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View from Toronto: Video with Strategies for US, Canada This Week

12/11/2017 3:30 pm EST


Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Will Mr. Market present a new all-time high? Should we join the party? We maintain the TSX as the most vulnerable index in North America; keep stops tight and trail! Expectations for global markets from Ziad Jasani of the Independent Investor Institute.


Video of my Strategy Session for the week recorded Monday at 1 pm EDT:

US equity markets
Will Mr. Market’s S&P 500 Index (SPX)  “dead-cat-bounce” starting on Dec. 6 take us out new sustainable all-time-highs?

We don’t think they will sustain for more than a week. Should we be joining the party? We have with short-term capital, in spaces that are likely supported by key events unfolding this week:

--U.S. inflation data (CPI) and Yellen’s final policy statement (Wednesday)
--and Mario Draghi’s ECB policy statement (Thursday).

We got long Technology (QQQ, XLK, IYW, XIT-T), the world ex-the-US (ACWX), the Eurozone Far East and Australasia (EFA, XEF-T, ZWE-T) and Emerging Markets (EEM, EWZ, EPI) on Dec. 6, 7 backed by a global equity-market bounce and aligned to a USD that is likely weakened by the aforementioned events.

There is roughly an 80% probability of weaker USD this week using statistical channel analysis. But these swing-trades have been taken on with full knowledge that equity markets globally are stretched to extremes on their respective up-trend channels (2 Std Dev away).

If CPI and Yellen pressure the USD, bond yields are likely to follow. As such, and with a remark to the significant relative value of precious metals (Gold, Silver), we have already nibbled on GLD, SLV, CGL-T and are looking to add to this defensive-swing-trade Tuesday-Wednesday.

Base/industrial metals are also in swing-low-formation, DBB was acquired Dec. 8 on a similar basis.

Bonds, however, present a perplexing setup this week; 10-year U.S Treasury yields and shorter-durations are moving into resistance and present as dislocated and expensive.

And 20-year+ yields have some room to rise.

We await Yellen’s statements on Wednesday before making significant buy/sell decisions on TLT, XBB-T, LQD, AGG.

Ahead of Wednesday, the S&P 500 has a better chance of retesting if not bettering its all-time-highs of 2,665 (made on Dec. 4). However, Super-Mario-Draghi has an uphill battle to present dovish remarks on Thursday, which we see as the pivot down for the week.

Canadian equity markets
The Toronto Stock Exchange (TSX) bounced with Mr. Market (S&P 500) on Dec. 6, and is pointed up to, and potentially above its all-time-highs of 16,131. From a routine standpoint, the TSX is dislocated and expensive on annual routines and relative routines implying any further rise is likely to underperform global markets and is likely short-lived.

Short-term technical tools like the MACD, RSI and the 21-day moving average of standard deviation point the TSX up.

What’s ahead for the week and how should we position our short-term swing-trading capital within the TSX?

The two key variables for TSX performance in the week ahead are the USD and Oil; both present as dislocated and expensive on annual routines.

The USD is in play on Wednesday, Dec. 13 as Yellen delivers her lame-duck policy statement. After we get a temperature check on U.S. consumer inflation, we would expect less hawkishness and for Mr. Market to interpret her words as more dovish. Why? A 90% probability for a 0.25% rate hike has been priced into the market for the last three months, and we have a new dove leading the Fed next year, and inflation hasn’t been moving up at expected rates.

We see the USD weakening Tuesday/Wednesday this week, adding support to Gold/Silver/Miners, and counterintuitively also adding support to Oil. Currently, Oil is -62% correlated with the USD on a 30- day basis.

So what to do? Hold Financials (XFN, ZEB) but trail positions with stops ($38.50 on XFN, $29.50 on ZEB). High-Risk, but long on Energy is an opportunity for those inclined, if XEG can sustain above $12.03 (50-day average) and Oil above $57.50; short-term capital only – if Oil remains under $57 Wednesday into the close we’re likely shorting it (HOD-T).

Materials and Gold Producers are likely to be bigger winners this week if the USD cooperates; many of our members have already gotten long XMA and XGD. The next suggested add/initiate points would be XMA $12.73 XGD $11.75 for a short-term swing (days-to-a-week).

Materials stocks not dominated by precious metals production are also set for a bounce, but much higher in risk to accumulate, even on a swing basis.

Technology (XIT) was initiated long on Friday, Dec. 8 at $15.73 and remains tilted up; next add-point $16.

Defensives: Utilities (ZUT), REITs (XRE), Telecom (BCE), and Staples (XST) remain a hold decision and if  Yellen pressures the USD, yields likely follow, implying buying opportunities between Tuesday/Wednesday.

We maintain the TSX as the most vulnerable index in North America; keep stops tight and trail! If the TSX bearishly reverses under 16,131 we are then pointed down to support at 15,775-15,718 (roughly -2.5% lower than the Dec. 8 close.)

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