TopPicks from Bruce Campbell, president and portfolio manager, StoneCastle Investment Management
FOCUS: Canadian stocks After a challenging and humbling 2022, many investors have been surprised by the rebound in 2023.
During the fourth quarter of 2022, we began to see changes in the long-term indicators we follow. The changes were showing selling pressure beginning to subside across many sectors and market capitalizations. This often happens months before the turn in stock prices. Moving into 2023, we experienced price momentum building in the large capitalization sectors.
In January we had a rare two-to-one advance decline signal that occurred over a 10-day period. These signals are exceptional and have produced positive results in the past. After the January surge, market breadth diminished and for most of the first quarter was limited to a few sectors and mostly larger capitalization companies. This began to change in May, and we have seen a consistent broadening out of market breadth through June and July.
We are now seeing breadth in more sectors, industries, market capitalizations and geographic regions. At first glance, it appeared January’s move was only short covering, now we are seeing a transitioning to a much healthier uptrend. In just the last two weeks we have had several of our risk indicators become more constructive, giving us the first positive signals in 36 months. We have also been witnessing price momentum in many more areas including the small and mid cap areas of the markets.
We host a monthly webinar to review all the economics, sectors and market capitalizations. In the July webinar we showed how our composite box score was rapidly improving over the last two months. These conditions have us cautiously optimistic the new uptrend may last for many more months.
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