Market Call: Keith Richards' outlook on U.S. Equities

Key Concepts

• Technical Analysis: The study of past market data, primarily price and volume, to forecast future price movements.
• Moving Average Convergence Divergence (MACD): A momentum indicator that shows the relationship between two moving averages of a security's price.
• Support Level: A price level where a security's price has historically stopped falling and started to rise.
• Resistance Level: A price level where a security's price has historically stopped rising and started to fall.
• Trend: The general direction in which a market or security is moving.
• Uptrend: A trend characterized by higher highs and higher lows.
• Downtrend: A trend characterized by lower highs and lower lows.
• Sideways Trend (Basing): A period where a security's price moves within a defined range without a clear upward or downward direction.
• Breakout: A price movement that surpasses a resistance level or falls below a support level, often signaling a continuation of a new trend.
• Overbought: A condition where a security's price has risen too far, too fast, and may be due for a pullback.
• Oversold: A condition where a security's price has fallen too far, too fast, and may be due for a bounce.
• Breadth: A measure of the number of stocks participating in a market move. Poor breadth indicates that only a few stocks are driving the market higher.
• Divergence: A situation where a technical indicator moves in the opposite direction of the price of a security, often signaling a potential trend reversal.
• Rotation: A shift in investor preference from one sector or asset class to another.
• Value Stocks: Stocks that are considered undervalued by the market, often characterized by low price-to-earnings ratios and high dividend yields.
• Commodities: Raw materials or primary agricultural products that can be bought and sold, such as oil, gold, and natural gas.
• Tax Loss Selling: Selling a security at a loss to offset capital gains and reduce tax liability.
• Legging In: Gradually building a position in a stock or ETF over time, rather than investing a lump sum.
• Beta: A measure of a stock's volatility in relation to the overall market. A beta greater than 1 indicates higher volatility.
• Non-correlated Assets: Investments that do not move in the same direction as the broader market, offering diversification benefits.

Market Overview and Technical Indicators

Keith Richards begins by discussing the recent choppiness in the market, noting that it was "kind of needed" as things were "pretty overbought." He highlights the importance of the S&P 500 staying above the 50-day moving average, which has served as support since the April lows. Despite this, he expresses caution due to poor breadth and divergence in momentum indicators like MACD (Moving Average Convergence Divergence). MACD, a price momentum indicator, is showing weakening price momentum, even on stock charts. While short-term indicators are fine, the longer-term picture suggests caution. Richards emphasizes staying with the trend but maintaining a degree of caution.

TSX and Dow Jones Performance

The TSX Composite hitting a record high and the Dow Jones Industrial Average also reaching a new peak are discussed. Richards points out that the TSX's strength is attributed to its heavy weighting in resources, an area he has been advocating for two years. He contrasts this with the Dow, which lacks the heavy tech weighting of the S&P 500. This difference explains why the TSX and Dow are outperforming the S&P 500, as tech stocks like Meta are weakening, while other sectors are catching up.

Rotation and Value Investing

Richards notes a shift in strategy towards equal-weight S&P and a focus on commodities and value stocks over the past year. He believed the "AI thing" would eventually roll over, and this is now being observed. The Dow and TSX moving higher, in his view, signifies a rotation occurring in the market, moving away from heavily tech-weighted indices.

Analysis of Specific Stocks

Go Easy (GO.TO)

• Technical Picture: Support at approximately $160 has been broken. The next potential support levels are identified as old resistance around $120 (from 2023) and then prior lows around $90.
• Entry Point: Richards would be interested in buying if Go Easy bounces firmly off the $120 level for more than a couple of days.
• Long-Term Holding: He is not optimistic about Go Easy as a long-term holding, as its chart does not show the characteristic higher highs and higher lows of long-term growth.
• Group Analysis: Go Easy is categorized with "subprime" lenders, a group that, along with the restaurant business, has been "slaughtered" this year. Caution is advised for these sectors.

Uber (UBER)

• Technical Picture: Uber has been trading sideways since May. Richards' firm owns Uber in their aggressive strategy, liking its breakout potential.
• Support Level: Support is expected around $90-$95, with the current price around $93.
• Outlook: Richards is of the opinion that the stock will move higher.

Descartes Systems (DSG.TO)

• Technical Picture: The stock has broken through its 20, 50, and 200-day moving averages. Potential support levels are identified around $110, and possibly $100-$110 on a five-year chart. Older support levels are considered less important.
• Oversold Condition: It is not considered oversold.
• Outlook: Richards does not "love the look of that chart right now" due to the downtrend (lower highs and lower lows). He advises against buying during a downtrend and waiting for it to base and break out.

Novo Nordisk (NVO)

• Technical Picture: The stock is in a downtrend with lower highs and lower lows. There is a slight indication of a recent higher low, but more confirmation is needed.
• Outlook: Richards would be interested if the stock bases and then breaks out, but this is "a ways off."

Canadian Natural Resources (CNQ.TO)

• Technical Picture: The stock has broken through its last peak and low, and is breaking through old resistance, which is a positive sign. A five-year chart shows a breakout followed by a breakdown and now an attempt to bounce off the breakout point.
• Outlook: While not an "exciting area," CNQ is considered a good company, and a bounce back to old highs is possible. He rates it a 5 or 6 out of 10. He notes a shift from oil stocks to natural gas stocks, with natural gas looking better currently. CNQ is seen as a blend of both.

OpenText (OTEX.TO)

• Technical Picture: Management turmoil is a concern. Richards identifies potential support around $45-$46.
• Outlook: As a buyer, he would not step in. As a seller, one would need to decide if they are willing to wait for it to fall to $45 and prove if it can hold.

Energy Fuels (UUUU)

• Technical Picture: The stock has a "great long base" and experienced a strong breakout, followed by a parabolic move and a subsequent pullback. It formed a "neckline top" and broke it.
• Outlook: Richards would not buy it at this point. He would look to buy on a breakout after it establishes a base and shows it's not going lower.

Ark Resources (ARK.TO)

• Technical Picture: This is a "classic swing trader stock" with predictable support. It has been trapped in a zone but is still owned by Richards' firm.
• Outlook: He still likes the stock, especially as natural gas (the commodity) is starting to move. Patience is required due to its yo-yo movement.

Silver ETF (SLV)

• Technical Picture: This ETF has been "working out nicely," with silver soaring this year. Richards recommended buying silver over gold at the beginning of the year due to underperformance.
• Outlook: Significant upside is expected. Producers in both gold and silver are also seen as having substantial upside, especially after recent pullbacks.

CASH ETF (CASH.TO)

• Technical Picture: This is essentially a money market fund.
• Strategy: Richards' firm holds cash over the summer due to seasonality and market risk. They use a "Barometer" tool, which measures factors like trend, breadth, volatility, sentiment, and momentum, to determine cash levels. A low score leads to holding more cash.
• Outlook: They have exited this ETF and are "legging in" to other positions.

Tourmaline Oil (TOU.TO)

• Technical Picture: This is another gas producer trapped in a swing zone. It is bouncing off support.
• Outlook: Richards is bullish on the stock, expecting it to break out eventually as natural gas prices rise, provided the move is sustainable.

MDA (MDA.TO)

• Technical Picture: The stock has taken a hit, trading down for the year. It is on their aggressive watch list.
• Outlook: Richards would become serious about it if it finds support where it is currently trading. He would not buy at this point but would not sell until it breaks a specific line (potentially $20). It could be considered for tax loss selling.

Xylem (XYL)

• Technical Picture: Xylem has broken out and is considered a commodity-related stock, though water itself doesn't trade on exchanges. The RSI is not overly overbought.
• Outlook: Richards would continue to own it if he holds it and would likely add to the position on a pullback, as he likes breakouts.

The Metals Company (TMC)

• Technical Picture: The stock has experienced a parabolic move followed by a pause and consolidation. It is showing a higher high.
• Support Level: Support is expected around $5.
• Outlook: Richards sees nothing wrong with the stock and would be adding to it if it bounces off the $5 support zone.

Hammond Power (HHP.TO)

• Technical Picture: This is a breakout from a base, with a parabolic ascent followed by a pullback. Potential pullback to the neckline breakout is around $130-$150.
• Outlook: If support holds around $130-$140, it would be a great place to buy. He would not buy right now but would keep it on his watch list. Power companies are of interest due to AI demand.

Chemours (CC)

• Technical Picture: The stock has had a nice breakout about a year and a half ago and is in an uptrend with higher highs and higher lows. Pullbacks are expected to hold the trend line.
• Entry Point: Richards would consider buying on a bounce off the trend line after it proves itself over the next week or two.
• Strategy: He advises retail investors to "leg in" to new positions, buying in stages rather than all at once.

Methanex (MX.TO)

• Technical Picture: The stock has washed out and then experienced a breakout, which they bought. It is currently peeling back slightly. The first target (old support level) has been met.
• Outlook: Fundamentally and technically, it has worked so far. The next step is to see if it can break the old support level. They have a small position (2%) and would add to it if it breaks out.

Visa (V)

• Technical Picture: After a run in 2024, Visa is basing. There is pressure from potential consumer defaults in a softer economy. However, the stock has support and is holding it nicely.
• Outlook: If owned, there is no problem with the chart as it hasn't broken down. It may not do much for a while. He gives it a 5 out of 10, stating the chart is not exciting but has no issues.

Shopify (SHOP.TO)

• Technical Picture: The stock has a nice long-term uptrend and recently made a significant higher high, not overly parabolic. It is currently in a pullback period within the trend.
• Outlook: Richards doubts it will retrace all the way back to the trend line (around $150) unless the company is doing something significantly wrong. He anticipates a bit more downside but would see a pullback followed by a base as a buying opportunity.

Fire & Fire (FF.TO)

• Technical Picture: The stock has a base after a strong move, with a parabolic ascent followed by consolidation. This consolidation is seen as a healthy part of the process.
• Outlook: Richards finds the stock "fine" and would not be interested if it rounded over and broke down after a parabolic move.

BMO MSCI India Selection Equity ETF (ZID.TO)

• Technical Picture: This ETF shows a triangle breakout (descending peaks, rising troughs), which can be very powerful.
• Outlook: Both technically and fundamentally, they like the ETF. They have taken a smaller third leg (1%) due to some fundamental risks like potential corruption within the Indian government, as advised by their fundamental analyst. They also see potential upside in the currency.

Eikon (EIK.TO)

• Technical Picture: This stock has been powered by its nuclear business and has had a nice jump since purchase. It experienced a base breakout and went parabolic, and is now pulling back as expected. It has taken out the old high and may be finding support.
• Outlook: They believe it will hold based on fundamentals. It is a bit "thin" for institutions but is liked for its power and engineering aspect.

Invesco S&P 500 Equal Weight ETF (RSP)

• Technical Picture: This ETF is trading sideways, bouncing off the bottom of its range.
• Outlook: Richards believes it will break out as market rotation continues. He doesn't expect the "Mag Seven" tech stocks to crash but rather to take a backseat due to being overextended. This ETF allows participation without overweighting tech. He emphasizes that they do not want to own overvalued "go-go stocks" and prefer to own a bit of everything. They love US stocks and foreign currencies, with the Canadian dollar expected to remain under pressure.

Conclusion and Key Takeaways

Keith Richards' analysis emphasizes a cautious but opportunistic approach to the market. While acknowledging the underlying uptrend, he highlights the importance of technical indicators like breadth and momentum to identify potential risks. The current market environment suggests a rotation away from heavily tech-weighted stocks towards sectors like resources and value. He advocates for a disciplined approach to investing, including "legging in" to positions, waiting for breakouts, and respecting support and resistance levels. The importance of diversification and considering non-correlated assets is also implicitly present in his recommendations. Richards' core philosophy revolves around following the trend while remaining vigilant for signs of weakness or opportunity.