View from Toronto: Weekly Market Strategy Session (Video) - Sept. 5

09/05/2017 3:00 am EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

This week is likely dominated by four key variables: North Korea, U.S. debt ceiling debate (ongoing until Sept. 29), BOC’s rate decision (Sept. 6), and the ECB press conference (Sept. 7), writes Ziad Jasani in today’s video commentary. Join Ziad at MoneyShow Toronto Sept. 8-9.


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The recent North Korean provocations sent global equity futures lower over the long-weekend, with Japan’s Nikkei down -1.6% from Sept. 1 (19,692) to Monday’s close at 19,365, the KOSPI (South Korea) down -2.1%, and the S&P 500 Futures Index down -0.33% from 2,470.7 (Sept. 1 close) to overnight lows of 2,462.4. 

The yen softened in tandem with the Nikkei, grinding down ~ -0.9%.

Gold found itself making calendar year highs of $1,345.5 overnight, a move up +1.1% from Sept. 1 close. Typically, the yen is ~ 90% positively correlated with Gold. However, Pyongyang’s (North Korea) aggressions have started to drive a wedge through the short-term relationship depicting the risks the Japanese face which have resulted in an unprecedented emergency evacuation plan of 60,000 Japanese from South Korea (current 30-day yen-gold correlation = 60%).

Why is this important? The scars of geopolitical strife serve to strengthen odds that the USD is prized as a flight to safety currency vs. the yen, should the North Korea situation heat up, and hand-in-hand with that if the equity bulls are back at the table, North American equities are more likely to outperform the rest of the world, either moving up at a faster rate or down at a slower rate vs. the rest of the world.

We can’t get too excited as we know the August 18 bounce was a perilous one to play. Why? The water-line for value was lower in North America but expensive almost elsewhere, making a new sustainable global equity market high less probabilistic.

We also noted that the delta (change) from swing-low to swing-high (S&P 500) since mid-April 2017 has been compressing (bullish exhaustion).

We played the August 18 bounce well, and it has left the S&P 500 hovering ~20 points under all-time-highs of 2,491.

Our strategy over the long weekend was to sell into strength for our short-term August 18 swing-low trades, while maintaining the Hold decision on mid-to-longer-term positions, with consideration to sell-into-strength in spaces like:

Technology
Technology Select Sector SPDR ETF (XLK)

iShares US Technology ETF (IYW)
PowerShares QQQ Trust Series 1 ETF (QQQ)

Financials
Financial Select Sector SPDR Fund (XLF)
SPDR S&P Bank ETF (KBE)

Utilities
Utilities Select SPDR Fund (XLU)

Materials
Materials Select Sector SPDR Fund (XLB)
Market Vectors Gold Miners ETF (GDX)
SPDR S&P Metals & Mining (XME)

REITs
Real Estate Select Sector SPDR Fund (XLRE)
Vanguard REIT Index ETF (VNQ)
And this morning’s start to the trade (Sept. 5) has clearly vindicated our decisions.

This week is likely dominated by four key variables: North Korea, U.S. debt ceiling debate (ongoing until Sept. 29), BOC’s rate decision (Sept. 6), and the ECB press conference (Sept. 7).

We see no good reason to buy into these highs until Super-Mario-Draghi backs away from “tapering” talks so as not to drive the euro up further adding potential headwinds to export growth, whilst giving Mr. Market more wind beneath its tired wings (bullish exhaustion).

video

For a detailed video review of equities, bonds, commodities and currencies kindly review our Market Strategy Session held on Sept. 5 from 11 am – 12:45 pm (EDT).

View the Independent Investor Institute trading ideas and strategies video here

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