Keith Richards, President and Chief portfolio manager, ValueTrend Wealth Management
FOCUS: Technical Analysis
Top Picks: Northwest Healthcare Properties, PayPal Holdings, Arc Resources
MARKET OUTLOOK:
Halloween is upon us, and the markets do indeed offer some signs to be scared. I’ve covered a number of these factors in my blogs lately.
October is, despite its reputation (on average), a bullish month with a 60 per cent gain frequency and average return of about one per cent. However, this can change in election years, where October can see (on average) about a one per cent loss. Scary stuff.
The VIX, sometimes called the “fear index,” simply tracks option premiums. Writers of options demand higher premiums when they believe volatility will increase. Normally, a rising VIX – as we have seen this year as it rose from about 12 in January to about 20 lately – coincides with a falling market. That’s not been the case in 2024, as we’ve watched major market indices climb. The scary part: this type of situation rarely lasts. Either the VIX will need to fall, or the market will need to fall.
High yield bond spreads against treasury bonds are shrinking. This flies in the face of the higher VIX reading. Effectively, we are witnessing a “risk-on” attitude by junk bond traders, and a “risk protection” attitude by option writers (VIX). This is unusual, welcome to the twilight zone!
Investor sentiment indicators like the AAII Survey are showing confidence by retail investors. This is bearish, as retail investors tend to be wrong at extremes. Similarly, the sentimentrader.com “Smart Money vs Dumb Money” indicator illustrates that, while retail investors are piling into the market, large “smart money” investors (institutional traders and commercial hedgers) are reducing exposure. If this divergence does not reverse, things could get scary for the markets.
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TOP PICKS:
Northwest Healthcare Properties (NWH-U TSX)
PayPal Holdings (PYPL NASD)
Arc Resources (ARX TSX)
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| (NWH-U TSX) | Y | Y | Y |
| (PYPL NASD) | Y | Y | Y |
| (BDT TSX) | Y | Y | Y |
PAST PICKS: July 31, 2024
iShares 20+ Year Treasury Bond ETF (TLT NASD)
- Then: $94.81
- Now: $92.00
- Return: -3%
- Total Return: -2%
Ishares Msci Brazil ETF (EWZ NYSEARCA)
- Then: $27.77
- Now: $28.48
- Return: 2%
- Total Return: 2%
Atkinsrealis Group (ATRL TSX)
- Then: $59.48
- Now: $67.51
- Return: 13%
- Total Return: 13%
Total Return Average: 4%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| (TLT NASD) | Y | Y | Y |
| (EWZ NYSEARCA) | Y | Y | Y |
| (ATRL TSX) | Y | Y | Y |