A Comment -- General Comments From an Expert (A Commentary)

Market Update:

Greater Toronto home sales edged down 16% in June compared to the same period last year, despite the easing cost of borrowing. On the other hand, Canada’s job market stalls in June, as unemployment rate climbs to 6.4%, increasing the likelihood for the Bank of Canada to cut interest rate in July.. The Canadian dollar was 73.46 cents USD. The U.S. S&P500 ended the week up 1.2%, while the TSX was up 2.1%.

Most sectors ended up strongly this week. Technology, energy, and real estate added 3.4%, each, while financials and materials added 2.4%, each. Consumer discretionary and industrials ended the week up 2.3% and 2.2%, respectively. The most heavily traded shares by volume were Power Corporation of Canada, Corus Entertainment, and Toronto-Dominion Bank.
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Seasonality matters. In his recent newsletter, he contrasted two reasons why the market might go up, and two reasons why it might go down.

July is OK seasonally, and momentum is still with the market. However, some of the underlying indicators are kind of weak. Like Kevin O'Leary wearing a suit blazer with pyjama bottoms, the market looks good up top, but not so good when you look below the surface.

He read a statistic that about 3-4% of the S&P 500 is making new highs on the year, versus the percentage of the TSX that's significantly higher. Both have kind of crummy breadth, but especially the S&P 500.

There's always a bit of pumping coming into an election, where they promise the world. That can have an effect on the markets. Typically, election years often see positives in the back half of the year.

But he has a problem with market breadth and overbought status (how much above the 200-day MA the S&P is). He likes the indexes that are a little less technology focused.

He likes the indexes that are a little less technology focused, and he's 98% not tech in his equity platform. And yes, he might underperform for a while, and this will continue as long as it's all about MSFT and NVDA. He doesn't like the market from a momentum point of view, it's overbought, but you can't argue with it too much so you have to be invested.

He's compared the breadth stats between now and 2000-2001, and the two market participation numbers are at about the same level. The usual suspects were moving up, and nothing else was. We're in the same sort of situation. Everyone knows what happened, it imploded.

He's not saying it will implode tomorrow. But the setup is perfect, it's going to happen, unless things slow down for that handful of leading stocks.

It very well could happen. Right now, though, the focus is so much on those stocks. Everybody's aware that they're overbought, yet everyone's still buying them partially because of FOMO. When that changes, the other stocks will catch up, which is why he's in non-tech stocks. The change will happen eventually, so it's safer to be there now, even if he suffers a few months of underperformance.

No. Draw it so that it touches the troughs. It's sort of a median line. If the stock hits that, it's probably a buying opportunity.

Seasonally, not great over the summer. Coming into an election, incumbent will try to keep prices low, so that inflation and gas prices don't look so bad, and electorate will like them. They've done it before. He's lightened up, but still holding, expects these stocks to tread water for a while.

See his (really good;) blog on oils, being published tomorrow.

Absolutely. But remember that it's just like any government, where there are people behind the leaders that do all the thinking. The leader at the top is really just the talking head. 

Yes. Volume counts, but especially on up days. One of his favourite indicators is money flow. It compares positive volume days with negative volume days, and assigns a significance to the bigger volume in that move. The MFI is a momentum indicator, so you can see if there's money building in a stock.

As far as timeframes, use the weekly charts. His typical holding time is 3-6 months. Use weeklies to pick possible resistance and support points. When looking at long-term support levels, the older the support the less it matters.

As far as indicators go, there's no magic answer. He has his favourites. Any indicator on a daily chart is more of a short-term indicator. Stochastics is a really good one for short-term stuff. Otherwise, find the ones that work for you.

He, and a lot of other people, use stockcharts.com. But if you're a young investor with $20-30K, you're probably not going to take out a subscription to that. But once you get around $100K or so, it's worth spending $200 or so for the base subscription. You get all the indicators, you can store your charts, lots of wonderful stuff.

If you're going to get serious about investing on your own, and not use a money manager, you need to step up your game.

We've seen economic data really start to slow down. The government's being a bit slow on rate cuts, and that could be an increased risk to investors, but probably not for another year or so. As some of these numbers come down, it means a higher likelihood of rate cuts, which the market's pricing in right now.

We're in one of those weird markets where poor economic data is probably good for investors; it means rate cuts are probably coming, and stocks should move up if that's the case.

That conundrum does make it difficult for the Fed to deliver on rate cuts. Some inflation has proven to be a lot stickier than traditionally expected. The hope is that data on the price side gets revised down as has a lot of other data. Something to monitor over the next few months. 

He expects that inflation and pricing points will start to fall, opening up the avenue to rate cuts.

Without a doubt, it hasn't been a broad-based rally. Mega-cap companies and those in AI are the leaders, and he expects this to continue. Later in the year, perhaps in the last quarter, we'll see a bit of evening out. So maybe some of the small caps and underperformers will catch a bid and move up.

Realistically, the top-performing companies continue to do so. It makes it easier from an investment perspective, because you don't necessarily have to go chasing too far to get returns. You can own the S&P 500 or some of the mega-cap ETFs and, assuming you get in when they're not too elevated, you should be able to make profits through the rest of the year.