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Keith Richards.
Keith Richards.

BNN Market Call

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

Keith Richards is portfolio Manager at ValueTrend Wealth Management. His focus is on technical analysis.

Top picks:

BMO Equal Weight Utilities Index ETF
This ETF only holds 13 stocks – mostly power companies such as Atco Ltd., Emera Inc., and Fortis Inc. – with Pembina Pipeline Corp. as the only exception. The ETF fell after two stocks – Just Energy Group Inc. and Atlantic Power Corp. – fell sharply. While I don’t particularly like those two stocks, I do think most of the damage has been done (JE reiterated its guidance and confirmed its dividend, ATP appears to be finding support around $5 a share). Meanwhile, the balance of the holdings are solid companies with strong dividends, and I think the overall ETF will rally to $16, while paying a 5-per-cent yield. The sector tends to be defensive and does well over the summer. Further, the stock has a history of finding technical support around current levels ($15-ish) and technical resistance at around $16-ish.

Horizons Auspice Managed Futures Index ETF
This is more of a direct bearish play, while not as aggressive as an inverse or short ETF. Its managers can long or short a diverse range of futures contracts – from currencies, interest rates and commodities to stock market futures. It is widely diversified through at least five broad sectors and 20 individual contracts. Meandering trends are a net drag on this type of ETF and it has performed poorly in the recent bull market. However, from a technical perspective, the ETF seems to be breaking out of a base right now. I look at this, or any managed futures ETF, as a non-correlated asset class to consider when equity markets are potentially going to be bearish.

I went 43-per-cent-plus cash in my equity model last week, up from 14 per cent the previous week and fully invested until March. Given current technical indicators, my bet is that markets will seasonally peak earlier rather than later this year. Plus, a five-year market cycle shows signs of peaking. All in, the market looks ripe for a pullback between now and the summer. I will use my cash to re-buy at lower prices in the coming weeks or months.

Past picks: Feb. 15, 2013

First Capital Realty Inc.
Then: $19.35
Now: $18.89
Total return: –1.29 per cent

Starbucks Corp.
Then: $54.34
Now: $57.57
Total return: +5.94 per cent

BMO Low Volatility Canadian Equity ETF
Then: $17.78
Now: $18.12
Total return: +2.53 per cent

Total return average: +2.53 per cent

Market outlook:

On my last Market Call appearance, I said I would begin raising cash after the end of the first quarter; I’m currently up to 43 per cent. There are a number of factors that make the risk/reward profile for markets unattractive. First, a five-year cycle is due to peak now. Next, seasonal factors can push markets to a peak any time from the last week of March to the first week of May. Also, the “smart money” (that is, commercial hedgers and insiders) is selling while “dumb money” (mutual fund inflow, speculators) is buying. Historically, when these groups reach the selling/buying levels they are reaching now, market peaks are ahead. Technically, given the recent divergence between some momentum indicators – such as RSI and MACD (which are moving down) and the S&P 500 (which has been making new highs) – the time to sell is now, rather than later in April or May.

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