Bill Carrigan.Kevin Van Paassen/The Globe and Mail
Bill Carrigan is technical analyst at Getting Technical Info Services.
Top Picks:
Dominant Themes: Lumber / Sector Rotation Mining, Aerospace
Acadian Timber (ADN TSX)
Acadian owns and operates timberlands and a component of the longer term lumber theme – a recent outperform versus the S&P/TSX composite.
Lundin Mining (LUN TSX)
Lundin is a copper producer that is a typical bull market rotation laggard – breaking out of a huge 3-year triangle.
CAE Inc. (CAE TSX)
CAE is an overlooked dominant theme play on military and commercial aerospace with recent positive relative performance versus the S&P/TSX composite.
Past Picks: March 19, 2014
Royal Canadian Mint (MNT TSX)
Own gold by direct gold ownership through Canadian Gold Reserves. Investors should avoid levered products such as the Horizons BetaPro COMEX Gold Bullion Bull Plus ETF (HBU)
Then: $16.14; Now: $14.05 -12.95%; Total return: -12.95%
AGT Food and Ingredients (AGT TSX) (Previously Alliance Grain Traders)
A processor of specialty crops – food is a dominant long term theme – with limited sector exposure in Canada. An alternate selection is SunOpta, Inc. (SOY:TSX)
Then: $19.11; Now: $27.09 +41.76%; Total return: +44.66%
CAE Inc. (CAE TSX)
One of the few TSX-listed liquid companies that provide exposure to the booming aerospace sector, trading just below $16 all-time highs
Then: $15.03; Now: $14.48 -3.66%; Total return: -2.77%
Total return average: +9.65%
Market outlook:
The current bull market in most of the major stock indices is now well into the fifth year – or about 2035 days. The average length of modern bulls (5 since 1974) is about 2460 days – so the current bull is quite old .
We are likely in the early stages of a topping phase which could take several months to complete. Some of the early technical signals are the gradual thinning of market breadth as seen in the cumulative NYSE advance/decline line and the cumulative NYSE new 52-week high/low line.
Strategy: During the latter stages of a bull market, investors should get more active with their investments – either directly or indirectly by way of an adviser. Move away from an indexing buy-and-hold approach and move toward an active approach.
One approach would be to seek out and embrace the current dominant theme or take advantage of normal sector rotation and get exposure to the "back end" of the market such as the deep cyclical industrial and the base metals sectors.
A dominant theme is usually associated with a long-term secular trend in a particular asset class that tends to ignore the smaller boom and bust business cycle. A secular trend is usually associated with innovation and the emergence of the "next big thing", be it the age of steam, the railroads, the automobile, transatlantic air travel, the microprocessor and the Internet.
Current dominant themes: Health care, aerospace/transportation, lumber, food and technology.
A dominant theme example (lumber): We see Canadian investors accumulating West Fraser Timber (WFT)
A sector rotation example: We see Canadian investors crowding into financials and running away from the TSX metals and mining sector.