Keith Richards, president and chief portfolio manager at ValueTrend Wealth Management
Focus: Technical analysis
MARKET OUTLOOK
The ValueTrend Bear-o-meter is a risk/reward indicator. It’s a compilation of indicators falling under general classifications of trend, breadth, breadth momentum, sentiment, seasonality and valuation. As many of my regular blog readers and BNN Bloomberg viewers know, the Bear-o-meter assigns risk on a scale of zero to eight. A reading of 3 or under is generally a higher risk market. A reading of 3 to 5 is about “average” for a risk/reward tradeoff. Anything over 5 is considered lower than average risk.
As of today, the Bear-o-meter has moved up from its prior reading of 4 (which is a neutral rating, roughly equal risk/reward potential) to 6. This is a lower risk/higher reward scenario according to the Bear-o-meter.
“But wait,” you say. “Shouldn’t it be flashing higher risk, given the market selloff last week?”
The answer to that question is no. Recall that the Bear-o-meter isn’t a timing instrument. It’s a risk/reward instrument. As markets move lower, they become less risky, all things being equal. In this case we had an already neutral environment and the current selloff is simply adding to the case that markets are nearing a low point. The encouraging thing I’m seeing is that we may get an entry point in the coming days or weeks. I’m watching for a pullback into the mid-2,800s to 2,900s as a support level. It would be extra enticing if I see some of the faster-sentiment indicators I watch such as the VIX and Smart/Dumb money move into contrarian buy zones.
Remember though, that the chart comes first. A break in the 200-day simple moving average and a lower low mean that things have changed. That hasn’t happened yet. I’m just noting that the trend trumps Bear-o-meter readings. But for now, things look to be sitting up for a potential buying point.
TOP PICKS
ALIBABA (BABA:UN)
The U.S.-China trade deal will come through in a matter of months. When that happens, the leading Chinese stocks will move. We target $200 or more.
BERKSHIRE HATHAWAY (BRK/B:UN)
Berkshire’s stock trades from $195 to $220. We bought near the low point on the range and are looking to sell near the high point. Buy near the low, which it could do if the market dips a bit.
CASH
The only reason I mention this is that we’re still fairly heavy in cash (30 per cent). That said, we’re planning to leg into the market starting this week. There are many attractive areas to look right now. Sideways-moving sectors like financials, communications, industrials, healthcare and international markets appeal to us.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BABA | Y | Y | Y |
| BRK/B | Y | Y | Y |
PAST PICKS: JULY 16, 2019
ISHARES GERMANY ETF (EWG:UN)
- Then: $27.71
- Now: $26.42
- Return: -5%
- Total return: -5%
FAIRFAX FINANCIAL (FFH:CT)
- Then: $624.05
- Now: $570.65
- Return: -9%
- Total return: -9%
ALLIED PROPERTY REIT (AP-U:CT)
- Then: $47.99
- Now: $54.26
- Return: 13%
- Total return: 14%
Total return average: 0%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| EWG | Y | Y | Y |
| FFH | Y | Y | Y |
| AP-U | Y | Y | Y |
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