View from Toronto: Bulls in Control, Canadian Markets Ready for a Poke

09/20/2017 3:56 am EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

If the S&P 500 reverses and breaks support at 2,491 and the TSX presents a swing-high under 15,175 closing most short-term long-side trades makes sense by Ziad Jasani of the Independent Investor Institute.


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Will “crisis levels” of Central Banker stimulus remain on tap propelling global equity markets to new heights this week? Or will the usually-Dovish Yellen “beat” the market down with her “normalization” stick (hawkish) on Wednesday utilizing recent hotter inflation data?

Will Super-Mario-Draghi keep printing money or be forced to turn hawkish like his “co-worker” Carney at the Bank of England, as inflation targets are in sight?

Will OPEC gain agreement to deepen and extend production cuts when they meet on Friday, September 22 and get Oil above $50? Or will cartel mentality set-in pushing Oil and Energy plays back down to home base?

Has the global equity market forgotten how to price in geopolitical risks (North Korea)? Will Q3 Earnings win, show or even place?


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Will China’s economy continue to fracture? These are the questions swirling around our Independent Investor Institute community into the week ahead. As such we enter this week net flat on short-term trades, looking for the next opportunity, while continuing to consider selling portions of our longer-term holdings into “strength.”

We see global equity markets as over-valued fundamentally and behaviorally, with a relative advantage for U.S. Equities, assuming Trump is able to make one of his promises a reality by year’s end (tax reform), and requiring Yellen to take a slower approach to unwinding the Fed’s balance sheet.

To be sure, the Bulls are still in control of the tape, but vulnerable. The Canadian market is readying for a poke above its primary downtrend formation and this week’s events are key to determine tradability on the long side of iShares S&P/TSX Capped Energy Index ETF (XEG) and iShares S&P/TSX Capped Financials Index ETF (XFN).

Our expectations for the week
• Equities remain close to or slightly above all-time-highs into mid-week globally.
• The USD remains soft until Yellen on Sept 20th, where we expect hawkishness.
• Industrial-Input-Commodities are likely to capitalize on a softer USD and risk-on equity couching front half of the week, then we expect disappointment from OPEC driving Oil back below $50, and a stronger USD pressuring Metals.
• Bonds and Gold are likely to hold support structures into mid-week but are not relatively cheap enough to invest
• The TSX pokes above its primary down-trend at 15,175 with 15,300 and even the 200-Day Average (15,378) insights but highly unlikely to see a break above
• Healthcare is likely market neutral but Materials, Energy, Industrials and some Defensive Sectors act as a positive offset.

Strategy short-term this week
• Use price strength to trim mid-to-longer-term positions.
• Limit, reduce and/or trail with stops defensive equity positions (Utilities, REITs in particular)
• Short-term risk-capital only to play break-out above 2,500 on S&P 500 and above 15,175 on the TSX in the following cyclical spaces: Financials, Energy, Industrials, Discretionaries, Telecom and Staples.
• NOTE: If the S&P 500 reverses and breaks support at 2,491 and the TSX presents a swing-high under 15,175 closing most short-term long-side trades makes sense.

Here’s the Market Strategy Session Video that explains how to use the report and provides updates on the market:

video

View the Independent Investor Institute trading ideas and strategies video here

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