View from Toronto: S&P Climbs Wall of Worry, USD Depressed

10/03/2017 2:17 pm EST

Focus: STRATEGIES

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Trade ideas:Trim positions as SPX rises to 2,530-60 projection levels. Short-term risk-capital only higher above 2,510 on S&P 500 and above 15,675 on TSX in Discretionaries, Telecom, Staples, Utilities, REITs,  writes Ziad Jasani of the Independent Investor Institute.


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“If you build it, they will come!”

Are we in a field of dreams, where buyers see the value to keep pushing prices up, or are we dreaming that Trump’s tax reform plan will actually make it through Congress?

Either way, the Bulls remain in control of the tape and the S&P 500 projects up towards 2,530 and potentially 2,560. While we remain in an up-trend channel, we won’t fight the tape but will protect our longer-term holdings in spaces that are dislocated and expensive, while using short-term capital to trade spaces congruent with macro-variables.


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Namely, expectations of a poor US payrolls should depress bond yields and the USD, making it viable to trade: XLU, XLP, XLRE, VNQ, IYZ, XST-T, XRE-T, BCE-T, ZUT-T, TLT, LQD, XBB-T, AGG, and potentially Gold (GLD, GDX, XGD-T).

Short-term technical indicators suggest a drawdown (-2% to -3%) as the more likely outcome over the next 2 weeks vs. new sustainable highs at a global level.

Emerging Markets, Small Caps (Russell 2000), the TSX and Eurozone unwind at a faster pace than the S&P 500 and Nasdaq.

The Canadian Market (TSX) finds itself highly over-bought and presenting as if a “new-normal” is beginning.

Without Oil tearing higher into the mid-$50s it’s hard to substantiate current prices, especially as Energy Equities (XEG-T) have gotten dislocated and expensive on all short-term routines and broken short-term up-trends.

Financials (XFN-T) are inches away from resistive structures that are more likely to hold as bond yields are moving into their respective resistive structures. The recent “uberpositivity” in Canada has been incongruent with the U.S. and Global Markets, leaving our market dislocated and expensive vs. the world.

We see no good reason to invest at this point, but are willing to trade the upside momentum as signals present.

Our expectations for the week:

• S&P 500 remains close to or slightly above all-time-highs the front end of the week, but climbs a “wall-of-worry” to projected levels of 2,530 or 2,560.

• The USD remains range-bound the front end of the week and is depressed by U.S. jobs data on Wednesday and Friday.

• The USD/CAD is likely to hold under resistance of 1.25 with a better chance of weakening to the 1.24 mark into the back-end of the week driven U.S. jobs disappointing.

• Bonds & Gold are likely to provide a mini-bounce mid-week, trade-able but not investable.

• The TSX starts the week above ~15,675, and attempts to move towards 15,775 but fails to break above, as Oil presents a drag; a retest of support at 15,400-360 is realistic – Energy & Financials are likely responsible for the ↓move.

• S&P 500 starts the week > 2,520, attempts to move to a projected line of 2,530 and tries to poke above but doesn’t make it to 2,560.

Short-term strategy this week:

• Use price strength to trim mid-to-longer-term positions as the S&P 500 rises to 2,530-60 projection levels.

• Short-term risk-capital only to play a grind higher above 2,510 on S&P 500 and above 15,675 on the TSX in the following spaces: Discretionaries, Telecom, Staples, Utilities, REITs.

• Note: If the S&P 500 reverses and breaks support at 2,510 and the TSX presents a swing-high under 15,675, closing most short-term long-side trades makes sense.

• Weekly Report October 1: CLICK HERE

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View the Independent Investor Institute trading ideas and strategies video here

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