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

MARKET OUTLOOK

After the holidays end we often see a changing of the guard, with large-cap stocks taking a breather while small-cap stocks start to rally. That's because the institutional buying pressure dries up after their buying spree ends in December. Meanwhile, the selling pressure on the small-cap stocks and other oversold sectors abates, allowing bargain-hunters to step in and bid the stocks up. Same goes with underloved international markets like Europe and emerging markets. 

It may be of interest for you to know that this year may be experience a particularly strong tendency for these patterns. That's because this year markets have been polarized: Stocks going up went way up, while stocks going down went way down.

This year was “go big or go home.” Think of hugely winning stocks like technology and U.S. banks. Then think of huge losers like the cannabis stocks, energy and many names in the small-cap sector. Some of the big names will take a seat in the new year, letting some of the better-quality small-cap stocks, energy names and international markets step up.

Clearly, there are benefits to buying and selling stocks, international indexes and domestic sectors within these patterns. We want to try to take advantage of some of the rotation into oversold and small-capped sectors as we approach the end of the year. There are opportunities approaching and we need to move into them before they happen.

TOP PICKS

VALERO (VLO:UN)

Technically, this is a great chart: Breakout and neckline test—perfect! Valero is a refinery and ethanol producer. The business is a bit more predictable than an exploration development company in the energy space. It pays a decent dividend. Depending on energy’s strength, this stock could target $110 to $125.

HORIZONS SILVER ETF (HUZ:CT)

This is play on silver (the commodity, not the producers). It’s also hedged, so we don’t get as much exposure to moves in the U.S. dollar. Technicals suggest a double bottom recently, with a neckline test of around $8.60. This ETF could target anywhere around $10 to $11. Seasonals are good in January and February for silver.

EMERGING MARKETS INTERNET AND ECOMMERCE ETF (EMQQ:UW)

This ETF allows us to play the seasonal tendency for technology to do well until late February. It also allows us to play the emerging markets, which we consider likely to be an outperforming space in the new year. It’s about half China, with holdings like Alibaba and Tencent. The other half is spread over internet and tech companies in Brazil, Argentina and India, among other countries.

PAST PICKS: NOV.  22, 2019

BMO EQUAL WEIGHT U.S. BANKS HEDGED TO CAD ETF (ZUB:CT)

• Then: $29.50
• Now: $30.47
• Return: 3%
• Total return: 4%

PEMBINA PIPELINE (PPL:CT)

• Then: $47.10
• Now: $48.13
• Return: 2%
• Total return: 3%                                                                          

NIKE (NKE:UN)

• Then: $93.34
• Now: $101.15
• Return: 8%
• Total return: 9%

Total return average: 5%