Toronto (TSX) Trade Outlook: Sideways to Down

Focus: Strategies

Ziad Jasani Image Ziad Jasani Managing Director and Partner, Independent Investor Institute

The most vulnerable spaces in our TSX market are Gold Producers, Technology, Utilities, REITs, Telecom, Staples, Industrials, asserts Ziad Jasani, Co-founder of The Independent Investor Institute, Toronto, in his weekly Trader video.

Our mid-to-longer-term trading strategy and sector position from a few weeks to three months:

The Toronto Stock Exchange (TSX) is dislocated and expensive on long-term routines with the S&P 500, but has neutralized vs. the world iShares MSCI ACWI Index ETF (ACWI).

This implies under-performance is more likely over the next month vs. the S&P 500 (sideways to down-trending action).

The most vulnerable spaces in our market are Gold Producers, Technology, Utilities, REITs, Telecom, Staples, Industrials:-

iShares S&P/TSX Global Gold Index ETF (XGD),
iShares S&P/TSX Capped Information Technology Index ETF (XIT),
BMO Equal Weight Utilities Index ETF (ZUT),
iShares S&P/TSX Capped REIT Index ETF (XRE),
iShares S&P /TSX Capped Consumer Staples Index ETF (XST),
BMO S&P/TSX Equal Weight Industrials Index ETF (ZIN).

These and Telecom are now all dislocated and expensive on annual routines and underperformance is expected.

Our Energy sector is relatively cheaper on annual routines and suitable for short-term bounce plays but not longer-term investing. Energy iShares S&P/TSX Capped Energy Index (XEG) peaked in December 2016 and Oil is likely stuck in a long-term sideways range.

Financials iShares S&P/TSX Capped Financials Index ETF (XFN) are on the cheaper side of annual routines after under-performing since late February 2017. (Trumphoria dissipating,  making bounces on positive headlines viable. However, a break and close below support at $34.80 would be another sell-signal.

We see Bond yields falling (bond face values rising) as investors continue to shift allocation to defensive plays and corroborated by growth risks loud and clear (US Jobs June 2 sorely missed forecast). All of which imply a lower chance of inflationary pressures to persist and a potential reduction in number rate hikes from the US Fed.

However, in the short-to-midterm (days-to-weeks) we’re expecting swing highs in bonds and bond proxies iShares S&P US Pref Stock Index Fund ETF (PFF) Utilities Select Sector SPDR Fund (XLU).

Why? Short-term, 20 years+ US Treasury Bonds have gotten relatively expensive (yields cheap) - yields are stretched 2 Std Dev cheap on annual routines = a bounce on yields, swing-highs in bonds.

Value exists in Vanguard Total International Bond ETF (BNDX), however expensive conditions present for Canadian Bonds iShares Canadian Universe Bond Index ETF (XBB).

View the latest videos from Ziad Jasani of the Independent Investor Institute here