Investor’s Digest of Canada columnist Jeana Deal reveals some potential swing trades to make during the slow period of the year. Consumer goods stocks and tech stocks stand out among the sectors that escaped notice during spring rallies, she says. Ms. Deal even names a bank stock that may be ready for a post-Brexit break-out.
Preparing for the summer doldrums in the stock market is similar to finding the quietest vacation spots to spend your holidays.
You want to pick your spot, book your lodgings, and get there early before the crowds arrive in droves. It’s a similar process to selecting stocks if you’re looking to take a short-term position for a few months between now and early fall.
When I vacation, I don’t mind crowds as much if I arrive at a destination early enough to have a peaceful few days to myself among a few other like-minded vacationers. To achieve a similar effect with stocks, I use a sector investing strategy to look for stocks in quiet business cycles.
In a trending bull market, the popular play is to take positions in stocks within leading sectors. When the markets are lighter in trading volume or moving sideways, it’s usually a good idea to sit on the sidelines until a trend resumes or a new trend forms.
Opportunities may be fewer from July to September, but rather than sit on my hands, I explore swing trading opportunities in lagging sectors. I have a list of top stock picks should these sectors experience a new surge or some recovery.
As risky as it seems to pursue lagging performers, it’s more about finding new opportunities in sectors and stocks that have room to move and grow. The last major market correction occurred in mid-February, so I notice the sectors that didn’t enjoy as much action in the recovery.
I’ve got my eye on consumer goods stocks and technology stocks, both of which have been among the weaker performers in the markets.
I use technical analysis to examine price charts of stocks that have demonstrated steady trading volume, a minor pullback in the last month, and an open price void to move up into.
It’s a toss-up as to which will be the next sector investing opportunity. Scanning retail stocks, I see a great chart for Leon’s Furniture Ltd. (TSX─LNF) as it shows promise with an entry price above $16 a share.
Since last April, Leon’s Furniture has been consolidating sideways and it would make for a good trade if this could do a measured move to a first target of $19. As long as Canadian real estate maintains its strength, I would hang on and even add to the position above $19.38.
I’m optimistic about another consumer goods stock, Liquor Stores N.A. Ltd. (TSX─LIQ). This has been trading sideways and consolidating since early March which, I will disclose, is when I bought shares of this stock. I have been waiting for another opportunity to buy more shares of Liquor Stores.
I will look for an entry above $9.58, or just over $9.31 for an anticipatory entry. I target the $12.50 price area for a possible sell-off, making it a good place to unload some shares (or all) for the swing trade.
On the other hand, it could be a defensive move to hang onto shares of a non-cyclical retail stock like Liquor Stores for the longer term in case the market starts a new bearish trend later on this year.
Stocks in the tech sector are due for recovery after a disappointing second quarter. Evertz Technologies Ltd. (TSX─ET) displays an impressive consolidation that has been forming over the last seven years, and making higher lows.
As of June, Evertz Technologies has broken through highs that it achieved two years back. I would like to take a partial position with an anticipatory entry over $18.03. I will look to buy the rest of the shares over June 9’s high of $19.24.
My wild card pick is one of the big five bank stocks. I’ve been a little uncertain about the financial stocks since their business as lenders is impacted by the low-to-negative interest rate environment.
At the time of writing, we are days away from the Brexit referendum results.
I am interested to see how the financial sector stocks (as well as the overall markets) will react to the United Kingdom’s vote to stay with the EU or depart from it.
If the financial sector has a positive reaction that sustains itself over the next week or two, I will be looking to enter a position in the Bank of Nova Scotia (TSX─BNS). I would be looking for an entry higher than $67.72, which is a previous consolidation high made back in February of this year.
The pickings may be slimmer over the slower summer months of trading. The main advantage of a slow or trendless market is that new opportunities to make money stand out more than in a trending market when most things look good.
For me, stock picking during the doldrums is a much more easygoing experience, almost like a vacation from the typical bustle of market madness.
Jeana Deal is the author of Loonie to Toonie—Financial Basics for Canadians. She lives in southern Ontario and trades and invests in Canadian and U.S. stocks for her own investment account. Visit her website loonietotoonie.com where you can read more about her investment ideas in her newsletter, The L to T Weekly.
Investor’s Digest of Canada, MPL Communications Inc.
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