Full episode: Market Call Tonight for Thursday, January 16, 2020
Keith Richards, president and chief portfolio manager at ValueTrend Wealth Management
Focus: Technical analysis
Right now, we have an overbought market on the important weekly chart view. The S&P has been running along its upper Bollinger Band (volatility band) since November. Longer-termed momentum via the MACD indicator has been parabolic, as has mid-termed momentum been overbought since November via a very high RSI level. Stochastics has generally been indicating overbought near-termed conditions ongoing since early 2019.
Typically, overbought conditions (BB, MACD, RSI, Stochastics) don’t last forever. Markets regress to the mean by correcting. However, 2017 proved that markets can remain overbought for atypical long-time frames on occasion.
It’s all about the Fed. What caused markets to return to more volatile times in 2018 was a tightening policy by the U.S. central bank. After a brief series of rate hikes in 2018, accommodative policies were reinstated in 2019. The probability of continued low rates remains, so it’s likely that current overbought market conditions will only be corrected by a minor dip.
Seasonality can sometimes be a bit soft for the S&P in the second half of January, so perhaps said dip (should it occur) is in the cards in the next few weeks. As such, we’re up to about 14 per cent in cash in the ValueTrend Equity Platform. We were fully invested just a week ago and remain mid-termed bulls despite the potential for a near-termed minor pullback. Any pullback will represent an opportunity to redeploy this cash.
ENBRIDGE (ENB TSX)
This stock recently broke $50 resistance. Meanwhile, it’s been making higher highs and higher lows. It has the potential to go into the $60 area. Plus, you earn a 6-per-cent dividend.
BMO EMERGING MARKETS ETF (ZEM TSX)
This ETF is a broad emerging markets play. Technical resistance at around $21 was just broken, suggesting the period of underperformance is over for these markets. The old highs of $22.50 present the next resistance point.
INVESCO TIMBER ETF (CUT NASD)
A commodity play, this is clearly for more aggressive accounts. We hold it in our VT Aggressive Growth Strategy platform. The ETF consolidated and is holding above its $28 neckline. Target is $33-plus. Stop is below $28.
PAST PICKS: NOV. 22, 2019
BMO EQUAL WEIGHT U.S. BANKS (CAD-HEDGED ETF (ZUB TSX)
- Then: $29.50
- Now: $29.92
- Return: 1%
- Total return: 2%
PEMBINA PIPELINE (PPL TSX)
- Then: $47.10
- Now: $50.16
- Return: 6%
- Total return: 7%
NIKE (NKE NYSE)
- Then: $93.34
- Now: $103.37
- Return: 11%
- Total return: 11%
Total return average: 6%