Keith Richards, president and chief portfolio manager, ValueTrend Wealth Management

FOCUS: Technical analysis

MARKET OUTLOOK:

The U.S. market is in a yin-yang situation. On the positive side, a technical breakout on the S&P 500 (SPX) and the Nasdaq Composite Index has occurred on the back of stocks involved in artificial intelligence technology. On the negative side, market breadth and investor sentiment are questionable.

Here are some of my observations.

There are early signs that breadth is improving but it needs time to prove itself.

The broader NYSE Composite of 2,400 stocks is rising, yet it hasn’t taken out its April high (versus the SPX, which has).

The advance/decline line is rising, yet it hasn’t taken out its April high (versus the SPX, which has).

The S&P TSX 300, another non-technology weighted index, continues to meander in a trading pattern – no sign of breaking out at this time.

Regarding sentiment, some indicators show complacency. A low CBOE Volatility Index (VIX) indicates early signs of complacency. A low score on the AAII bear index indicates too many bulls.

An extremely low reading of the Smart/Dumb index, indicates that “Smart” money (large institutions, commercial hedgers) are bearish while “Dumb” money (Retail investors) are piling into the market.  

So, we have lagging, albeit improving breadth. We have exuberance and FOMO starting to appear in the sentiment indicators. Yet we have a breakout on the SPX. This is the yin-yang facing today’s investors.

ValueTrend’s strategy is that we are still holding cash, yet we are deploying it one step at a time. We are focusing entirely on value stocks and sectors. We like consumer staples and certain commodity plays. We like certain country ETFs.  We are avoiding technology entirely at this moment. Not to say we won’t be buying it but not now. 

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TOP PICKS:

Johnson & Johnson (JNJ  NYSE) 

Horizons High Interest Savings ETF (CASH TSX) 

Consumer Staples Select Sector SPDR Fund (XLP NYSEARCA)