Jon Vialoux, Research Analyst, EquityClock.com
FOCUS: Technical Analysis and Seasonal Investing
Major equity benchmarks in the U.S., such as the S&P 500 Index, remain within a massive area of supply around present highs. The S&P 500 Index is bound by a range that spans from 2040 to 2130, a range that has seen multiple tests over the past two years, each one resulting in swift selloffs shortly thereafter. Stocks are likely to require a catalyst to break free. Fortunately, or maybe unfortunately, the potential catalysts in June are many with the FOMC meeting mid-month, the Brexit referendum vote, and the start of the ECB Corporate Sector Purchase Program. The end of the second quarter and the anticipation that surrounds the coming earnings season are other factors to consider from a seasonal perspective. The summer is not known for many market moving events, at least not positive in nature, but with the political landscape and uncertainties over monetary policy, there will continue to be events on the calendar that should keep investors on their toes through the months ahead.
As for the performance of stocks closer to home, the TSX Composite continues on an intermediate trend of higher-highs and higher-lows stemming from the January bottom, following the improving trend in commodity prices. Recently, resistance at 14,000 was exceeded, potentially clearing a path toward psychological resistance around 15,000. The Canadian benchmark may face some headwinds in its attempt to move higher over the next few months. Seasonally, the TSX peaks, on average, at the start of June, following the release of quarterly reports from the major banks and the spring run-up in oil prices through the month of May. The benchmark typically trades flat to negative into the end of October. Recently, momentum indicators for the Canadian index began negatively diverging from price, suggesting trend exhaustion as buying pressures fade.
BMO U.S. High Dividend Covered Call ETF (ZWH.TO)
This ETF provides exposure to a dividend focused portfolio with the benefit of collecting additional yield through a covered call write strategy. Coming into the more volatile time of year for stocks, investors will want to find ways to reduce risk in equity portfolios and this defensive ETF is an ideal way to do that. Dividend stocks, in general, are less prone to seasonal fluctuations than low or no-yielding equities and if we are to assume that upside for equities is capped until we receive further clarification regarding some of the uncertainties ahead in June, the call write overlay has proven benefits above the benchmark return in a flat to negative market.
BMO Aggregate Bond Index ETF (ZAG.TO)
During the off-season for stocks, bonds offer a way to reduce portfolio beta while collecting a yield higher than cash equivalents. This ETF provides exposure a broad array of Canadian investment grade fixed income products consisting of corporate and government bonds. The ETF recently broke above resistance at $15.90, trading to a new all-time high. The annualized yield of the fund presently sits at 3.00 percent.
Metro Inc. (MRU.TO)
Consumer Staples tend to be a good defensive hold during the period of volatility for stocks. Metro, the supermarket chain, is one of the more prominent constituents in the Canadian sector. Between June 20th and November 12th, the stock has gained an average of 8.90 percent, positive in 14 of the past 20 periods. The stock is presently bumping up against resistance at $45, but momentum and relative performance continue to point higher, suggesting a breakout may be imminent. Price has maintained rising trendline support for the past two years.
Past Picks: April 7, 2016
BMO US High Dividend Covered Call ETF (ZWH.TO)
- Now: $19.29
- Return: +0.10%
- TR: +1.12%
Alphabet Inc. (GOOGL.O)
- Then: $760.12
- Now: $735.86
- Return: -3.19%
- TR: -3.19%
BMO Short Federal Bond Index ETF (ZFS.TO)
- Now: $14.74
- Return: -0.20%
- TR: +0.09%
Total Return Average: -0.66%
Twitter Handle: @EquityClock