Sid Mokhtari, chief market technician at CIBC Capital Markets.Supplied
April was an extremely volatile month for equity investors. The S&P/TSX Composite Index experienced more than a 3,000-point swing between its intramonth high and low but ultimately ended the month relatively unchanged.
Markets have calmed, buoyed by growing optimism that progress is being made on tariff negotiations and that U.S. trade deals may soon be announced.
Despite ongoing trade tensions, economic uncertainty and market volatility, Sid Mokhtari, CIBC’s chief market technician, has consistently seen his basket of stock selections outperform the broader market - not just last month, but every month so far this year.
Mr. Mokhtari publishes a monthly report with his Top 10 stock ideas and his disciplined process continues to lead to portfolio outperformance. He screens and selects stocks from the largest 100 members by market capitalization within the S&P/TSX Composite Index. In April, his basket of 10 stock recommendations gained 0.85 per cent compared to a 0.3 per cent loss for the S&P/TSX Composite Index. In the first four months of 2025, his portfolio of stock selections delivered a 6.60 per cent return, compared to a 0.46 per cent gain for the broader index. His stock selections also outperformed the S&P/TSX Composite Index in 2024, 2023 and 2022 by 5.8 percentage points, 6.3 percentage points and 2.7 percentage points, respectively.
For May, his Top 10 stock ideas include four carryovers from the prior month - Choice Properties REIT (CHP-UN-T), Fairfax Financial (FFH-T), Stantec (STN-T) and Waste Connections (WCN-T) - as well as six additions: Constellation Software (CSU-T), Element Fleet (EFN-T), Nutrien (NTR-T), Power Corp. (POW-T), RB Global (RBA-T) and TD Bank (TD-T).
On May 2, I spoke with Mr. Mokhtari who shared his market outlook, his latest stock picks as well as potential ETF investment opportunities for investors to consider.
April was a volatile month for equity markets after President Trump announced widespread tariffs. When we spoke last month, you identified 22,250 as an initial downside target for the S&P/TSX Composite Index, and during the month we hit an intraday low of 22,228. For the S&P 500, your downside target was 4,819, and the index hit an intraday low of 4,835 in April. Your calls were impressive, nearly spot-on. Last month, we saw a V-shaped recovery in both indices. Where do you see the S&P/TSX Composite Index and S&P 500 headed now?
The levels that you highlighted were our goal posts or pivots, measured by historical trough proximity in market internals. In other words, when we show upside or downside numbers in technical charts, effectively we are referring to risk reward potentials associated with different mean-reversion bands that have historically worked well during exacerbated moves. Of course, there is no real certainty that the current environment will react according to historical footprints, but we show more confidence in our calls when our indicators reach extreme bands. And the numbers you are highlighting were the corresponding extreme reference points that we could comfortably lean on.
As far as the V-shaped recovery, I must admit that it is a bit of a surprise that we are managing to exhibit this magnitude of strength on the upside.
But I’m also not that surprised because the lows that we received in early April, post Trump’s ‘Liberation Day’, caused what you would refer to as capitulation. We saw a market that completely capitulated on heavy volume.
It is reasonable to say that we have put in a very good low from a historical measure of capitulation and the reversal of it, the magnitude, is somewhat surprising. I think what it’s effectively saying is that maybe the tariff narrative has peaked. In other words, the market is now fully on board with the idea that we now have priced in the tariff. The lows that we saw in April were the tariff lows, and that narrative, I think is behind us now. This market will probably begin to heal itself by trying to gauge whether or not something has broken yet or whether or not this is going to create a slowdown as we go forward to the economies and whether or not there will be a recession.
I’m of the view that this market is now going to be operating off of more rational behavior, i.e. the fundamental data that will be coming out from the earnings reports as we go forward in the weeks ahead in the U.S. At this point, those numbers are not that bad because they are more of a rearview mirror set of numbers.
In my opinion, we are at best range-bound. At this stage, I can’t see a complete reversal back to the highs. I have a longer-term, 200-day, moving average for the S&P 500 that is pegged closer to 5,747, so my upside is becoming much narrower as we go forward, in other words, much closer to resistance or a level where I believe the broader index itself may begin to pause and may begin to digest some of the indigestion of the recent month that we had. So, I think the upside is becoming much narrower, the risk/rewards are more limited as we get closer to the 200-day moving average.
And would that assessment extend to the S&P/TSX Composite Index?
I’m of the view that for the TSX, we are getting closer to the top of the range of the probability bands, which are marked closer to 25,500, where we’re probably going to see some elements of a pause as well.
We have a process that gauges internals and breadth for broader indices globally, and we find that the TSX Index is on par with a market that has good internals compared to the U.S.
In your recent report, you have an interesting table showing the returns for the TSX Composite Index during the second half of the first year of a presidential term. And for the past 10 cycles, the TSX has realized gains in the second half of the year every single time. Based on that, do you see any pause for the TSX index as being short-lived with strength expected in the back half of the year?
If I had to numerically have a bias, I would say the back half of the year is probably going to be better for the TSX index simply because what if whatever happens to the tariff narratives causes a slowdown in economies around the globe, and the TSX index is a cyclical index by nature. It’s very much tied to trade and economic activities around the globe. And if activity begins to slow down, I wouldn’t be surprised if we see this upside resistance for TSX begin to manifest itself to a more of a range and bring the TSX index back down again to rebuild its bands, and then we’ll begin to reaccelerate as we go into the back half of the year. I think that would be my view for the TSX index.
I think that this is a positive year. I’m of the view that we will probably see high single-digit returns for both the S&P 500 and the TSX index.
In a recent report, you indicated that you do not expect to see breadth improve and that stock outperformance will be very selective.
We believe it is reasonable to be a lot more active and selective going forward, because we’re dealing with a range-bound market until we get better clarification as to whether or not tariffs have caused a temporary or more lasting slowdown around economies. At the margin, we think investors’ sentiment and confidence, in particular, is really hurting because of the constant shift in policy narratives.
I can’t call recessions but I would say if the rate of change of GDP begins to slow down, we will feel the pain in equity market indices. That’s why I want to be a lot more selective as we go forward and a lot more mindful that an active process is probably better than a passive process.
For quite some time your factor analytics matrix has favoured low volatility, dividend yield, value/quality factors. For May, your top 10 best ideas list includes stocks in economically sensitive sectors. There are four industrial stocks, three financials, and a technology stock. Are you seeing a rotation away from safe haven factors and a strengthening in growth and momentum factors?
When we look at the low volatility models, they were tied to the share price standard deviation of many companies that we have in our baskets for this month.
Waste Connections that we have in our basket, for instance, that’s a quality, low volatility name. It doesn’t have a lot of volatility around its moving averages from a standard deviation perspective. Element Fleet and RB Global are also within low volatility baskets. Stantec has also been a bit of a low vol name within our process. Fairfax Financial, it’s quite a low vol name within financials, similarly Power Corp. of Canada.
TD was a surprise for us when it came through. We noticed that we picked up a lot of banks, in terms of the rate of change of alpha and rate of change of rank in our matrix. We had TD, CIBC, and Royal Bank as the top three banks that were coming up in our matrix process. TD came up higher just because of the fact that it had broken out of its range of the past nine months. I don’t usually choose CIBC because of its optics but I would say CIBC would have been a better choice for me if I had to pick a bank relative to TD.
Constellation Software, if you look at its chart and historical growth, it’s a quality name.
Choice Properties REIT is a dividend yielder, producing strong alpha over the longer term in our work.
And Nutrien was another positive surprise for us. We saw Nutrien picking up a lot more delta in our ranking tables this past month. Some of it may be attributed to the recent better price action from the Agriculture sector collectively. There is also a growing narrative that if the S&P 500 committee wanted more Materials names representation in its GICS membership, currently at very low single percentage, Nutrien may be a plausible candidate given its size and that over 50 per cent of its revenue is in the U.S. The dual index residency and share purchase demand if Nutrien is elected for the U.S. Materials GICS sector would be a support for the share price.
Expanding on the bank stock that surfaced on your Top 10 list this month, TD Bank, from a technical analysis perspective, what’s your target for it?
The share price of TD had a very tight range between $70 on the downside and $85 on the upside, and it finally broke out of its upper bands. So, we use the amplitude of the base on each pullback and we try to replicate the same distance in an equivalent pattern to the upside, and if we were to do that, we have an initial price target of $94.
Subsequently, we can take it even higher, closer to $99 to $100. Because the base is very elongated, it’s a two-year plus base that has broken out, its expansion on the share price amplitude can also extend itself higher. So, I’m constructive on it. Sometimes when price discovery begins to take hold, I want to have a better bias to the upside.
Speaking of price discovery, Waste Connections, which you spoke about earlier, reached a record high last month. What is the price action and volume telling you?
When I look at Republic Services (RSG-N), which is one of its comps in the U.S., that stock has done quite well, making new highs on a regular basis. When you look at Waste Management (WM-N) in the U.S., you see similar price action that is pushing to new all-time highs and it’s improving its range on the upside. When we look at Waste Connections, it’s also doing the same thing. The entire waste management industry is a bit of a defensive area of focus for trend followers, as its volatility is not that significant. These companies can withstand potential recessions or economic slowdowns because everybody needs their garbage to be collected and their waste to be managed.
I think Waste Connections does have more price discovery on the upside. It’s measured move can take the share price higher, closer to C$295.
Waste Connections was a carryover from last month, let’s touch on a new industrial stock addition, RB Global, which you briefly mentioned earlier.
We like that stock very much. It scores well in our matrix process for its durability of trend as well as holding all its averages every time the stock corrects. We noted in our work that during the recent market correction, it managed to reverse course back to its longer-term average. It reversed course positively without altering any of its indicators negatively. And that’s a positive thing we often want to see for a stock that is showing growth, as well as strong momentum to support the underlying uptrend forces.
We also look at sales growth, the earnings per share growth rate, and consecutive years of earnings per share growth and ROEs - and all those rates of change were quite positive, which supports the durability of the trend.
There’s also the recent narrative that RB Global could benefit because of its dual residency in the U.S. and Canada and changes to eligibility criteria for S&P/TSX index. We expect RB Global to potentially get re-included into the S&P/TSX Composite Index in June, while maintaining its S&P Midcap 400 membership, following an announced methodology change by the S&P. Previously, only companies domiciled in Canada were eligible for TSX index inclusion, but with the new change TSX listed companies that are either domiciled or incorporated in Canada will be eligible for inclusion. If we are right on RBA election, that will bring around 5.5 million shares of indexer demand from S&P/TSX indexers which is about four days of its average volume. This may be additional support for our RBA being in our top 10 ideas.
So, put it all together, I find it to be a good stock to be owned for quite some time.
We are measuring it to go back and retest its previous high, which is closer to $156 on an intraday basis, but because trend and its regressions are well projected on the upside, I wouldn’t be surprised to see price discovery to maintain its course as we go forward.
Everything is susceptible to mean reversion, I’m not going to dispute the fact that we will have ebbs and flows and pauses throughout the upcycle. But, it’s very reasonable to say the lows that we saw for RB Global were very good, clean technical lows. It established a trough against all its longer-term averages, and this reversal is the just the beginning of a positive momentum resumption, which is going to be net positive for the share price.
Let’s expand into global investment opportunities as many overseas markets have delivered strong year-to-date returns. What global ETFs are ranking well and look attractive to you from a technical analysis perspective?
I would say Germany has been a great area of focus for us. You can choose either iShares MSCI Germany ETF (EWG-A) or Franklin FTSE Germany ETF (FLGR-A), both are showing very well in our work, ranking number two and three in our basket.
Another area of focus for us would be the iShares MSCI United Kingdom ETF (EWU-A). It does have very good positive readings in both absolute and relative against the World Index. This ETF is marked at number eight out of 54.
The other one that may be worth contemplating is Franklin FTSE Switzerland ETF (FLSW-A), sitting at number 18.
EFEA [Europe, Australia, and the Far East] ETFs are ranking quite well and I think it’s probably because after almost a decade of a secular move in U.S. equities, maybe there’s a bit of a pause in that area and money is rotating into other regions that have not been as strong as the U.S. or maybe investors have decided to take a pause for now in owning more U.S. stocks simply because of the uncertainty around policies in the U.S.
A positive observation that one could highlight here is that we’re not seeing money exiting equities globally and hiding elsewhere from a risk perspective. If the global markets and their corresponding regional ETFs were functioning as one index, then the latest orderly rotation favouring other regions relative to U.S. should be viewed through a more positive lens. It’s like favouring one big asset pool but rotating through its members that are of similar risk caliber – equities. We think this is a trait associated with a secular bull market characteristic, since rotation is still favouring equities, albeit is different global regions.
How do Canada and the U.S. rank?
Canada is sitting at number 23, but what’s important for Canada, at least for me, is its delta. So, Canada was sitting at almost number 40 last month, and it has picked up 17.
The U.S. is in the lagging quad, sitting at number 52 out of 54.
And what are the rankings on two additional regions, India and China?
There is an ETF called INDA, which is MSCI iShares India (INDA-A). I often look at that one for India, in general. I’m very much of the view that the secular bull market narrative for India has not ended. We just corrected following a very strong, stretched bull trend and I would say that’s still the right area of focus.
The ETF called ishares China Large-Cap (FXI-A) is one that we often follow, and it does show better upside potential still.
I like both India and China but I do prefer India over China, technically speaking, from a relative performance perspective.
In terms of rankings, India is sitting at number 40 and China is currently sitting at number 38, so they’re not too far apart from each other.
Now, let’s turn the discussion over to two commodities displaying quite different technical trends – oil and gold. Crude oil prices broke below U.S. $60 a barrel. What are your thoughts on WTI?
It’s always difficult to talk about oil markets when it comes to having a bias as to what the what oil producers are going to do or say.
But, purely from our disciplined perspective, those who follow trends and follow alpha and momentum and seasonality conditions, I think it is very reasonable to suggest that WTI has been stuck in a range over the past few years and a lower high condition. In other words, we had a pattern that was becoming heavier and heavier through time by leaning on its very important area of support, which was marked close to a US$67 handle. So, every time it came down to US$67, it managed to find a reason why it should rally on the upside, but all subsequent rallies on the upside were truncated through time, and they were not able to progress to new better levels on the upside.
If you are agnostic of what you’re looking at and if it were just a simple diagram of the shape of a chart pattern, it would say what’s developing here is a descending triangle pattern, which means your range is narrowing and leaning on its support level too many times before it may break. And that’s exactly what happened.
The chart broke down for WTI and the range of that breakdown could measure to as low as US$50, US$52 levels. You could push lower but by the time we get to US$50, US$52, we have reached very deep oversold levels, reaching our lower bands of that trajectory.
So, I’m still of the mindset that it has technical challenges from a trend and directional perspective.
And a commodity at the other end of the spectrum is gold with its impressive run. Is it time to take profits off the table on gold stocks?
When we look at gold stocks collectively, the rate of change in their performance has been completely different from the commodity. They have both performed very well but the gold commodity has done much better. Stocks, collectively as a basket, did not participate in the same fashion as the commodity. But, if you were selective, you could have outperformed the commodity itself by picking the right stocks.
Do we take profits here for gold stocks? First of all, we’ve had a very strong move off the lows. The commodity has done a great job in the past, call it, 12 months. The gold commodity could realistically correct to as low as US$3,000 without altering it longer-term rising trajectory from a trend following perspective and I think that would be the next best opportunity for those who want to tactically revisit the space.
In the near term, I do think what you’re suggesting is the right call for a period of consolidation, a period of mean reversion, easing some of these overbought conditions that the commodity and some of its members within the space have demonstrated over the past year or two. So, I wouldn’t be surprised if they begin to have some consolidation without altering longer-term uptrend forces. In other words, let’s give it a little bit more time, but let’s give the trend the benefit of the doubt and find an opportunity as they come back to better support levels. For the commodity, we’re pegging it to be closer to US$3,000 to as low as the US$2,900 level.
The Canadian dollar strengthened relative to the U.S. dollar, rising back above the 70-cent level. Is this positive momentum due for a pause? Where do you see near-term overhead resistance?
The magnitude of the rally for the Canadian dollar has reached a point of reference where historically we see a very positive setup for mean version. We think the Canadian dollar may be at best range-bound. The strength of it is very muted as we go forward. But, if it weakens, it’s probably going to stay rather contained within a much narrower range between 1.38 and 1.40 in the short term.
Is there anything else that you think is important to mention to our readers?
I would say diversification within global regions is a good bias.
Also, we’re starting to see some positive share price behavior within REIT’s again. Besides Choice Properties REIT, we are looking at Crombie REIT (CRR-UN-T), we are looking at CT REIT (CRT-UN-T).
This Q&A has been edited for brevity and clarity.