Equity Leaders Weekly

 BMO India Equity Index ETF (ZID.TO)&Dow Jones Utility Average (DUX.I)

Trading over the last week has been mixed but constructive. Despite taking two blows (President Trump being diagnosed with COVID and later his calling off stimulus talks), markets quickly rebounded indicating strong investor confidence and a “buy the dips” mentality. Economic numbers have remained positive and though the election campaign and political wrangling remain potential distractions, investors appear to be focused more on the upcoming earnings season. Overall, markets appear to have moved into a consolidation phase with tailwinds coming from existing stimulus and the economic reopening recovery but facing headwinds from political uncertainty and the risk of rollbacks related to COVID Wave 2, with earnings season as a wild card which could push stocks in either direction.    Monday is a national holiday in Canada (Thanksgiving Day) and a government holiday in the US (Columbus Day), after which earnings season in the US kicks off with results from major banks including Citigroup, JPMorgan, Wells Fargo and Bank of America), plus major brokerages/asset managers (Blackrock, Goldman Sachs, and Morgan Stanley) over the course of next week. A few results start to come in from industrials and consumer staples companies, but the wider earnings season really takes off off the week of the 19th. With stock markets significantly higher than they were three and especially six months ago, investor expectations may be higher for Q3 relative to the lockdown impacted Q2, but at the same time, confession season has been very quiet so far, with few preannouncements neither negative nor positive.  In this week’s issue of Equity Leaders Weekly, we take a look at stocks in India and at US Utility stocks as indicators of widening geographic and sector breadth supporting the current bullish trend in world stock markets.  

BMO India Equity Index ETF (ZID.TO) 

Investors often look to action in international markets for confirmation of North American market trends and to emerging markets as an indicator of investors appetite or aversion toward risk. While North American investors tend to focus more of their attention on North American markets, it’s important to remember that International Equity is currently in first place in the SIA Charts Asset Class Rankings, indicating potential opportunities overseas as well. Stocks in India have been trending upward in recent months, confirming the geographic breadth of the current market recovery trend up from the March/April lows, and also confirming investor openness to emerging markets. The BMO India Equity Index ETF (ZID.TO) has rallied approximately 67% up off of its March low, climbing in a step pattern of advances followed by periods of consolidation at higher levels. This month, ZID.TO has completed a bullish Triple Top pattern, completing a consolidation phase and signalling the start of a new rally phase. Next potential upside resistance appears near the $29.00 to $30.00 area where a round number, several vertical and horizontal counts, and the previous peak cluster formed. Initial support appears near $25.95 based on a 3-box reversal. With a bullish SMAX score of 7, ZID.TO is exhibiting strength against the asset classes.  

Dow Jones Utility Average ETF (DUX.I)

One of the signs of a healthy bull market is wide participation across stocks and sectors. While a few momentum stocks have attracted a lot of attention from investors, as the market advance that started back in March has progressed, there has been a rotation of capital over time with some of the profits being made in large cap momentum plays rotating down the market cap list and also into sectors which had initially lagged, increasing breadth and creating catch-up opportunities.  The utilities sector tends to be known for its lower volatility relative to the overall market, sensitivity to interest rates and defensive qualities. Following an initial rebound back in March, the Dow Jones Utility Average (DUX.I) went into hibernation, essentially trending sideways for the last six months. Recently, however, utilities have started to attract renewed interest from investors. Back in June, the Dow Utilites snapped out of a downtrend, then paused through the summer. This month, DUX.I has broken out to the upside clearing 850 to complete a bullish Spread Double Top pattern and signal the start of a new upleg. Next potential resistance appears near 880 then near 965 where vertical/horizontal counts and previous column highs converge. Initial support appears near 820 based on a 3-box reversal. With a bullish SMAX score of 6, DUX.I is exhibiting strength against the asset classes. Investors may note, that while the Dow Utilities appear to be staging a catch up rally, it’s also possible that recent strength may be reflecting increased concern among investors about near-term political and economic risks and a move to park some capital in defensive sectors.

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