Keith Richards, president and chief portfolio manager of ValueTrend Wealth Management
Focus: Technical analysis

MARKET OUTLOOK

As we enter the traditionally weaker six months of the year, it’s quite possible that we might find markets a little more volatile. In a potentially overbought North American market, we’re trying to focus on areas that are likely to do well in a period of chop.

Money may rotate out of overbought sectors such as technology and consumer discretionary into securities that have been beaten up, based and appear to be receiving some new money flow. We're buying contrarian ideas that appear undervalued on our fundamental and technical screens. Sure, we have a few growth-oriented momentum stocks: they continue to be the movers and the shakers in the investment world, but we don't want to be as exposed to these high-flyers as the market is. For this reason, most of our new ideas now come from the "value" side of the ledger, rather than the "growth" side. Value can be recognized by chart analysis as well as traditional fundamental screens. From a technical perspective, we’re looking for securities that have declined, based and are now breaking out of that base.

We tend to leg into these stocks in two increments. In that way, we have a smaller commitment if the trade goes sour and we can add to it if things are going well. We also have to keep a tight watch on support levels for these fallen angels. If a stock drops below a noted support level, we don't spend much time waiting around for a rebound. We're trying to stick with three-to-four-day break rule, meaning that if a stock breaks support we sell it if it doesn't rebound within that period. I’d encourage readers to visit this blog, where I detail the step-by-step process to trading undervalued stocks.

TOP PICKS

RIOCAN REIT (REI_u.TO)

RioCan is a commercial property center and business property REIT. The stock broke out of a base at around $25.70, rose and then pulled back. We legged in at $26, for a 3-per-cent position and may add to the position. REITs can be defensive positions in a choppy market.

MORGAN STANLEY (MS.N)

Some of the U.S. banks came in strong, some not so much. Morgan Stanley was one of the strong ones. Nice base breakout. We have done our first leg of 3 per cent into the stock and would add to it if it pulls back a bit from its overbought status.

GEORGE WESTON (WN.TO)

Similar look to the other two top picks, base breakout. A defensive name for the summer, we bought in two stages and are now up to our “full position” of 5 per cent on this stock. Our average cost is $100.

PAST PICKS: FEB. 22, 2019

UNITED STATES NATURAL GAS FUND (UNG)

• Then: $24.02
• Now: $22.33
• Return: -7%
• Total return: -7%

BMO EMERGING MARKETS ETF (ZEM.TO)

• Then: $19.78
• Now: $20.56
• Return: 4%
• Total return: 4%

CASH

Total return average: -1%

WEBSITE: www.valuetrend.ca
TWITTER: @ValueTrend