Market Call: Colin Cieszynski's outlook on Technical Analysis

Here's a comprehensive summary of the YouTube video transcript:

Key Concepts

• Market Correction: A significant and prolonged decline in stock prices, typically 10% or more from recent highs.
• Seasonality: The tendency for financial markets or specific assets to exhibit predictable patterns of movement during certain times of the year.
• Earnings Season: The period when publicly traded companies release their quarterly financial results.
• Valuations: The process of determining the current worth of an asset or company. Stretched valuations imply prices are high relative to fundamentals.
• Relative Strength: A technical analysis indicator that compares the performance of one asset or sector against another or against the broader market.
• Technical Analysis: A trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume.
• Support and Resistance: Price levels where a stock or market is expected to stop falling (support) or stop rising (resistance).
• Moving Average: A widely used technical indicator that smooths out price data by creating a constantly updated average price.
• Cup and Handle Formation: A bullish continuation pattern in technical analysis that signals a potential breakout to the upside.
• Head and Shoulders Top: A bearish reversal pattern that signals a potential decline in price.
• Distribution: A phase in a stock's price cycle where large investors sell their holdings, often leading to a price decline.
• Accumulation: A phase where investors buy a stock, often leading to a price increase.
• Double Top: A bearish reversal pattern characterized by two distinct peaks at roughly the same price level, separated by a trough.
• Triple Waterfall: A pattern indicating a significant and prolonged downtrend.
• Beta: A measure of a stock's volatility in relation to the overall market. Low beta stocks are generally less volatile than high beta stocks.
• Stop Loss: An order placed with a broker to buy or sell a security when it reaches a certain price.

Market Overview and Correction

The North American market is currently experiencing a broad-based sell-off, which is unusual given that this period of the year is typically stronger. This decline is seen as a correction, potentially overdue after a strong six-month period from May to October, which is historically a weaker season. The observed weakness in traditionally strong periods and strength in traditionally weak periods suggests a shift in market seasonality.

Key Points:

• Broad Sell-off: The entire world heat map is showing red over the last week, indicating a widespread decline.
• Seasonality Shift: The usual seasonal patterns have been disrupted, with strong performance during historically weak months and weakness during historically strong months.
• Market Momentum: The correction is attributed, in part, to markets having gone "straight up for six months."

Factors Driving the Current Weakness

Several factors are contributing to the current market downturn:

• End of Earnings Season: The conclusion of earnings season often leads to a summer correction as corporate news flow diminishes, prompting investors to take profits. This pattern is repeating now.
• Stretched Valuations: With earnings out of the way, investors are re-evaluating valuations, which are perceived as stretched, leading to a desire to lighten positions.
• Uncertainty on Interest Rates: Rumblings from the Federal Reserve (Fed) about potentially not cutting interest rates in December have created uncertainty, impacting market sentiment. This contrasts with earlier expectations of a December cut.
• US Dollar Strength: The US dollar, which had its worst year since the early 1970s, is showing signs of bottoming out. A strengthening dollar can act as a headwind for precious metals, commodities, and equities.

Key Points:

• Earnings Season Impact: The end of earnings season is a recurring trigger for corrections due to reduced corporate news.
• Valuation Concerns: Investors are reassessing high valuations after the recent rally.
• Fed Policy Uncertainty: The possibility of no December rate cut is a significant market driver.
• US Dollar Rebound: A strengthening dollar negatively impacts certain asset classes.

Sector Performance and Technical Analysis

The discussion highlights shifts in sector performance and provides technical analysis for various stocks.

Technology and AI-Connected Sectors

Tech stocks were among the first to show weakness. Even sectors indirectly benefiting from AI, like utilities, are experiencing volatility.

• Utilities: Many utility stocks had rallied on the expectation of increased computing demand from AI, leading to higher power demand. However, these stocks are now seeing corrections.
• NVIDIA: Scheduled to report earnings, indicating ongoing focus on the tech sector.

Precious Metals

Precious metals have had their own run, benefiting from a weaker US dollar. However, the recent strengthening of the dollar is creating a headwind.

Energy Sector

Energy stocks are showing relative strength, attracting capital amidst weakness in tech and industrials.

• Cenovus Energy (CVE): The chart shows a steady uptrend with higher highs and higher lows, forming a nice rising channel. It's testing resistance around $25.50. Energy stocks are performing well despite oil prices being relatively flat around $60.
• Natural Gas: Natural gas is in a seasonally favorable period due to the upcoming home heating season (early September to mid-February). Snowfall can positively impact gas prices.
  • Pembina Pipeline (PPL): The chart shows volatility with swings between $48 and $58. A key technical observation is the "reversal of polarity" at $52, which acted as support, then resistance, and is now acting as support again. The stock is on an upswing, with initial resistance in the $58-$60 range.
• Canadian Natural Resources (CNQ): Showing steady improvement with consistently higher lows and a breakout over $45, forming an ascending triangle pattern. It has potential upside with resistance around $48, $50, and $52.50-$53.

Homebuilders and Housing Market

The housing market is underperforming expectations, with homebuilders not seeing the expected seasonal strength.

• D.R. Horton (DHI): The chart shows a potential "cup and handle" formation, but concerns arise from breaking below the $150 breakout point. The stock is in a downward trend with lower highs, and there's a risk of returning to its previous trading range of $131-$130. Home Depot's earnings report indicated a soft housing market, with demand not materializing despite lower rates.

Other Sectors and Stocks

• New Flyer Industries (NFI): The stock has experienced significant volatility. It shows rounded tops and bottoms, suggesting it takes time to form patterns. Currently under distribution with lower highs, immediate support is around $12, with further support near $10. It doesn't appear ready to bottom out yet.
• Constellation Software (CSU): The stock has struggled, down 27% in the last year. General software has been underperforming for months, with semiconductors currently leading. Next support is around $3000, with potential support at $2750. It has not bottomed out yet.
• MDA Space: This stock has been highly volatile with massive runs and big collapses. It's back at $21, a previous support level, but it took four months to bottom out previously. There's a concern of a "triple waterfall" pattern, and a break below $21.20 could lead to another down leg. Technical analysts focus on relative strength and avoid stocks without it.
• Hudbay Minerals (HBM): Up nearly 76% year-to-date, but concerns exist due to a double top at $24, failing to break through. Support is around $20-$21. A break below $20 could lead to a drop to $15. It's in a consolidation phase with a risk of breakdown.
• Magna International (MG): This stock has underperformed for a long time but is showing signs of life, breaking out of a downtrend. The auto sector, in general, is starting to attract attention. The market seems to be looking past tariff concerns, with much of the risk already priced in.
• Fairfax Financial (FFH): This stock has shown a nice bounce off $2200 and is in an upswing within a sideways trading range. Financials, including insurance, are attracting interest. Fairfax was an exception in the insurance sector, being one of the last to go down and one of the first to bounce back.
• Capital Power (CPX): The stock is in a downtrend, with support potentially around $60 and $55. It's not trading like a traditional utility and is affected by the AI correction. It may need time to digest previous moves before stabilizing.
• Shopify (SHOP): The stock is breaking down both annually and on a relative basis. It has broken a trendline since April, with next support around $180. A head and shoulders top pattern has been completed, indicating an emerging downtrend. It has dropped significantly in relative strength rankings.
• Atkins Group (ATS): This stock and the broader construction/engineering sector are breaking down, indicating distribution. It has broken below $90 and is heading towards support in the $75-$80 area.
• Chemtrade Logistics Income Fund (CHE.UN): The stock exhibits a "step pattern" where rallies hold at higher levels, indicating a technically beautiful pattern for a longer-term hold.

Past Picks Review

• Agnico Eagle Mines (AEM): Recommended in March, it has performed exceptionally well due to gold's rally. The stock is still held and continues to act well, even through the correction in gold stocks.
• T-Mobile (TMUS): Sold in May due to deteriorating relative strength. It was a defensive stock that performed well in volatile markets but has since declined. It could be considered for repurchase if its relative strength improves.
• BMO MSCI China Selection Equity Index ETF (ZCN): This ETF, holding large-cap Chinese names, has performed well and is still held. China has shown relative strength compared to many other countries this year.

New Picks

• Power Corporation (POW): This stock has found its way to the top of the Canadian relative strength rankings and is held in portfolios. The insurance sector, in general, is attracting renewed interest after underperforming.
• Alphabet (GOOGL): This stock has held up well amidst volatility in the "Mag Seven" stocks. It's the highest-ranked of the Mag Seven in US relative strength rankings, exhibiting lower beta and less volatility than some peers. It's seen as a "steady eddy" stock that may outperform in the current environment. A new position was taken in October.
• General Motors (GM): The auto sector is showing signs of life after being depressed for years. GM popped on earnings and has moved into the top ten of US relative strength rankings. The entire sector is attracting attention.
• Tesla (TSLA): While on an upswing and performing well, Tesla has pulled back slightly. There's a tug-of-war between its performance as a tech stock versus an auto stock. Support levels are identified at $400 and then $350-$375. Selling would be considered if relative strength deteriorates significantly.

Conclusion and Takeaways

The market is undergoing a correction driven by a combination of factors including the end of earnings season, stretched valuations, and uncertainty around Fed policy. Seasonality has been disrupted, and investors are re-evaluating sector leadership. Technical analysis is crucial for navigating this environment, with a focus on relative strength, support/resistance levels, and chart patterns. While some sectors like tech and software are struggling, others like energy, financials, and the auto sector are showing promise. Investors are advised to be cautious, manage risk, and focus on stocks and sectors demonstrating relative strength.