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

MARKET OUTLOOK

Right now, the S&P 500 is at a critical juncture. It’s testing 2,800, which was unsuccessfully tested three times in 2018. There’s quite a bit of selling pressure that will come in at this level.

Furthermore, we have a near-termed overbought signal. This system only identifies very near-termed potential, so it should be taken into context. The near-termed timing model looks at a few indicators to suggest if markets are overbought or oversold. In order to issue a signal, it needs concurrent overbought or oversold signals on a daily chart via: 1) a touch of the upper (overbought) Bollinger Band or lower (oversold) Bollinger Band; 2) A move above the overbought RSI line (70) or oversold RSI line (30); and 3) a move above and hook (crossing of the lines) of the full stochastics indicator.

All three of these parameters must happen simultaneously as either overbought or oversold to warrant a buy (oversold) or sell (oversold) signal. Again, it’s likely the signal will only tell us the probability of a move in the very near term, so it’s not a tool to use to make big decisions. It can help us refine our timing within our greater analysis.

Against the backdrop of a near-termed overbought signal and a macro signal from our longer-termed risk model, we have kept our cash weighting high after reinvesting in January some of the cash we had held in December. We’re back to 35 per cent cash.

TOP PICKS

UNITED STATES NATURAL GAS FUNDS (UNG.N)

UNG is moving off the bottom of the sideways pattern. We will trade it to $27 or $35 at a profit, or take a loss if it goes below $20. We have less than half position (2 per cent) in this trade. Higher-risk, higher-reward trade.

BMO EMERGING MARKETS ETF (ZEM.TO)

This is a broad-based play. Bottom formation, broke neckline…we have a full position (5 per cent weighting) in this ETF. A high-confidence trade.

CASH

Seeing that we are 35 per cent cash, I should put this down as a top pick.

PAST PICKS: DEC. 21, 2018

BMO INDIA ETF (ZID.TO)

We like this ETF and the emerging markets in general, although India is the best bet of the group.

• Then: $25.57
• Now: $15.22
• Return: -1%
• Total return: -1%

UNITED PARCEL SERVICES (UPS.N)

Sell target is $120. It’s getting there.

• Then: $93.50
• Now: $101.19
• Return: 8%
• Total return: 8%

CASH

Total return average: 2%

WEBSITE: valuetrend.ca