Market Call Tonight for Wednesday, September 6, 2017
Keith Richards, portfolio manager at ValueTrend Wealth Management of Worldsource Securities
FOCUS: Technical analysis
The incredible move between the rising Canadian loonie (moving up via the outlook for higher interest rates) and a lower U.S. dollar (moving down via Trump's health care revamping struggles, trade wars, etc.) has affected Canadian investors holding U.S. stocks.
We’ve not been immune to this currency action. The strong move by the loonie has resulted in neartermed negative returns on our equity platform, given its weighting in U.S. stocks. However, we feel that the move by the loonie is not permanent. Our target was somewhere near US$0.80, and right on schedule, the loonie hit just over that point. That point is challenging a bearish trendline that has been present since 2011. My maximum upside target for the loonie would be to reach US$0.84, but that’s a lower probability target.
On the topic of U.S. stock markets, the big picture for the S&P500 looks to be maintaining its uptrend (rising trendline, and above the 200 day moving average). Moneyflow is bullish – indicating that money is still entering the market. However, some of the factors I mentioned here suggest that the U.S. market is ripe for a healthy, normal correction. MACD has been diverging (falling against a rising market) for a while, as have other momentum studies. This suggests that the money flowing into stocks by investors is slowing. I also note that many of the market leaders in the FANG (Facebook, Amazon, Netflix, Google) group are faltering. Finally – geopolitical risk is rising given North Korea’s recent moves. So keep your eyes open – there are many other factors such as breadth and seasonality that are weighing against continued upside for this index without an interim correction.
We’re 40 per cent cash with a 5 per cent U.S. treasury bond position in the ValueTrend Managed Equity Platform. We have a huge “shopping” list of stocks that I like technically, and Craig likes fundamentally. We’re looking for an opportunity to buy any of them on weakness. Perhaps nothing will come of the signals I note above. But if something does happen – we are prepared.
BMO LONG-TERM U.S. TREASURY BOND INDEX ETF (ZTL.CN)
Bonds can represent a flight to safety in times of market selloff. This bond ETF is NOT currency hedged. Given our opinion that the USD/CDN$ spread may narrow (in favor of the USD) over the coming weeks, we are taking a contrarian position on the currency with this ETF.
Cineplex had been trading range bound since early 2016. It had been bouncing from $49 to $53 per share regularly. We determined that a move to, and bounce off, of $49 a share would be a great entry point, and bought it. Then the stock reported slightly soft earnings and CGX plummeted – mainly due to institutional moves on the news. The entertainment company has been consciously diversifying revenue in an effort to be less dependent on box office sales. As they continue to gain traction with these new endeavors we anticipate the stock will also gain traction. The stock now looks to be rebounding from an oversold situation, and we look to sell it in the mid-$40’s on that move. For us, it’s going to be a loss, but new investors might get a 10 to 15 per cent short-termed trade out of the stock.
We are 40 per cent cash right now.
PAST PICKS: JULY 24, 2017
CONSUMER STAPLES SELECT SECTOR SPDR ETF (XLP.US)
- Then: $54.90
- Now: $55.28
- Return: 0.69%
- Total return: 0.69%
- Then: $151.00
- Now: $158.86
- Return: 5.20%
- Total return: 5.53%
TOTAL RETURN AVERAGE: 2.07%