3 sectors ready to rally

June 27, 20128 Comments

I’ve mentioned in past blogs that the potential for a sharp rally beginning sometime between mid July and August is high. Briefly, my reasoning behind expecting a buying opportunity in that time period are:

  1. Patterns surrounding Federal Reserve monetary stimulus cycles
  2. Presidential election cycle—2nd half of year tends to be positive
  3. Seasonal cycles appear to be “pushed to the left” (shortened) surrounding QE cycles as noted in point 1
  4. News out of Europe will eventually absorbed and accepted
  5. Market fundamentals (sorry for using the “f” word) are actually looking reasonable, albeit not screamingly cheap (trailing PE is around 15 on the S&P, which is its average since 1917)

With the above in mind, here are my favorite sectors, which I will discuss this Friday at 6pm on BNN’s MarketCall with Mark Bunting.

 

Fertilizer/ Potash Agriculture Sector

Seasonally speaking, this sector tends to move well between early August and the end of the year, according to Brooke Thackray’s guide. In fact, our friend Don Vialoux (www.dvtechtalk.com) made the SOIL ETF a top pick on BNN recently. I hate to look like an imitator, but I am intending to buy the same sector around the same time this year, so I’m making SOIL a top pick for my BNN show this Friday as well. The chart shows nice support at around $11.60, with a sell target at resistance of around $14.

Canadian Banks

Here’s one that the seasonal guys might argue with me on, (Canadian banks tend to move best after October)  but the chart looks ripe for a bounce for the Canadian banks. The sector looks to building a base, but wait for a breakout before buying. It may fail, and you don’t want to be in if that’s the case. Given the tendency for seasonal cycles to move forward a bit lately, I think this sector is a decent bet for at least few months, provided we get a breakout through $16.80 or so. The 3.7% yield doesn’t hurt either. Below is the chart for BMO equal weight banks ZEB ETF. It could reach $18 or higher sooner rather than later in a market rally.

Gold

 

I’ve been out of gold for a year now. Bullion has been forming a large right-angled triangle. This formation can be quite bullish, especially if the triangle breaks to the upside. Given bullions typical seasonal strength from July to October—I’m looking for a nice move in the coming weeks. I prefer playing bullion over gold stocks – it’s more of a pure play on a technical pattern.

8 Comments

    • Excellent question Gary!
      The definative guide on chart patterns, in my opinion, is not Investopedia, but “The encyclopedia of Chart Patterns” by Thomas Bulkowski. He notes that the pattern breaks out to the upside 45% of the time, and downside 55% of the time. This is relatively break-even, statistically speaking, with slight bias to downside breakouts. However, if it breaks to the upside, it is extremely bullish. This is why I emphasized that the formation can be quite bullish when broken to the upside. I always wait for a pattern to prove itself via a breakout, so I hope I made that clear–gold will be bullish upon an upside breakout from the triangle. Certainly the seasonal patterns are lining up to give it a good shot at an upside breakout.

      Reply
  • Hi Keith,
    Nice show on BNN
    Point 3 above “seasonal cycles appear to be pushed to left ( shortened)” – does it mean seasonality comes earlier & is shorter in duration??
    Thanks in advance

    Reply
    • Thanks Muntazir
      And yes, the seasonal cycles do appear to be shorter in duration, along with coming on somewhat earlier and finishing earlier as well. My friend Brooke Thacray, who writes the defining book on seasonal investing here in Canada mentioned to me recently that he’s noticed this phenomenon, and has adjusted his trades accordingly. It may not be a long term phenomenon, by the way, but be wary of this tendancy for the time being.

      Reply

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