Market Outlook June 29, 2015

Stocks are up over 1% since last week. Conversely, bonds are down almost 1%. This is good news for the stock market, but it’s too soon to really get excited — the TSX is 1.9% lower than it was a year ago. A more realistic way to look at it is that bonds are doing poorly and stocks are doing less poorly, since neither are actually doing well. A balanced portfolio should be neither over- nor underweight.

Comparing asset classes is interesting, but not cheerful. Only US small caps (IWM) present any real positive momentum, and even that is muted. There are no obvious opportunities at the moment.

Some individual stocks may hold promise. In Canada, VRX and CCT are still the clear leaders among the TSX 60, although SunLife (SLF) now looks good. In the US, I believe I already mentioned Lilly, Gilead, Amazon and Nike. They are now joined (and surpassed) by Williams Companies (WMB), a company that provides energy infrastructure. I would treat that one with caution, given a recent spike in price that coincided with a huge increase in buys. The trend is not obviously positive.

Market Outlook June 22, 2015

The past week wasn’t a particularly good one for stock markets. Canadian large caps sank, while bonds rose. In fact, one group is claiming that we have experienced a bear market in stocks for 1000 days. Despite the relatively short timeline of the chart, it’s interesting to note that bull markets generally outlast bears, and advance much farther than bears fall. But if we look at a longer time frame, we can see that 10-15 year secular moves aren’t uncommon.

Recently, I’ve been thinking about bull and bear markets in commodities. Commodity market cycles have lasted at least 12 years, with one exception (8 yrs), since the 1800s. It appears that the commodity market has shifted into bear territory over the past couple years, which would explain the upheaval in the oil and gas sector here in Alberta.

There’s no reason for stock markets and commodity markets to move together or opposite. In fact, the past five years seem to be a case where the stock market and commodity market have both been in bear mode. What does it mean? The only hint I can come up with at the moment is that investing for income should outperform investing for capital gains.

Comparing asset classes, Chinese stocks no longer look attractive. US small caps (IWM) are best positioned for short-term performance. The only other asset classes that have positive momentum are Hong Kong stocks (EWH) and oil (OIL). I don’t expect the next couple weeks to be any fun in the markets.

Canadian large caps appear to be faltering, as does the Canadian dollar. I expect capital to be looking for better opportunities elsewhere. The Swiss Franc is the best positioned among major currencies. The British Pound is next, and the Euro doesn’t look so bad. Even so, European stocks (in C$, XIN) has negative momentum.

Market Outlook June 15, 2015

Interest rates have risen and bond values have fallen. The yield curve is quite flat, and the economic outlook is not strong. The Canadian dollar is still relatively weak, at  just over $0.81 US. I’ve just started looking at currencies, but the Canadian dollar looks like it will continue to fall, in contrast with the Swiss Franc, which appears to be increasing in value.

I accidentally mixed in the currencies with the ETF I was looking at, and the Swiss Franc, incidentally, looks like a better bet than American large-caps, gold or real estate stocks. Does that even make sense?

Among asset classes, Chinese stocks (FXI) still appear to have the best outlook. US small caps (IWM) also look good. In Canada, only Valeant (VRX) and Catamaran Corp (CCT) still have good momentum. In the US S&P 100, Gilead (GILD) and Amazon (AMZN) still look good, but Eli Lilly (LLY) has surpassed both of them. Lilly had a big jump last week, and a small correction on Friday, so it’s hard to say if this positive momentum will persist.

 

Market Outlook June 8, 2015

I’ve missed posting for a couple weeks. I’ve experienced some minor computer problems, but I’ve also been rethinking how this work can be most useful and what I really want to accomplish with it. Based on my experiences, both good and bad, with investing, I understand that it’s extremely easy to get caught up in the reasoning for making trades, increasing risk by increasing trading, and eventually running into trouble. It’s very hard to remain disciplined. As a result, I’m not sure that I’m doing anyone favours by suggesting that a certain stock or asset class is poised to do well in the near term. Looking at the actual output of my model, it’s been right more often than wrong. At the same time, it has increased volatility and trading costs, and I’m not currently in a position to evaluate whether or not the increased performance is worth the increased costs.

With that in mind, I’m going to continue comparing the recent performance (using exponential moving averages) of asset classes (represented by ETFs) and individual stocks to point out where some risks and opportunities may lie. But more changes may be in store over the coming months.

Neither stocks nor bonds have positive momentum, and neither has an advantage over the other. They both had a slightly negative week, and both are basically flat over one month and three months.

Chinese stocks (FXI) have the best momentum currently, followed closely by Hong Kong stocks (EWH) and US small caps (IWM). I’m surprised to see US small caps outperforming US large caps, which usually don’t diverge too far.

Among individual large-cap stocks, in the US, only Gilead Sciences (GILD) appears attractive in the near-term. Here in Canada, Valeant Pharmaceuticals (VRX) continues its amazing run, and Catamaran Corp (CCT) also has reasonable momentum. That company provides pharmacy benefit management services and healthcare information technology. I think I detect a theme.

Market Outlook May 18, 2015

Not much has changed since last week. Plus, today is a holiday!

Interest rates and inflation have remained relatively steady. Bonds barely moved lower in price. However, gold jumped up a little higher. Stocks continue to have more momentum than bonds. Having said that, the economy doesn’t appear very strong.

Comparing various asset classes, Chinese stocks (FXI) still appear the most appealing. They are slightly lower than four weeks ago, but higher than at any point before that. Hong Kong stocks (EWH) have almost as much momentum.

Canadian large caps (XIU) have just turned negative. Anyone who has geographic weightings in their portfolio should be underweight Canada. European stocks (XIN) or US large caps (SPY) may be good candidates for an overweight position.

Among US large caps, the only individual stocks that really look attractive are Amazon (AMZN), Microsoft (MSFT) and Nike (NKE). The shoe company is a new addition this week. Among Canadian stocks, the pickings appear equally slim, with just three attractive stocks: VRX, FM and AEM, just like last week.

Market Outlook May 11, 2015

The past week wasn’t great for stocks. In fact, most asset classes fell in value, except gold, US large caps and US small caps. Interest rates rose, and the yield curve looks a little healthier. Having said that, the economy isn’t strong, but this environment should provide a little more support for future business growth.

Chinese stocks (FXI) continue to present the greatest momentum, but the rate has shrunk considerably. I would be at all surprised to see its momentum disappear by next week. However, among the remaining asset classes, there isn’t much positive outlook. Only European stocks (XIN) looks okay, but only because it’s stayed relatively unchanged over the past month.

Even individual stocks are losing their momentum. In Canada, Valean (VRX) continues to amaze me. First Quantum Minerals (FM) also appears attractive. If you want to gamble on mining stocks, you could also look into Pacific Rubiales (PRE) or Sherritt (S). In the US, only Amazon (AMZN), Freeport (FCX) and Microsoft (MSFT) look attractive among the S&P100. I’m seeing a trend among mining stocks, and it may be their time right now.

Stock Market Outlook May 4, 2015

Looking across the asset classes (ETFs) that I review each week, just about everything is down compared to the prior week: bonds, gold, foreign stocks, US stocks, small caps, large caps. The one exception is real estate (XRE), which hasn’t fared too badly over the past few weeks.

Having said that, Chinese stocks (FXI) still have huge momentum. Besides that, only Hong Kong stocks (EWH) and European stocks (XIN) have decent momentum.

Looking at individual stocks, I spotted a new US stock that may bear further research : Freeport McMoRan (FCX). Microsoft (MSFT), Amazon (AMZN) and Disney (DIS) also continue to appear attractive.

In Canada, four stocks are very much ahead of the pack: First Quantum Minerals (FM), Valeant (VRX), Penn West (PWT) and Canadian Oil Sands (COS).

Market Outlook April 27, 2015

Markets have been rough lately, and haven’t really gone anywhere. We finally hit a new high for the TSX60 compared to late February and mid-September. Put another way, the stock market has made no progress in over seven months. Bonds were at a low point last September and have advanced since then. Bonds made no headway at all between September, 2011 and January 2015. Since then, they’ve advanced 3.25%.

But bonds have almost no momentum. Chinese stocks (FXI) are still way out in the lead, with Brazin stocks (EWZ), Hong Kong stocks (EWH) and emerging market stocks (XEM) following. Just comparing Canadian and American stocks, they have about equivalent positive momentum.

Last week, I pointed out Amazon (AMZN). Well, it jumped 14% this past Friday. That worked out well. This week, AbbVie (ABV) and Microsoft (MSFT) also appear attractive.

In Canadian large caps, a number of stocks all have good momentum: PWT, COS, CCT, VRX, FM, CCO and ERF. That’s enough to create a tidy portfolio. Having said that, “sell in May and go away,” is coming up in just five weeks. This may well be a last hurrah before the summer.

Market Outlook April 20, 2015

Inflation is a bit higher. What’s strange is that core inflation (2.4%) is higher than top line inflation (1.2%). That means fuel and food costs have very low inflation (or deflation), which I can see at the gas pumps. Normally, that should result in a “wealth effect”, where people spend more money elsewhere, since they’re saving it on gas. But in Alberta, that was pre-empted by the announcement of tax increases.

Surprisingly, Chinese stocks (FXI) are holding up, hardly changed from last week’s big jump. Emerging stocks (XEM) and European stocks (XIN) both have decent momentum. Canadian large caps (XIU) also look okay, better than US large and small caps.

I’m surprised to see this penny stock on the TSX60. If you like playing with fire, Penn West (PWT) appears to have potential. Canadian Oil Sands (COS) has similar momentum, but seems far more attractive. CCT and VRX continue to present impressive momentum, and now ERF can be added to that list. I’m happy to see so many good performers.

American stocks are struggling, so it’s harder to find opportunities. Amazon (AMZN) still appears well-positioned. Apache Corp (APA), an independent energy company, is the only other company that seems to have good momentum.

Market Outlook April 13, 2015

Interests rates inched up and, consequently, bonds fell back a little. Stocks continue to move ahead. The TSX 60 has hit a new high compared to any week since September 12, 2014. That means we’re back at the same level we were exactly seven months ago.

Remember what I said last week about Chinese stocks having the best momentum? And that I would ignore it, because it seemed to be a blip from a few months ago that was still working its way through the model? Well Chinese stocks (FXI) has a mind-bogglingly good week.

Chinese stocks (not surprisingly) continue to dominate the momentum. The funny thing about stock markets is that performance is generally asymmetrical. They rise slowly most of the time, but they fall quickly. The movements aren’t random, but fortunes are won slowly and lost quickly. It takes a lot of patience to win, but just one mistake to lose. Maybe that’s why human beings are generally terrible at investing.