Timing the Market and Equity Clock founder, Don Vialoux says the season for investing in gold and silver is now (especially silver). He lists his two recommendations for gold and silver exchange traded funds. Meanwhile, he warns readers to against investing in retail stocks.
Seasonality-focused financial analyst Don Vialoux is of two minds on today’s long bull market and particularly concerned about retail’s future, but he suggests there are still gains to be mined underground (literally).
“On a seasonal basis, historically this is one of the strongest periods of year, from late October to early January,” he says, but adds that in technical terms, “There’s a bit of a problem because markets are extremely overbought.”
Mr. Vialoux is a longtime investment professional in Oakville, Ont. With his son Jon, he co-founded popular investing websites timingthemarket.ca and equityclock.com.
Jon and Don, who previously managed a seasonality-based exchange-traded fund, also post daily comments on the movements of and news related to exchange traded funds (ETFs) and well-known companies at stocktwits.com. There, they boast more than 44,000 followers.
The elder Vialoux notes that the relative strength index (RSI), a metric commonly used in technical analysis, for the Dow Jones industrial average reached more than 80 per cent in late October, and sat at 76.2 per cent as of Nov. 7. Meanwhile, the RSI for the S&P/TSX Composite Index has also scraped against 80 per cent.
By comparison, the overbought level begins at 70 per cent.
Mr. Vialoux says technical signs do not necessarily indicate the markets have peaked, but suggest they are close. He takes a mildly bullish short-term stance.
Besides the most well-known North American indexes, many have already peaked of late, the analyst observes, pointing out that the market as a whole tends to weaken from mid-January until the end of February.
Contrary to the typical seasonal trend for retail in Canada and the United States, which rises from the end of September until the end of November and Black Friday (so named for the day retailers’ books change from red to black), the analyst says: “It’s not happening this year.”
Retailers hurt by the Amazon effect
He notes that the SPDR S&P Retail ETF (NYSEARCA—XRT), which tracks US retail stocks, has dropped eight per cent since the beginning of the strength period.
“They’re buying their merchandise online,” he says of US customers. “By share, Amazon is the one that has captured the biggest chunk of Internet traffic.”
Mr. Vialoux continues: “Looking at Canada, the pressure (on prices) is probably going to be even more intense.” Aside from customers’ ongoing migration online, Sears Canada Inc. is liquidating all of its stores between now and January, meaning it will charge progressively lower prices.
“There are exceptions. Dollarama continues to do well, but it’s a discounter anyway so it’s a bit of a different animal.”
Precious metal stocks set to rise
By comparison, the analyst sees a much rosier picture ahead for precious metals and their miners. Mr. Vialoux explains that markets are starting to anticipate a 0.25-percentage point US Federal Reserve interest rate increase, to between 1.25 per cent and 1.5 per cent.
“This has had a positive impact on the US dollar and a negative impact on the Canadian dollar. Normally, when the dollar goes higher, precious metals would do badly.”
However, they are doing well this time around. Recent US dollar movements imply the greenback will keep rising “at least until” the rate goes up, he says.
Since the next period of seasonal strength for gold bullion and gold stocks begins in mid-December and lasts until the end of February, it could dovetail nicely with the greenback’s expected decline after the bump up from a rate hike.
Mr. Vialoux argues: “That drawback . . . will provide the boost for gold and gold stocks.”
Further bolstering a bullish case is his expectation for flat 2017 third-quarter earnings from gold mining stocks year-over-year, which will be reported in mid-to-late November.
Though the figures will depress stock prices in the short run, they will also pave the way for strong gains when miners report much-improved fourth-quarter numbers year-over-year.
Best buys for gold and silver ETFs
His first ‘best buy’, then, is either the iShares S&P/TSX Global Gold Index (TSX—XGD) or gold in Canadian dollar terms outright.
Mr. Vialoux adds that the story is similar for silver, highlighting that silver is actually usually stronger than gold seasonally on an international basis. Thus, he advises picking up his second ‘best buy’, the Global X Silver Miners ETF (NYSEARCA—SIL).
The analyst recommends investors not buy aggressively yet, but look for the trade to start evolving by mid-December, and then take advantage between then and late February.
This is an edited version of an article that was originally published for subscribers in the November 24, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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Investor's Digest of Canada •12/5/17 •