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Keith Richards.
Keith Richards.

BNN MARKET CALL

Three top picks from ValueTrend’s Keith Richards Add to ...

Keith Richards is portfolio manager, ValueTrend Wealth Management of Worldsource Securities. His focus is technical analysis.

Top picks

CGI Group Inc. (GIB.A TSX)

I mentioned this stock as a top pick a couple of shows ago, and thought it was worthy of adding to my top three again. We bought this stock in February at $36. We’re pleased to note that at last, the market seems to be recognizing CGI’s potential. Q2 results were positive for investors of the stock, with revenue beating expectations and operating cash flows growing a rate supportive of the name. We see significant potential going forward, and the chart shows that the uptrend is holding.

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Encana (ECA TSX)

We bought this stock just yesterday (Wednesday) after it came back to test a neckline from a bottom formation breakout. The stock declined with oil on very weak volume and has successfully managed to hold the old resistance (new support level). This is a good entry point. The company has separated assets to realize locked value, allowing focus to be on core asset growth. These transactions have contributed to a strengthening of the balance sheet by deleveraging.

Investors may in fact be in the process of re-rating the stock, giving them a higher multiple. This certainly would partly due to greater confidence in the management in place and the new strategy they are following of growing liquids production.

Further insight into the company’s  growth plans will be provided in an update of 2014 guidance on July 24, 2014. This announcement will be in conjunction with second quarter earnings release.

Encana remains in early stages of implementing its new strategy and with continued focus and growth will allow shareholders to benefit.

Cash

We continue to hold just over 20% cash as part of our seasonal discipline – and will continue to do so until late October/ early November (seasonal entry time). Seasonally, July can often start off strong and finish its rally into about the mid-point of the month for the broad S&P 500 index. From that point, late July and August can be a bit more “iffy”, at least from a seasonal perspective. According to Thackray’s Investors Guide, August on the whole has produced a 0% average gain since 1950. Moreover, it has been over 6 months (January) since our last correction. Markets have typically corrected by at least 5% after periods of no more than 5-6 months since the bull market began in 2009.  If we get a correction in the coming weeks, I expect to deploy some of our cash.

Past Picks: May 27, 2014

SPDR Consumer Staples ETF (XLP NYSE)

Then: $44.40; Now: $44.75; Total return: +1.48%

iShares JPM Emerging Markets Bond ETF (XEB TSX)

Then: $21.63; Now: $21.81; Total return: +1.17%

+ Cash

Total return average: +0.88%

Market outlook

What I’d like you to observe is the length of time since the DJIA’s last 5% + correction. We’re normally due for some type of corrective action that exceeds a 5% after about 5 months. We’re well into the time frame now. Further, seasonally, July can often start off strong and finish its rally into about the mid-point of the month for the broad S&P 500 index. From that point, late July and August can be a bit more “iffy”, at least from a seasonal perspective. According to Thackray’s guide, August on the whole has produced a 0% average gain since 1950. Moreover, it has been over 6 months (January) since our last correction, as you will note on my DJIA chart. Given the seasonal tendencies for mid-July into late August, and the length of time since the last 5% correction, it will be interesting to see if the coming weeks will experience the next 5% (or more) correction.

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