View from Toronto: Bulls Are Still in Control of the Tape

09/06/2017 3:01 am EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Defense (Bonds, Gold, Defensive Equity Sectors) is expensive on annual routines while Offense (Equities – Cyclicals) are cheaper, as presented to members of The Independent Investor Institute on Sept. 1, by Ziad Jasani. Join Ziad at MoneyShow Toronto Sept. 8-9.


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Global macro events – week of Sept. 5-8 (slides)

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Global outlook & summary – week of Sept. 5– 8 (slides)

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Global Equity Markets: Market structure suggests that Defense (Bonds, Gold, Defensive Equity Sectors) is expensive on annual routines while Offense (Equities – Cyclicals) are on the cheaper side in North America and some in the Eurozone (emerging markets are expensive).

This suggests the bulls are still in control of the tape but approaching resistance of all-time-highs on the S&P 500 (SPX), Nasdaq & the global market (ACWI).

The relative cheapness of the USD (arguably over-pricing-in the “failings” from the White House) would likely put a ceiling on Base Metals, Precious Metals and Materials-Related stocks.

After successfully playing out the August 18 bounce, we err on the side of caution into Sept. 5. This doesn’t mean the bounce is over, but the risks to get further long with short-term capital have gone up, until the S&P 500 can break-out to new highs and sustain (and the TSX can remain above 15,175).

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Global Bond Markets: Yields are likely to rise front end of the week, but soften as we approach the ECB press conference Thursday, Sept. 7. Bonds, in general, are relatively expensive and yields are relatively cheap on annual routines; this positioning suggests taking short-term bond-trades off the table, and putting stops under longer-term positions.

Global Commodity Markets: Oil is looking to re-test ~$49 on OPEC Sept. 22 and then swing-high, while Gold is setting up for a swing-high under $1,331. Commodities globally remain in a longer-term downtrend channel (DBC).

Global Currency Markets: USD remains more attractive than the euro or yen, with expectations for the USD to strengthen front end of the week but more so post the ECB press conference (where we expect a dovish Draghi). The CAD is more likely to strengthen into BOC’s Rate Statement Sept. 6. As Equity markets decide on whether to break-out, and we wait on a dovish Draghi we can expect the UUP to bounce off support at $24.

Theme for the week: Indecision-to-risk-on to start the week (the August 18 bounce remains in play), with leadership from North American markets. However, emerging markets are frothy and Eurozone equities have ostensibly topped for the year but are likely to get wings from Draghi Thursday.

Broad decisions: Hold for mid-to-longer-term equity positions but get your stop-losses in, especially on defensive interest rate sensitive sectors. Short-term, the August 18 bounce is still intact, but profit taking before the weekend is a prudent decision as we approach highs.

US equity market outlook & summary – week of Sept. 5– 8  (slides)

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Implications (US): S&P 500 remains on the August 18 bounce holding above its 50-day average. We are waiting on dovish-Draghi Thursday, sending the euro, gold and yen down and USD up, and likely creating a new high on the S&P 500; or if he’s hawkish, a swing-high presents to sell into. We are likely to see leadership from cyclical sectors vs. defensives.

Canadian market outlook & summary – week of Sept. 5-8 (slides)

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Implications (Canada): TSX is tied to Oil and couched in the August 18 bounce which is still in play. Oil has a short-shelf life up to $49,  however, a bounce in bond yields helping Financials iShares S&P/TSX Capped Financials Index ETF (XFN-T) hover under their 200-day averages and support from Energy iShares S&P/TSX Capped Energy Index ETF (XEG-T) likely keeps the TSX pointed up and above support of 15,175-110. We’ll look for a pivot on the Canadian market on Wednesday, Sept. 6 surrounding BOC’s rate statement.

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