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View from Toronto: Global Scenarios, Strategies & Tactics This Week

08/07/2018 2:31 pm EST

Focus: MARKETS

Ziad Jasani

Managing Director and Partner, Independent Investor Institute

Most cyclical sectors present on the cheaper-side of relative routines with the S&P 500, while Defensive Sectors present as expensive. This typically sets the stage for the S&P 500 to rise, writes Ziad Jasani Monday from Toronto.

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Bottom line

While the S&P 500 (SPX) remains above 2,835, the Nasdaq (NDX) above 7,800, the Dow (DIA) above 25,373 and the Russell 2000 (RUT) above 1,672, equity prices have a better probability of rising to start this week.

We see the rise as short-lived and suggested the Hold decision to end last week’s market in the following areas: SPY, QQQ, DIA, XLV, XPH, XHE, XBI, XLB, XLF, XLY, XLI, XLK, IYW, FNG; and a very careful watch on XLU, XLP, VNQ, XLRE, IYZ.

Canadian Equities

• The TSX (XIC-T, XIU-T) has presented a strong bullish-reversal up off its 50-day average as of August 2 and followed through higher to close last week.

Materials (XMA-T), Precious Metal Producers (XGD-T), Industrials (ZIN-T), and some of the Defensive Sectors (ZUT-T, ZWU-T, XRE-T, ZRE-T, XST-T) are pulling the market up, while Financials (XFN-T, ZEB-T, ZWB-T) don’t harm or help (toggling flat) and Energy (XEG-T, ZEO-T) poses a drag.

As Base Metals (DBB) & Precious Metals (GLD, SLV, CGL-T) bounce accompanied by a strong move on Natural Gas NU-T, UNG), we have Oil (USO, HOU-T) posing a drag to close last week. Oil’s Chart suggests we can see a bounce this week, and Financials remain relatively cheaper, supporting the thesis that the TSX can rise to start this week.

The bigger risk for the TSX comes from US-China-Trade-War headlines that could easily bleed this commodity-laden index; a breach of the 50-day average would be clear warning signal.

NOTE: We still have another week and a half to go before Bank earnings enter the picture.

chart

Bottom line

While the TSX remains above its 50-day average 16,314 we maintain our Hold to Buy stance with the Hold recommendation provided to close last week in the following spaces: XFN-T, ZEB-T, ZWB-T, XEG-T, ZEO-T, ZIN-T, XMA-T; and if you have engaged long on Precious Metals (CGL-T) or Producers (XGD-T) we can accept a Hold over the weekend while spot Gold remains above $1,220 and Silver above $15.45; but would need Gold to rally above $1,231 to signal Buy.

The Cannabis space (HMMJ-T) is getting ripe for acquisition (swing trading-basis only), we are patiently waiting for HMMJ-T to test $15.02 or surmount $15.95 before picking it up.

The Technology space (XIT-T) is also setting up for a bounce, and would be comfortable picking up a Swing-Trade above $19.15. Overall, the TSX has a better chance to test resistance of 16,490 prior to a break-down below its 50-Day Avg.

Bonds – Yields

• A bounce is fixed income played out to end last week, we see it as short-lived. Bonds generally present as expensive on swing traders routines, while yields present as cheap.
We can expect more flattening of the U.S. Treasury yield curve to start this week, but see a better chance for a steepening of the curve as the week progresses.
If you have taken on short-term U.S. Bond trades (TLT, IEF, IEI, AGG) or are holding the Canadian Bond universe (XBB-T) we maintained a Hold-to-Buy stance over the weekend, but are not expecting much more upside beyond the first day or two this week.

Currencies

• Short-Term charts of the EUR/USD (Euro), GBP/USD (Pound), USD/JPY (Yen), and USD/CHF (Swissy) suggest the USD is more likely to soften up while the aforementioned currencies play-out a bounce headed into next week. We maintain a Hold-to-Buy stance on FXE, FXY, FXF, FXB.

Commodity-laden currencies AUD/USD (Aussie), USD/CAD (Canadian$) are purely tied to machinations in the trade war narrative; we suggest no further accumulation and tightening up stops if allocated to FXA or FXC.

Weaker U.S. payrolls data of August 3 are also likely to serve as ceiling for the USD in the front half of this week.

Join Ziad at MoneyShow Toronto Sept. 15 when he discusses Portfolio Management Strategies for Active Investors. Information: ZiadJasani.TorontoMoneyShow.com

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