Full episode: Market Call Tonight for Monday, March 9, 2020
Jon Vialoux, research analyst and portfolio manager at CastleMoore
Focus: Technical analysis and seasonal investing
As of present, we have not seen any material impact on U.S. or Canadian economic metrics resulting specifically from COVID-19 but that’s likely to change. Employment continues to show an above-average pace. Gasoline product supplied, a gauge of demand, is similarly trending above average. Various manufacturing sentiment surveys also showed above-average performance. Indications coming into the coronavirus event were that manufacturing was starting to rebound and the consumer was in good shape. The virus concerns cloud the outlook and we just do not know what the impact will be.
The market is attempting to price in the risks, but without any hard data to rely on other than the count of those infected with the virus, the price gyrations are highly speculative. We employ a three-pronged approach incorporating seasonal, technical and fundamental analysis. The technicals have been the most appropriate guide in the market turmoil, allowing us to take down risk in our portfolio in the middle of February by taking a position in the bond market, mitigating our losses over the past month. The short-term gyrations enacted in our portfolio are based on one prong of our approach. We’re still waiting to see how data for the fundamental prong fills in through the months ahead.
Seasonally, March has gained somewhat of a reputation as being a bear killer. It’s one of the strongest months of the year, averaging a return of 1.1 per cent and showing positive results in 64 per cent of those periods. March has the best chance to stem the tide of selling pressures, but if the opposite occurs the market may be in for a tough ride ahead. The March 2000 peak in equities that led to a recession is a prime example of this.
NOTE: Due to the seasonal nature of the trades, all positions that have been mentioned on the show would have a holding period of less than a year. The average holding period is approximately three months.
BMO LOW VOLATILITY CANADIAN ETF (ZLB TSX)
Analysis of the ZLB seasonal charts show that a buy date of Jan. 12 and a sell date of May 18 has resulted in a geometric average return of 2.34 per cent above the S&P 500 benchmark rate over the past seven years. This seasonal timeframe has shown positive results compared to the benchmark in seven of those periods. ZLB has been outperforming the market since the year began, suggesting buying demand as investors seek lower volatility within portfolios.
While the peak period of seasonal strength for this utility ETF has just concluded, it can seasonally perform well through the end of June. Between the start of March and the end of June, it has gained an average of 9.28 per cent, showing positive results in 13 of the past 20 periods. Despite the volatility, it continues to show support around moving averages and the outperformance versus the market suggests buying demand.
AMAZON (AMZN NASD)
In this type of market panic, you want to prepare a shopping list of stocks that were perhaps too overpriced previously, but still showed tremendous growth as well as those that have held up better than the broader market during a pullback. Amazon fits the bill. Aside from benefitting as consumers choose or are forced to stay home, the company has shown healthy year-over-year revenue and free cash flow trends back when times were normal. The stock is essentially hovering around the level at which it started the year, which is more than can be said of the broader market.
Analysis of Amazon’s seasonal charts shows that a buy date of March 24 and a sell date of June 26 has resulted in a geometric average return of 8.21 per cent above the S&P benchmark rate over the past 20 years. This seasonal timeframe has shown positive results compared to the benchmark in 18 of those periods.
PAST PICKS: DEC. 4, 2019
ISHARES RUSSELL 2000 ETF (IWM NYSE)
- Then: $160.78
- Now: $130.36
- Return: -19%
- Total return: -19%
SPDR GOLD SHARES ETF (GLD NYSE)
- Then: $138.92
- Now: $157.81
- Return: 14%
- Total return: 14%
A&W REVENUE ROYALTIES INCOME FUND (AW-U TSX)
- Then: $37.50
- Now: $31.63
- Return: -16%
- Total return: -15%
Total return average: -7%