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bnn market call

Keith Richards.

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

Top Picks:

Utilities Select Sector SPDR ETF (XLU)
During my June 5th appearance on BNN, I noted this as a position that would do well over a soft market – it has risen a bit since then, and I still view it as a stable, defensive position in the current environment.

iShares Global Agriculture (COW.TO)
Not only does the trendline look great, but it is unhedged – thus has exposure to the U.S. dollar which certainly hasn't been a bad thing.

Cash
We remain 47% cash, for good reason!

Past Picks: July 14, 2015

Keyera (KEY.TO)
Keyera's long-termed trendline remains intact, and it is finding support at $37. It's probably been the best performing pipeline in Canada due to its focus on the actual "pipeline" business (that is, the transportation of fluids) rather than development and processing of energy – which many of its competitors like Pembina have more exposure to.

Then: $42.41; Now: $37.12; -12.47%; Total return: -11.96%

iShares Global Agriculture Index ETF (COW.TO)
Bought at 32.50 last month – which was a great entry point until recent market malaise. The ETF remains very nicely over its weekly chart trendline. Agriculture stocks can do well from the fall until the end of the year. I still like this ETF.

Then: $33.40; Now: $30.72; -8.02%; Total return: -8.02%

Cash
When I last appeared on BNN Market Call, I was over 50-per-cent cash. We bought a 5-per-cent position in top-pick COW-T shortly after the show which brought us to 47-per-cent cash. I have been predicting a correction since my appearances on the show in May. So far, so good. This cash will give us purchasing power when the time is right.

Total Return Average: -6.66%

Market outlook:
Watchers of BNN will recall that I was cautious and expected either sideways or bearish markets through the summer. My commentary on BNN on April 20, 2015 noted the strong likelihood of a significant correction before the end of the summer. I noted that virtually every bearish technical condition that I followed in 2011 appeared again this spring. Of note – The summer of 2011 was the last time we saw a 20-per-cent plus correction.

We elected to hold nearly 50 plus cash this summer – in fact, we've held over 50 plus for much of this time period –we're still at 47 plus cash right now. So far, it would appear that my bearish prognosis was correct. Because of our decision to take profits on high beta stocks back in the spring (specifically technology and discretionary holdings), we managed to sell near the high point and preserve our gains. As such, our equity platform has earned positive returns for the year, despite a loss on the S&P 500 (U.S. market) and on the TSX 300 (Canadian market) YTD.

Just as importantly, we have lots and lots of cash to take advantage of the blood that's running on the streets! By limiting risk when most investors are bullish, then redeploying that cash when other investors are capitulating, ValueTrend has provided market-beating performance with lower risk over both long- and short-termed time frames. Although we run an individually-managed platform for our clients rather than a mutual fund, Morningstar data shows we have the lowest 5-year STD Deviation compared to all "Canadian Focused Equity" mutual fund managers in Canada. This, while demonstrating the 9 highest return in that category over the past 12 months (of 66 managers).

We expect that the next day or two will bring an oversold rally to the markets – especially in light of the (anticipated) intraday price reversal. Momentum studies such as RSI and Stochastics are screaming oversold. The key will be to let the market rally for a few days and see if it can stick. Often in market corrections such as this we get "head fakes" – where markets will stage an oversold rally and then begin a new leg down in a week or two. For this reason, as tempting as it may be to buy right now, I am holding off to see how this market plays out for a few days before committing. The October lows of around 1,860 on the S&P 500 were tested intraday today, and support held. It is crucial that this level is not violated.