.08%

JOHNSON CONTROLS (JCI.N)
Like many industrial stocks, this stock can be strong until May or June, seasonally. The stock was bought in December, at pretty much what it is trading at today. We’ll hold it until the spring and then move on.

• Then: $42.30
• Now: $41.17
• Return: -2.67%
• TR: -2.10%

TOTAL RETURN AVERAGE: -0.91%