Don Vialoux, technical analyst at TimingTheMarket.ca and EquityClock.com

Focus: Technical analysis and seasonal investing
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MARKET OUTLOOK
A word of caution for U.S. equity markets during the next two weeks! Historically, U.S. equity markets have moved lower during the three-week period prior to the release of third-quarter results. Analysts frequently overestimate annual results in the first half and adjust estimates prior to the release of these earnings reports. This year, analysts have a good excuse for lowering estimates: The impacts of Hurricanes Harvey and Irma are not fully known to date. As they become known, companies will lower guidance and analyst estimates will come down.

U.S. equity markets are anticipating a strong increase in third-quarter earnings on a year-over-year basis. However, analyst third-quarter consensus estimates currently call for an average (median) increase in third-quarter earnings by Dow Jones Industrial companies of only 3.9 per cent: 10 companies are expected to report lower earnings, three companies are expected to report no change and 17 companies are expected to report higher earnings.

Third-quarter earnings prospects for TSX 60 companies are more encouraging. Consensus shows an average (median) year-over-year gain of 4.8 per cent. The strongest gains are expected to be recorded by the energy sector.

TOP PICKS

GLOBAL X FERTILIZERS/POTASH ETF (SOIL)

• Seasonal influences turn positive from near the end of September to the end of December.
• Units currently have a positive technical profile. Intermediate trend is up. Strength relative to the S&P 500 and TSX Composite is positive. Short-term momentum indicators are trending up. Accumulation below $10.00 is preferred.
• Demand for fertilizers is expected to grow significantly this year thanks to a bumper grain crop in the 2017 crop year. More fertilizer will be needed to replenish the soil. Grain prices are showing early signs of bottoming.

BMO EQUAL WEIGHT BANKS INDEX ETF (ZEB.TO)

• Seasonal influences are positive from September to near the end of November.
• Units have an improving technical profile. Last week they resumed an intermediate uptrend. Strength relative to the TSX Composite Index turned positive. Short-term momentum indicators are trending up.
• Fiscal fourth-quarter earnings on a year-over-year basis are expected to increase six per cent for Canada’s top six banks. However, estimates may be low thanks to the recent increase in the prime lending rate that at least temporarily increased interest rate margins. Banks frequently give additional good news to shareholders when fourth-quarter results are released, including additional share buybacks and increases in dividends.

CASH
The optimal time to add cash to North American equity markets is mid-October to the end of October. Prepare to wait for short-term weakness in equity markets to buy economically-sensitive sectors at better prices.
 

PAST PICKS: AUGUST 25, 2017

HORIZONS GOLD ETF (HUG.TO) – Bullion in Canadian dollars

• Then: $11.89
• Now: $11.91
• Return: 0.16%
• Total return: 0.16%

ISHARES S&P/TSX GOLD INDEX ETF (XGD.TO)

• Then: $12.41
• Now: $12.30
• Return: -0.88%
• Total return: -0.88%

CASH

TOTAL RETURN AVERAGE: -0.24%
 

TWITTER: @EquityClock
WEBSITES: TimingTheMarket.ca and EquityClock.com