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ETFs Three top picks from ValueTrend’s Keith Richards

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

Top Picks:

BMO Equal Weight US Banks Hedged to CAD Index ETF (ZUB-TSX)

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The seasonal pattern for strength in U.S. banks is from December to April. This ETF is attempting to break out of a consolidation pattern that it's been stuck in since March of this year. We successfully traded this ETF during the last seasonal cycle by buying it a little early, in October of 2013, and selling it in March, 2014, just before it began the current sideways consolidation. In fact, it was one of my top picks on BNN during that period – so here we go again. This year it looks to be following more of a traditional seasonal cycle of a December buy point. We'll hold it until the spring.

WSP Global (WSP-TSX)

I am a little unusual compared to some of the other guests on BNN in that I tend to be a little quicker to trade than some. However, that isn't to say that we don't hold some positions for the long run, ignoring the shorter-termed trading cycles (3-6 months buy/sell cycles). WSP is one of those longer-termed stocks. The stock recently broke out of a sideways consolidation that had been in place since 2007. The current market pullback, and a new stock issue, has brought the stock back fairly close to its $33 breakout point. It looks like the stock is holding firmly over that level, and it probably presents a buying opportunity right now. I expect to hold it for a few years. WSP is one of the largest Canadian engineering services firms. They provide private and public sector clients with a range of professional consulting services. They are a true service company and as such do not invest capital in any of their projects. The company is planning to grow revenue significantly through both organic growth and acquisitions.

Technology Select Sector SPDR ETF (XLK-NYSE)

This ETF's trend is strong, and the seasonals are in place from now until the spring. We are overweight technology within our equity platform via this ETF and several individual stocks. It's about 25 per cent of our managed equity portfolio. We bought in October at just under $39/share

Past Picks: November 7, 2014

Technology Select Sector SPDR ETF (XLK-NYSE)

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Info tech remains in its seasonal period of strength until near the end of January, and XLK remains in an uptrend.

Then: $40.84; Now: $41.57 +1.79%; Total return: +2.32%

BMO China Equity Index ETF (ZCH-TSX)

This ETF owns the "H" shares, which are ADR's mimicking the stocks that trade on Hong Kong and Shanghai. It's the safer way to play vs. the "A" shares, despite the greater upside provided in a pure Shanghai ETF. The "H" shares haven't delivered the massive upside Shanghai index investors have experienced, but that's the tradeoff for safety. The ZCH ETF is back to its longer-termed breakout point at $17 – this is support, and it has successfully held. I still like this ETF.

Then: $18.21; Now: $17.81 -2.20%; Total return: -2.20%

Tata Motors Ltd. (TTM-NYSE)

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The Indian Bombay 30 index fell in the first half of this month, along with most other markets. Tata Motors is a major player on that market, and it basically fell in tandem. Nonetheless, the stock is holding at its prior low of $41 (U.S.) (it briefly broke that level mid-week, but quickly recovered). I'm still long the stock. The trend is firm at this point.

Then: $46.54; Now: $41.39 -11.07%; Total return: -11.07%

Total return average: -3.68%

Market outlook:

The TSX is in the process of testing its October lows. This week's positive bounce off of the October lows caused a positive movement on the near-termed momentum indicators that I watch. It's far too early to be excited about the prospects of our home and native land's index yet, but the TSX may, should Monday's low hold, attempt to form a double bottom shortly. Much depends on the energy sector of course, as well as our banks – two heavily weighted sectors in our TSX 300 index. Crude oil (WTI and Brent) looks bearish at this point, but there is some support in and around the $55 (U.S.) level. A little more stability may suggest that the $40 price target being bandied about may not occur. However, a failure at $55 likely suggests that $40 target is in the cards. Natural gas is somewhat more positive in profile, as seen by the technical support at $3.60. The banks, which are another key TSX index component, showed a similar test of their October lows this week. Copper and other metals continue to look pretty questionable from a technical perspective. Let's see what the next couple of weeks deliver for the TSX and these major components of that index. Confirmation of support by holding over the October lows to the months end may be a potential bullish signal for the TSX. If the October lows don't hold, I would suggest that the TSX isn't going to be positive for quite some time.

The U.S. market is in better shape than our Canadian market. A bullish trend is still intact for the S&P 500 – as suggested by the higher highs and higher lows and its key moving averages. Further, cumulative breadth is intact – higher highs and lows. This means that the U.S. markets are rising reasonably broadly through many sectors and stocks, as compared to the TSX, which has such limited scope of breadth. One small concern is that the A/D line barely made a new high when the S&P 500 made its new high earlier this month – however, it still qualifies as a higher high, and that remains a bullish sign. One of my primary long termed trend indicators, cumulative moneyflow, is extremely healthy suggesting longer-termed trend intact. Money continues to flow into the U.S. stock markets. All in, the recent correction is another opportunity to accumulate high quality stocks. As always, readers are invited to follow my blog at http://www.smartbounce.ca/ if you would like to see any of the charts I am referring to in this article, and for more in-depth trend analysis.

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