View from Toronto: This Week a Transition from All-Time Highs

06/05/2017 2:53 am EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Bonds, gold, and the yen start strong, end weaker this week, while Global Equities (ACWI) may close lower, and TSX is highly leveraged to oil, asserts Ziad Jasani, Co-founder of The Independent Investor Institute, Toronto, in his weekly Trader commentary and videos.

We start this week near all-time-highs for the global equity market expecting indecision; as the June 2 US Jobs data disappointment weighs heavier while France and Germany are closed on Monday (June 5).

The bid to defensives sparked on June 2 (gold, bonds, yen) dissipates early in the week, giving way to equity markets poking out to new all-time-highs (mid-week), which are not expected to hold into Friday.

Thursday, June 8 is a more likely negative pivot for the week, as Mario Draghi (European Central Bank) vies for more Eurozone stimulus, which likely falls on deaf ears, but still sends investors towards the USD and away from the Euro.

This is likely coupled with Technology Select Sector SPDR Fund (XLK) being knocked off its all-time-highs bringing the S&P 500 back under 2,440 – but primary up-trends are expected to remain intact.

The TSX is highly leveraged to Oil and whether Trump-Flation re-ignites.

Oil has a fair chance to test $49 mid-week, helping the Toronto Stock Exchange (TSX) move towards its 50-Day Average (15,552) led by iShares S&P/TSX Capped Energy Index ETF Energy Equities (XEG). A break above would require iShares S&P TSX Capped Financials Index ETF (XFN) to “kick-in.”

We are expecting a bounce in US Treasury Yields in the back half of the week, which would in turn help Financials bounce – however, Draghi “asking” for more stimulus is not likely to be a risk-on event at market highs, rather a sign of weakness.

We see this week as a transition from all-time highs back downwards to test short-term up-trend formations (S&P 500 2,400-2,375 TSX 15,250-15,175).

Our expectations for this week:
iShares MSCI ACWI Index Fund Global Equities (ACWI) start week with indecision, poke out to new highs midweek, and close the week lower than we start.
 • Defensives (bonds, gold and the yen) start the week stronger but end weaker.
• S&P 500 starts week around 2,440 and closes the week below.
• TSX starts greater than 15,400, attempts a test of 50-Day Average (15,552) but finishes under.
• Oil is likely to drift between $47-$49 starting the week mixed ~$48, bouncing mid-week and closing sideways greater than $47 but less than $49.
• Gold starts the week rising, but forms a swing-high under $1,292 ceiling.

Strategy (Short-Term = Days-to-a-Week):
• Use price strength to trim mid-to-longer-term positions.
• Limit, reduce and/or trail with stops defensive equity positions (Utilities, Staples, REITs).
• Short-term risk-capital only to play continuation of the May 18 bounce.
• Upon a rise in the USD and close above 2,440 on S&P 500 (and above 15,400 TSX) use shorter-term risk-capital to play long in the following cyclical spaces: Financials, Energy, Industrials, Materials & Healthcare.
• If the S&P 500 reverses breaks support of 2,415 and the TSX breaks 15,400-360 closing most short-term long-side trades makes sense.

View the Independent Investor Institute trading ideas and strategies videos here

  1. Into The Open – June 5th, 2017 - Link to stream 
  1. Into The Open – June 5th, 2017 – Link to download video
  1. Into The Open – June 5th, 2017

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