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.
Are we not seeing a great bounce off a double bottom in the gold sector? This is happening on all the golds including the senior and junior miners, the etf’s and the spot price. Xme,xma also look eerily similar.
Precisely my point Tom–its a base –looking like a double bottom as you say–but my rule of thumb is to never assume a formation until the neckline (neartermed resistance) is broken to the upside, in this case. I look for the breakout, wait 3 days to confirm that breakout will hold, and either buy then or on a re-test of the neckline. See my book Sideways for a full explaination of the method, but I’m sure you know what I am talking about
And yes, metals look similar. Thanks for the comment–happy trading!
You talk about and we have seen the weakening of the higher dividend stocks. You mention that you own ZUT. Is this something you continue to own or is the talk of higher rates enough to move out of this area for now and wait?
Hi Terry- yes, I still own ZUT–buying it as I originally did at near current levels is ok, as the pttern has repeated numerous times in the past ($15-ish support, bounces to $16-ish). I have held it for some time (2 years) not worrying about selling at $16 given that isnt enough for me to be bothered with for a trade –and the dividend is 5%.
I figure that it may not have much more downside vs. the high-flyers like telecoms which may have more downside to go. I also figure that eventually we will see $16 again, and collect the 5% on the way.
Thanks for your blog, since I don’t have the required monies for ValueTrend, it’s a distant 2nd. And thanks for your lesson how to draw trend lines.
Re the Telecoms, I have been watching closely for an entry as they have at least a recent history of bottoming in June for a strong rise to late July.
And, as you are doing, I am watching POT. Seems close now.
FYI, I just bought your book “Sideways” and am eagerly awaiting its delivery.
Thanks Fred–I hope you enjoy the book. you’ve been a long-time reader of the site, so I hope I do get the chance to meet you some day. Enjoy the book.