Lots of trading ideas

November 3, 20238 Comments

Today, we are going to take a high-level view of sectors to watch for upside moves. As far as looking for protection from downside moves, you might want to watch my newest video on identifying the real “crash n’ burn” candidates before they erupt. It shows you how to identify an overvalued, overbought stock or sector. I feel that this is one of the more important videos I’ve published lately. It will give you tools to identify & avoid losses in high probability danger stocks.

Here’s the link: How to Spot an Overbought Stock – ValueTrend

Before we get started: Newsletter subscribers received the new VT Update in their inbox yesterday. We followed that up with a  BNN date notice that was incorrect, so another BNN update notice was sent with the correct date. Sorry for the plethora of emails.

Sectors to watch for upside and downside potential

Here’s a list of profit warnings coming out of reporting companies as of last week, courtesy Beartraps. Note on the right side of the chart the lowest sector for warnings was the Staples sector. I blogged on the potential of that sector, along with Financials, Utilities and Real Estate as being more defensive during recessions. In fact, I noted on a sectors video that ValueTrend was investing in the Staples sector.

On the left side of the list is the consumer discretionary sector. Unless you are a brand new reader of this blog, you are quite aware of my warnings about that sector! The worst two from a profit warning perspective were Consumer discretionary, and Healthcare. The best two were Financials, Consumer Staples) from the profit-warning list below.

Potential upside ideas for the winter

Certain sectors can do well in recessions. I just recorded a video on Utilities, which is one of these sectors – that will be out next week. Here’s a bit of research to back the probability of recession before I get to the stock sectors:

Consumer Staples

Staples are usually NOT attractive for the Nov-May seasonality period. But….that’s a tendency, not a rule. Staples ARE attractive when we enter recession/slowdown. They are in a perfect position for a pop right now. MFI and ROC are oversold, and looking like they may hook up given the move on price off of the very, very, very easily defined support range this week. Force index, which is a compilation of volume and price momentum, is looking good as I write. $75 is a target. Disclosure: ValueTrend holds this position.

Financials

Financials also tend to do well in a recession/slowdown. They also enter their seasonal period now (to next spring). And the chart shows us a nice triangle in the works. A breakout would be powerful – but a minimum target is $35 (resistance and top of trendline). MFI, ROC, Force all lining up.

Natural Gas

Natural gas, like oil, tend to better after February. But Larry McDonald has some thoughts on factors that might push it up in the nearterm:

“Cold weather approaching, gaining LNG demand, bullish storage report, and healthy Q3 US economy growth all contribute to a continued Natural Gas rally.” Beartraps

Also note that the sector will – in a small way – benefit from Trudeau being forced to drop carbon taxes in Canada. The BOC noted this tax was pushing inflation higher. Thankfully, we have a Conservative party bill coming out this Monday to reprieve the tax for 3 years across the nation that is backed by the NDP. This tax reprieve will apply to everyone & all heating fuel including Nat Gas, not just in Liberal voting provinces with heating oil. We’re a cold climate, and big user/seller of Nat Gas. One would hope this might encourage usage, adding to the potential cold weather reports.

Note that price is hitting first resistance at $3.50. If that cracks, look for $5.50. The indicators look positive, albeit MFI might be getting overbought. I’d consider the trade on a breakout through $3.50.

Gold in a recession

This seasonal chart from EquityClock suggests that gold has extra upside in a slowing economy from now to February. Note, as one reader pointed out a while ago, that many of the producers hedge forward for pricing.  As such, producers may not get the same kick as bullion itself in an up move.

Here’s the gold bullion chart. We hold some gold positions in our platforms, but truthfully, we wont be adding to them unless we see a firm break of $2050. Thats a powerful overhead resistance point. If it breaks, we’d add to our allocation.

Long bonds

“Inflation has been defeated and interest rates are going back to zero forever” Whether fantasy or reality – this seems to be the current market attitude after various announcements from policymakers throughout the world hinting at recession/ less hawkish monetary policy.

I don’t beleive that CPI will fall to the 2% range, and you’ve heard me say this many times. However, a decline to firmly  3% would be realistic, and that could lead into a rally on the long bond from an oversold position.

Seasonals are not favorable for bonds in the winter. But the aggressive investor, the indicators in the bottom panes below suggest the long bond is hyper oversold. The chart shows us that $90, then $105 are potential targets. Disclosure: We recently took a very small piece of the 20-year US treasury (TLT-US) as a capitulation trade in our Aggressive Strategy. We’d add to it if $90 cracks, with a target of $105.

For aggressive speculators only

Beartraps provided a list of the MOST SHORTED stocks on the SPX. If the market begins to rally in earnest (note: We continue to wait until next week before ValueTrend deploys cash in ANY stocks) – these stocks may rally based on short covering. Keep an eye on them for a S/T pop – risk orientated traders only.

Highest short interest as % of free float in S&P- BearTraps

PARA 16%
RL     13%
NCLH  13%
CCL    12%
POOL  11%

ValueTrend numbers

Here are the VT platform results to end of October. Note the low volatility vs markets – see website disclaimer ValueTrend Equity Platform Investment Performance History

8 Comments

  • Hi,
    There is a discrepancy between the $NATGAS vs UNG charts.
    $NATGAS has broken support and made new high whereas UNG is still stuck in a range.
    I rarely see that in other commodity tracking ETFs like SLV, GLD, USO, but often with UNG.
    How do you trade that? Based on the futures price or the ETF price?

    Thanks,

    Reply
    • Fancisco you are correct about the discrepancy between ETF’s that follow the commodity such as UNG and HUG-T. Many other commodities ETF’s – eg gold (GLD-US) and oil (USO-US) track the underlying. I honestly don’t know why the discrepancy exists in gas. Interestingly, the producer’s in oil and gold don’t always track the commodity depending on how much hedging the producer does –but in the Natural Gas producers, several do – SWN-U and ALA-T do tend to track gas – closer than the ETF’s.
      Question–any readers are welcome to comment and fill us in if you know the answer.

      Reply
      • I contacted Horizons and they sent me a rather long response- re why HUG acts differently to the underlying-but I clipped a key paragraph from the response which may help us understand why certain gas ETF’s don’t look like the spot price. I think it comes down to the fact that they use the winter contract. Anyhow–Here goes:
        “HUG should be somewhat close to the spot movements in terms of direction given that it’s front month futures. However an ETF like HUN or HUC which uses the winter futures is not going to be as volatile as the spot and will likely differ more in direction and size of movement.”

        Reply
        • Thanks for looking this up.

          Now when you trade a pattern on a security like that, you use the spot price chart or the ETF chart?

          Reply
          • I typically use the spot price to analyze things (on stockcharts the symbols start with a “$”)- but like we discussed re gas: you cant always find an efficient way to actually trade some things. So you look for the best compromise. In gas’s case–it seems the producer stocks are a close proxy for the product, because the ETF’s are not moving at all like the product at this moment. But with gold and oil, metals, even things like lumber and rare earth stuff, there are plenty of ETF’s to trade that are reasonably close/ mimic the underlying.

  • The key to economic activity, namely in housing construction, are low borrowing rates. Construction has whittled to almost nil, because of this, when over 500,000 new immigrants arrive every year, obviously needing spaces to live. The Roxham Rd ingress of many 10,000 also added to the pressure, often being placed in old YMCA, YWCA and old hospitals, churches but also good hotels (e.g. Niagara region, in down tourist season ) sustained by government paid funds, meaning, borrowing g and taxation. The impact of zero constructors activity results in a drop in supplies sold by Lowes, Home Depot, materials suppliers, but also a drop in demand and spending for supplies associated with electricians, plumbers, roofers, landscapers, carpenters. etc etc. The lower economic activity brings down the stock price of companies on TSX, NYSE that are suppliers in housing construction. Until rates drop, those stocks will mark time, going nowhere or go down. The economic cycle is certainly on a downward slope, in Canada.

    Reply
  • I notice you use the chart xlf for financials. Is this a preference for American financials over Canadian or just a more diversified look then say a ZEB

    Reply

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