Where will the markets go from here?

Where will the markets go from here? Today I’ll look at the US market (SPX) and the Canadian market (TSX) to spot some potential moves in the coming weeks.

Before getting started on the markets, I recommend you check out my most recent video. If you are always on the lookout for new stock ideas, I took a look at an age-old stock picking strategy that has stood the test of time by offering long termed market outperformance. Known as the “Dogs of the Dow”, the strategy simply picks the 10 highest yielding and 5 lowest priced stocks on the DJIA at the end of each year, and buys them.

As simple as that sounds, it has beaten the market more often than not. My video examines the strategy in light of what I perceive to be a period of greater volatility and a potential macro sideways market. By applying technical analysis to the Dogs, can we have our cake (good returns) and eat it too (reduce risk in an unfavorable market)?

Click here to watch the video.

 

S&P 500

The rally from the October low of 4103 looks set to continue and the price action may be volatile as it approaches the  high near 4800 (4818 to be precise). This often happens when price returns to a major top after a large decline such as in 2022.

Short-term, I expect an initial spike above the old high to struggle, as it has been.

The weekly close will be much more important than any minor fluctuations around 4800.  As you know, I am a believer in “sustainable breakouts”. This means that I ignore neartermed spikes. A confirmed breakout should continue well above 4820 for 2-3 weeks before I get too excited. Conversely…A reversal at 4820-ish could mean the top is already in and a pullback to support at 4600 or 4200 is likely.

Note the near-overbought MFI and the declining “Force” index. Long termed ROC is bullish.

Given the strong neartermed trend on the SPX, and the recent bullish hopes surrounding Fed policies, we may see a breakout through 4800. This, despite any neartermed pullback (note that the last 2 weeks of January can be weak, seasonally speaking).  Important: A strong break above 4820 that lasts more than a week or two  would force even stubborn bears to throw in the towel, and would likely lead into a new bull market.

ValueTrend’s strategy: Despite holding some cash for a potential neartermed pullback, we will not deny the potential for a legitimate breakout through 4820. True, I do hold an historic view on markets regarding the potential for a prolonged sideways market. However, I recommend we remain pragmatic before thematic. In other words, we must put our “theories” in check, and pay attention to what the market is actually doing. Right now, it is  struggling at the early 2022 highs near 4800. Its vulnerable here. But a sustained breakout through 4820 will change everything.

TSX 300

The TSX broke through 20,800 recently I’ve noted in a few of my prior blogs that such a breakout would lead into a probable test of the old highs near 22,000. As such, the TSX – at this moment- has a lower risk profile than the SPX, which is struggling at its old highs. Probably not a bad thing to own the best Canadian index ETF’s at this time. That will change when the TSX tests 22,000.

Going against the TSX is the MFI, like the SPX above, which suggests a near-overbought status. Force Index is diverging negatively, like the SPX chart. ROC is bullish.

My take on the TSX is that it is the better index to weight in a portfolio right now. Given its healthy allocations in materials, gold and energy stocks, and the geopolitical risks discussed in this blog, I’d think we might see 22,000 on the index despite any struggles on the US markets.

Conclusion

We’re holding about 15% cash in our Equity Platform, with an eye on re-entering upon any pullback in the next 2 weeks or so. If nothing happens (no pullback), we’ll focus deploying the cash largely on the TSX market. We are well allocated in gold, metals and energy.

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