My market outlook for the coming months is relatively neutral. At ValueTrend, we tend to follow some reliable factors when assessing potential market strength. None of our quantitative factors suggest a massively overbought or overvalued market. Still, we don’t see an undervalued market either. Here are the three themes we feel are going to be prevalent in the coming months:
- Rotation: Given our outlook for a return to normalized levels of volatility, our first market theme is that we are in a “stock pickers” market. This market is beginning to rotate from one sector to another fairly regularly. A stock pickers market is one where an investor has to rely on more than just a rising market to make money. And that’s a good thing –given our propensity to trade using technical and fundamental analysis. Our best years have always been during periods of higher volatility (2008/9, 2011, 2014). The current potential candidates for rotation were discussed on this blog.
- USD strength: Our second theme is the rising US dollar, and continued strength in US stock markets. After reducing our USD exposure in 2017, we began to move back into the USD earlier this year. We have felt, and continue to feel that 2018 will be a year of outperformance by the USD for many reasons, including monetary policy, technical trend analysis, and a relatively weaker Canadian economy. While there is usually a bit of seasonal strength for the loonie over the next two months, we would anticipate that strength to be short lived into the winter. Here is a blog on that subject, and our reasoning behind it.
- There’s always another bus: The final theme we are focused on is the concept of taking intelligent losses. Many investors have a “loss aversion” bias, meaning that they will hold a losing position waiting for its return to their breakeven price. This often results in drawn out periods where they miss out on the real market movers while they wait in vain hoping their stock prices will rise. ValueTrend takes a different approach. If a stock breaks technical support, we will give the stock a bit of time to either return to support levels, or to bounce off of an oversold level. But we will never hold a stock for extended periods just because it owes us our money back. “There is always another bus”, as one of our longest clients often says. We concur. I discussed the art and science of selling on this blog.
Please note that I am away this week, and will not be able to respond to your comments until I return on August 20th. This will be the only blog of the week.
Keith on BNN Televisions MarketCall Friday August 24th at 12:00 noon
Keith appears regularly on BNN MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.
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