Don Vialoux's Top Picks: October 14, 2016

Don Vialoux, technical analyst at TimingTheMarket.ca and EquityClock.com
Focus: Technical analysis and seasonal investing
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MARKET OUTLOOK
On average over the past 20 years, the Dow Jones Industrial Average and the S&P 500 Index have reached their seasonal low on Oct. 15 (the TSX Composite reached a seasonal low on Oct. 5). Chances are high that the low this year for U.S. equity markets was yesterday when major U.S. equity indices briefly broke support, but came back strongly. Strength between now and early 2017 is justified by an expected recovery in earnings growth. Consensus for third quarter S&P 500 earnings on a year-over-year basis calls for a decline of 2.1 per cent followed by a gain of 5.5 per cent in the fourth quarter and a gain of 12.9 per cent in 2017. Third quarter earnings outlook for Dow Jones Industrial Average companies and TSX 60 companies is more positive. Consensus for Dow companies on a year-over-year basis is a gain of 1.8 per cent, while consensus for TSX 60 companies is a gain of 6.1 per cent.

CATALYST DRIVERS

1. Change in seasonal influences at this time of year
2. U.S. presidential election
3. Fed changes in interest rates
4. Third quarter earnings expectations
5. China outlook

TOP PICKS

ISHARES GLOBAL AGRICULTURE ETF (COW.TO)
Seasonal influences for the agricultural sector are positive between the end of September and the end of December. Grain prices finally have shown signs of bottoming after a long downward trend. The Grain ETN JJG completed a base building pattern today.

UNITED STATE NATURAL GAS FUND (UNG.N)
Seasonal influences for natural gas are positive from the beginning of September to the middle of December. Intermediate trend for natural gas prices is already upward. Early signs of a La Niña suggest the likelihood of colder-than-average weather in North America this winter, implying higher-than-average demand for natural gas. U.S. inventories are already below their 20-year average. 

FIRST TRUST U.S. TECHNOLOGY ETF (FHQ.TO)
Questrade ETF is currency hedged and the First Trust ETF is not hedged. Seasonal influences for the technology sector are positive from early October to the first week in January. Consumer technology goods (e.g. the iPhone 7) are expected to be hot items this Christmas season. Technical trends and relative strength are already positive.
 

PAST PICKS: AUGUST 5, 2016

ISHARES S&P TSX GLOBAL GOLD INDEX FUND (XGD.TO)

• Then: $17.03
• Now: $12.87
• Return: -24.43%
• TR: -24.43%

GLOBAL X SILVER MINERS (SIL.N)

• Then: $50.54
• Now: $38.55
• Return: -23.72%
• TR: -23.72%

CASH

TOTAL RETURN AVERAGE: -16.05%
 

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