Don Vialoux, technical analyst at TimingTheMarket.ca and EquityClock.com

Focus: Technical analysis and seasonal investing
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MARKET OUTLOOK
The S&P 500 Index and TSX Composite Index have a history of recording a brief correction with increased volatility between July 17 and mid-October. During the current period so far, both indices are flat to lower, but volatility in equity markets has yet to surface.

Gold and gold stocks had another good week last week. They are following their seasonal trend showing strength between the third week in July and the first week in October. A move by gold to resistance near US$1,300 per ounce is possible during the current period of seasonal strength.

Second-quarter earnings reports released by S&P 500 and TSX 60 companies continue to surprise on the upside. However, responses to reports have raised a caution flag. Unless earnings were a “blow out,” many stocks moved lower after the release of results. Since mid-July, more S&P 500 stocks have broken intermediate support than intermediate resistance. Traders are selling on news. 

TOP PICKS

ISHARES S&P/TSX GLOBAL GOLD INDEX ETF (XGD.TO)
Seasonal influences are positive from late July to the end of September. Technicals are improving: the index recently completed a short-term reverse head-and-shoulders pattern and moved above its 20-day moving average, and on-balance volume data shows accumulation. Units also recently have outperformed gold bullion, a technical sign that both want to move higher.

GLOBAL X FERTILIZERS/POTASH ETF (SOIL.US)
Seasonal influences for major stocks in the sector (Agrium, PotashCorp, Mosaic, CF Industries) are positive between now and late September. Technically, SOIL has an improving technical profile. Intermediate trend is up. Strength relative to the S&P 500 and TSX Composite Index is positive. Momentum indicators have turned up.

CASH
Expectations for higher volatility in Canadian and U.S. equity markets increase chances of at least a shallow correction between now and mid-October. Caution is advised.
 

PAST PICKS: MAY 8, 2017

FIRST TRUST AMEX BIOTECH ETF (FBT.US)
Units no are longer favoured. Period of seasonal strength ended in mid-July. Thereafter, seasonal influences turn neutral. Technically, units remain in an intermediate uptrend, but strength relative to the S&P 500 Index has turned negative. Preferred strategy is to take profits.

CAE (CAE.TO)
The stock no is longer favoured. Period of seasonal strength ended in mid-July. Thereafter, seasonal influences turn negative. Technically, the stock remains in an intermediate uptrend, but strength relative to the TSX Composite Index has turned negative. Preferred strategy is to liquidate positions.

CASH
Retention of cash and equivalents is favoured. Since May 8, North American equity markets have been choppy at best. The S&P 500 Index was up 2.8 per cent and the TSX Composite Index was down 2.8 per cent for a combined net return of zero. Meanwhile, equity markets have just entered into their historic period of seasonal weakness from mid-July to mid-October. Holding a healthy position in cash continues to make sense.

TOTAL RETURN AVERAGE: +5.11%
 

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