Don Vialoux, technical analyst at TimingTheMarket.ca and EquityClock.com
FOCUS: Technical analysis and seasonal investing
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MARKET OUTLOOK

A word of caution for the next 10 days! This is the time of year when companies issue negative guidance and analysts lower their earnings estimates. Companies have a reason to lower guidance and analysts have a reason to lower estimates this year. Impacts of hurricanes Harvey and Irma currently are being assessed.

Beyond the next 10 days, North American equity markets have a positive outlook. Seasonal influences turn positive in mid-October for the S&P 500 Index and the TSX Composite Index and last until the first week of January. A major reason for strength is positive investor sentiment during the Christmas season. An explanation for why seasonal influences are expected to be particularly strong this year will be offered later in the show. 

TOP PICKS

Currency is a driving force for the top 3 picks. The U.S. dollar index dropped to 93 in the third quarter of 2017 from 100 in the fourth quarter of 2016 (7.5 per cent) and 101 in the first quarter of 2017 (8.6 per cent). Companies and sectors that realize a large part of their earnings and revenues from operations outside of the U.S. will benefit substantially from currency conversion alone and will see earnings and revenue gains accelerate. For example, consensus for S&P 500 earnings calls for a 4.2 per cent year-over-year gain in the third quarter followed by an 11.1 per cent gain in the fourth quarter and 10.3 per cent gain in the first quarter of 2018.

SPDR DOW JONES INDUSTRIAL AVERAGE ETF (DIA.US)
Approximately 60 per cent of earnings and revenues realized by Dow Jones Industrial Average companies come from international operations. Currency conversion will significantly help fourth quarter 2017 and first quarter 2018 results.
Technical parameters are positive. The Average is in an intermediate uptrend, is outperforming the S&P 500 Index and shows positive momentum. Seasonal influences are positive from mid-October to the first week of January.

FIRST TRUST ALPHADEX U.S. TECHNOLOGY SECTOR ETF (FHQ.TO)
Units hold large cap U.S. technology stocks. Companies realize over 70 per cent of their revenues and earnings from international operations. Units trade in Canadian dollars and are unhedged.
Technical parameters are positive. Units are in an intermediate uptrend, are outperforming the S&P 500 Index and have positive momentum. Seasonal influences are positive from the first week in October to the second week of January (just after the Las Vegas Consumer Electronics show).

FIRST TRUST ALPHADEX U.S. INDUSTRIALS SECTOR INDEX ETF (FHG.TO)
Units hold large cap U.S. industrial stocks. Companies realize over 60 per cent of their revenues and earnings from international operations. Units trade in Canadian dollars and are unhedged.
Technical parameters recently turned positive: Trend is up. Strength relative to the S&P 500 Index recently turned positive. Momentum indicators are trending up. Seasonal influences are positive between the first week in October and the first week in January. 
 

PAST PICKS: AUGUST 4, 2017

ISHARES S&P/TSX GOLD INDEX (XGD.TO)

• Then: $12.02
• Now: $12.27
• Return: 2.07%
• Total return: 2.07%

GLOBAL X FERTILIZER ETF (SOIL.US)

• Then: $9.71
• Now: $10.18
• Return: 4.84%
• Total return: 4.84%

CASH, OR 3-MONTH TREASURY BILL

TOTAL RETURN AVERAGE: 2.30%