Keith Richards, portfolio manager at ValueTrend Wealth Management of Worldsource Securities
Focus: Technical analysis
Despite the fact that we can't be certain of what the markets will do, we can quantitatively measure risk and return, and make decisions to overweight or underweight stocks based on that quantitative data. With this in mind, a few factors from our "Bear-o-meter" are making us cautious right now:
- Seasonality: We are into the "worst six months" period for the stock market, which does not end until November. Studies have proven that, over time, it's wise to be cautious over the summer months — especially coming into the fall.
- Breadth: Markets have risen on only a few concentrated sectors that are rising (FANGs), with more sectors falling. Such a development is akin to a doctor’s patient who appears healthy externally, but displays internal signs of disease.
- Volatility: The "VIX" is a measurement of option premiums. It measures implied volatility on the markets. It shows us when investors are confident, or when they're worried. When investors are too confident, the VIX is low — and that's a bad thing. You need some investor fear in order to keep the market from running away on itself. Right now, the VIX is exceedingly low, meaning that investors are too bullish. They don't think there will be much volatility. It’s currently near the same level as it was in 2007. Does anyone recall what happened after 2007?
Elliott Wave prognosis: This is not part of our "Bear-o-meter," but we thought you'd find it interesting. According to Elliott Wave Theory, markets move in three "up" waves with two pull-backs separating these three waves. Each wave has characteristics. The final wave is characterized by a rapid rise and lower volatility (see the above comment re the VIX). There is a good chance that we are ready for a strong correction in the coming months. Please read this blog for details.
Another safe, boring stock with a dividend for the summer.
MONDELEZ INTERNATIONAL (MDLZ.O)
Mondelez is a consumer staple stock, and just broke its consolidation pattern. It’s a good sector to hold over the summer, and this stock in particular looks technically positive. They have about 40 per cent of their revenue exposed to the emerging markets, which is possibly a catalyst for growth. The stock is also rumored to be a merger candidate, but that is not something you want to base your trading decision on. We’ll hold it for the summer and re-evaluate it in the fall. So far it’s been a profitable stock for us since our original buy last spring at $41/share.
We are very cautious at this point and hold about 33 per cent cash in the equity model. This may rise to 40 per cent in the coming weeks.
PAST PICKS: MAY 3, 2017
E*TRADE FINANCIAL (ETFC.O)
Stock is trading sideways. Still hold; we feel it may break out eventually, and the stock pattern is not showing any danger at this time while we hold it.
- Then: $36.03
- Now: $36.75
- Return: 1.99%
- TR: 1.99%
ISHARES MSCI BRAZIL ETF (EWZ.US)
As the Grateful Dead sang, “What a long strange trip it’s been.” We bought the ETF on a dip within a new uptrend. It went up as expected, then more political strife hit the nation and the ETF fell hard. We expect it to rally to $36 and we are going to sell at or near that point. We’d be flat at that price.
- Then: $37.88
- Now: $33.92
- Return: -10.45%
- TR: -10.45%
POWER FINANCIAL (PWF.TO)
We bought this stock at just over $32. It rallied, and has pulled back to our buy point. We didn’t expect much upside for the summer; to us, this is more of a dividend play and a safer stock to hold over the summer. We continue to hold it and don’t expect it to rise or fall much before we sell it in the fall.
- Then: $34.93
- Now: $32.95
- Return: -5.66%
- TR: -5.66%
TOTAL RETURN AVERAGE: -4.70%
FUND PROFILE: VALUETREND MANAGED EQUITY PLATFORM
PERFORMANCE AS OF MAY 31, 2017:
- 1 month: Fund* 0.4%, Index** -1.1%
- 1 year: Fund* 16.0%, Index** 10.0%
- 3 years: Fund* 8.7%, Index** 2.6%
* Returns are gross of fees
* Clients are charged between 1.5 per cent to 1.75 per cent depending on assets held in the account
* Based on the portfolio holdings of Keith Richard’s own equity portfolio; inception date: June 30, 2009
* The rate of return is a time-weighted return
* For periods longer than 1 year the rates of return are annualized
** Index: North American Index
The information contained in this report is for illustration purposes only and was obtained from sources that we believe to be reliable. However, we cannot represent that as accurate or complete. The portfolio may invest in leveraged or inverse exchange traded funds and thus there may be exposure to aggressive techniques which may magnify gains and losses and can result in greater volatility and be subject to aggressive investment risk and price volatility risk. All performance data represents past performance and is not necessarily indicative of future performance. The North American Index is comprised of 85 per cent S&P/TSX 300 Total Return Index and 15 per cent S&P 500 USD Total Return Index. WorldSource Securities’ liability shall only be attached to the accuracy of information contained in your official statement of account, and information in your official statement of account will always take precedence over the information contained in this illustration. WorldSource Securities Inc. is a member of the Canadian Investor Protection Fund and sponsoring investment dealer of Keith Richards.