Keith Richards.
Keith Richards is portfolio manager, ValueTrend Wealth Management of Worldsource Securities. His focus is technical analysis.
Top Picks:
Consumer Staples Select Sector SPDR ETF (XLP)
This 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 $100s 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 favourable.
Past Picks: February 2, 2016
iShares S&P/TSX Global Gold Index ETF (XGD.TO)
Then: $8.84 Now: $11.88 +34.39% Total return: +34.39%
CurrencyShares Euro Trust (FXE)
Then: $111.58 Now: $109.30 -2.04% Total return: -2.04%
Cash
Total Return Average: +10.78%
Market outlook:
The good news for stock markets is that the S&P 500 cracked its near-term resistance of 1,940 recently. Shortly after that upside breakout, the bulls pushed that index to technical resistance at around 1,990. That resistance point represents both the old neckline of last summer's double bottom and the support levels from the late 2015 high points. The charts illustrating these levels can be seen here.
The market remains below its 200-day moving average (DMA) (which is sloping down), and below its old highs of 2,135. As such, it remains in an intermediate bear market trend, with a near-term 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 2,020.
Playing into that has been oil's 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-$42 (U.S.). In plain language, this suggests that oil may be in for a pause in the near-term, which in turn should put some near-term pressure on stock markets. Charts and targets for oil, along with other key commodities, can be seen here.
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 – given the potential technical resistance points discussed above.