The next market leaders

There appears to be a rotation out of  interest sensitive stocks into some of the “underappreciated” sectors. Prior leaders such as pipelines, utilities, telecoms and banks are seeing money leave, and go INTO former laggards such as base metals, some  technology stocks, gold and agricultures. One reader mentioned some of the oil drillers looking interesting too. I’ll look at 6 charts for this week’s sector look. First, the former leaders who are getting creamed (telecoms, pipelines, utilities) and then some basing sectors looking ready to emerge (base metals, potash, gold). Here’s the charts:

SIGNS OF WEAKENING

Transcanada Pipe has been a leader in the pipeline sector since the 2009 bottom – helped along by its 4% yield and low beta profile. The trendline may be starting to crack, as the chart below suggests.

BCE is in the same situation as the other telecoms. A juicy 5% dividend and stable cash flow attracted yield-hungry investors to this stock as interest rates on bonds declined. But cracks are appearing in the trendline. BTW—my methodology on where to begin a trendline is that of a “most touches” rule—the line I’ll draw is always that which has the most tests of support along the way. A break can spell trouble.

The BMO Utilities ETF shows us old resistance really does become new support. This sector has weakened with the rest of the interest sensitive stocks. I own this ETF in my managed equity accounts, and have both recommended and bought the ETF at around $15 before—see past blogs and BNN top picks. It may not bounce quickly back to the $16 area given the rotation out of interest sensitive stocks, but it will likely show support at current levels. Not much of a growth potential, but some good yield with limited downside. Seasonal patterns are favorable for ZUT over the summer.

SIGNS OF BASING

The iShares global gold ETF shows a base in the works. All this sector needs is a breakout to make the gold bugs happy. Seasonals are better for gold in the fall, so it may tread water for a while before that happens, but I like what I see so far.

Same goes with the metals and materials, as illustrated by the iShares capped materials ETF. What’s needed is a breakout, but so far, so good.

Canadian fertilizer icon Potash gives us a picture of the sector. Long, volatile base, and a slightly sloping downtrend on the peaks. I wouldn’t touch this until it breaks out given that negative slope—but a breakout would be very bullish. Brooke Thackray (contributing analyst to Horizons Seasonal ETF and seasonal expert extraordinaire) notes that the seasonals are lining up for the sector and this stock. His youtube video on the POT trade is on the Horizons website (http://horizonsetfs.us5.list-manage.com/track/click?u=e8fedf05bd072c649b0a193d6&id=bb50703e19&e=f16ab4ac92 ).

Results are in

I’ve posted May’s ValueTrend performance numbers at www.valuetrend.ca

We slightly underperformed the index last month given our high cash component—but we’re feeling pretty good about that decision right now given the recent selloff. We’re expecting to deploy the cash shortly –giving us an opportunity to buy cheap stocks as the markets rotate into new leaders.

As noted in the past, we are amongst the only Advisors and Portfolio Managers who we are aware of who disclose performance on the internet.  We think this distinguishes us as managers with nothing to hide.