Canadian Sector Opportunities

September 10, 2021No Comments

Every week I record this video, which provides you with ideas on both market potentials and individual sector ideas for your trading progress. So today we’re going to look at the Canadian market and I want to look at the relative performance of the various major sectors on the TSX. And then I want to look at their charts to see if that current relative performance is likely to continue. So I want to just point out that the TSX 300 and the 60 are capitalized, weighted indexes. What that means is cap weighted indexes are weighted in some sectors more than others. So it just so happens in the Canadian market, the big weighting is in the banks and to a somewhat smaller degree, the insurance companies that comprise the financials 35% or close to that I’m rounding off, but roughly 35%.

So more than a third of the TSX 300 is weighted in financials. So if you are an index buy-and-hold investor, you better hope that the Canadian financials are doing well. The second heaviest weighting is the energy sector. And of course, again, within the energy, there’s different types of energy, as we know, so gas, oil, et cetera. But the large piece of it is the oil stocks. That’s about 20% I’m rounding off, but approximately 20% of the index. So we want to pay attention to what it is. And then we’ll look at materials and industrials, which are the next two largest industries. So from there, after we look at the relative performance and see where money is rotating into. I look at the bigger picture. I’m going to look at the charts of these sectors and see if that money may continue rotating into them.

Just based on basic chart formations. Now I want to point out that when I pull up the sector rotation chart, which you can readily access on https://stockcharts.com I believe you have to have a subscription to the service to access these charts, but a subscription to stockcharts.com is not very expensive. There’s other services out there like TC 2000, these all provide this kind of service. It’s a pretty basic look at the market, the sectors and the rotation. So I used a number of ETFs that represent these major sectors on the Canadian market. And I cut out the ones that are the sectors I should say, that are smaller like healthcare. Cause they like, for example, healthcare represents something like 1% of the index and I’m really not that interested in a small sector. So I’m going to go to screen share.


I’m going to pull up the sector chart and there we go. So, what you can see here is the major sectors, the financials, the energies, the materials, industrials, utilities consumer staples and technology, which is the one on the right-hand side. Now you’ll see, this is a 22 day bottom, right? I’ve set it to a 22-day default. And that’s because I’m trying to pull up the four weekends the month. And I’m just looking at what’s happened on the trading days over the past month. So then what we’ve done is we’re looking at how each sector has done on a relative basis to the index itself. So if, for example, the obvious outperformer, has been information technology, which has done literally exactly 8% better than the TSX. So in this kind of chart, if the TSX had gone down 5% and this said, plus eight, it would obviously, a little bit of math will tell you that it only really made 3%.

Now if the TSX went up 10% in the past 10 days,  that would indicate that this made 18%, so it’s performance against the index. So let’s now look at the different sectors and you’ll notice the three standouts are energy, which is a good thing because of energy. As we noted a minute ago is 20% of the market capitalization of the TSX 300. So if you’re an index holder, you want to see energy do pretty well. The second-best performer was industrials. And again, that’s about 10% and I always round these things off. So if you look up the actual weighting online and find out it’s 9.8 or something, you have to take my round-offs with that in mind. So the industrials outperformed the market by almost 4%, as you can see. And then the clear outperformer has been IT, Information Technology.

So let’s now drill down and let’s take a look at these sectors and pay particular attention to the energy stocks, industrials, and the technology sector on the Canadian market to see if these charts look pretty good. So I’m going to go to this and I’ll start off with energy. Now I did a video last week on the Canadian energy sector, and this is really a big important sector for Canada. And I did note on the video, if you care to watch it, that I’m pretty bullish on energy. I think that this level of resistance to these, the energy producers, stocks I believe that this, this chart we’ll get back into the low $9 area, like nine to nine and a quarter it’s currently trading around eight and a quarter. So that’s a 10% return. Roughly if this neckline were to break, you could see there’s a whole bunch of noise in here on the chart.

Then you’d probably be looking at a return to the old high levels, which is very close to 12 or $13. So that’s to be seen. But I think in the near term, the energy sector is, is setting up for a nice little move. And I presented some evidence. I looked at some of the momentum indicators that we won’t be looking at today on energy. So obviously it’s been one of the outperformers this month. You can see that on the chart. And it’s also got a decent potential to make probably 10% in the near term. And then we’ll have to see what happens after that. So that’s energy, and everybody knows I’m a bull on energy. You know, let’s look at financials, which is the biggest sector in the TSX, and you can see it’s, it’s done okay. It had a nice blip it seemed to pull back a little bit.

My concern about the financials in Canada is that they have had such a strong run, a lot of white candles in there. They’re pretty overbought on the weekly chart. If I did pull up the momentum indicators, you can see that they got overbought. This is RSI here’s MacD they both hooked down, both these indexes. In fact, you know, kind of a bit of divergence on our side, the market made new highs and RSI when on a downslope so did Mac D. So my concern about the financials is that there may be a little overbought and starting to round over from a momentum point of view. Now, the next big one, and it’s something like there’s only about 4% of the index, but it’s been the biggest mover. And you can see that on the chart, it’s literally gone parabolic over the past few months, but specifically over the past month, it’s had a very good time period.

So it’s a good chart. It’s probably due, one of these little guys here, to pull back a bit. If we, again, kind of pull up the momentum indicators that I was just looking at, they’re not rounding over yet, but they’re certainly overbought MacD is nowhere near crossing over. So I would say that technology is likely albeit, possibly looking at a correction at any point in the next month or so, but the market for technology in Canada looks extremely good. And if you pick your winners out of the group, you probably won’t go too wrong. Now, materials is one of the bigger sectors it’s around 10% of the index, and you can see they’ve been going sideways. They were a strong mover in the latter part of 2020. And then they’ve more or less been just floating sideways.

Remember though that any sector you can pick your winners from those sectors, for example you could be looking at specific metals companies, specific companies that do fertilizers and whatnot, and they have done very well compared to this chart. But the overall look of the materials is kind of flat and that kind of went with the performance chart. It was a relatively flat-looking performance chart, same as staples. This is an interesting little formation, it gapped up, and then it looks to be forming what’s called an island. And that could reverse. And if we looked at again, I’m going to do the comparative chart. The close-up view of the momentum indicators. You can see, they’re starting to round over back to you, hasn’t crossed yet, but you can see that little hook down and you can see on the histogram it’s pulled back.

So, there’s a potential that the staples which tend to perform well over the summer may in fact have formed an island here. And if this gap is, if this level of support is broken, this gap will be filled to the minimum. So you’re looking at a few dollars downside and maybe more. I’m just going to say that it wouldn’t be a sector that I’d be jumping all over right now in the Canadian market. This is the industrials, which again is around 10% of the index. And you can see it’s it was one of our strong weighted sectors on our sector performance thing. And you can see that on the chart, it’s had quite a move over the past month. Looks good. That was a nice breakout. It is a little bit you can just tell by the angle of ascent that it’s a little overbought, so it won’t surprise me to see that the momentum indicators are getting overbought but they’re not showing signs of rounding over.

And in fact, MacD is actually hooking up. So, that’s probably not a bad sector to be weighted in, in the Canadian market. And we’ll next go to utilities. Now, utilities from a seasonal perspective are like staples, they tend to do very well over the summer, but you can see that they’re starting to flatten out. And we saw that on the performance chart. The problem with this chart is it is a bit of a triangle and it needs to break out in order to be something that I would be buying because we’re coming into that old high level of around 26 and a half. And that’s maybe only 50 cents for now on this ETF. So unless you’re just holding this for the dividend, I probably wouldn’t be jumping all over it because it doesn’t have the seasonals going for it.

And its chart pattern is good, but it does have some resistance to overcome and it needs to break out of that triangle. My thoughts are that it may not. It may tread water for a while. So, that’s it for charts again, we’re back to our energy chart, which happens to be my favourite at the moment of the group. And we’ll just wrap that up with a quick note saying, thank you for attending these videos. I do appreciate the views and the participation in all of our outputs, such as our blog, which has been a very popular thing over the years, I’ve got something like 3,500 readers of the blog, and I do encourage you to go to the valuetrend.ca site and subscribe to the blog. And that way you’ll get it in your mailbox every week and subscribe to these videos, you can do the same thing at the website, and you’ll get the video link put right into your website or right into your inbox. I should say once a week. Thanks again for watching. And if you have any questions, you can always leave comments at the bottom of the blog. That’s one of the services I offer is I will answer your questions so long as they’re not pertaining to a specific stock. I don’t answer questions on specific stocks, but if you have sector questions and things like that, happy to talk about them on the blog.

Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

tran

Dow Transport may be signaling trouble

oct to nov

Comparing The Summer Rally To The Current Rally

IBB

Seasonal and Technical Trend Analysis

msci chile

Four Potential Trading Opportunites In Global Market

phases

The 4 Phases of the Stock Market

stock markets

David Chapman interview: A lesson in history applied to today’s markets

Keith's on Demand Technical Analysis course is now available

Scroll to Top