In a riveting conversation with Sid Mokhtari, Chief Market Technician at CIBC Capital Markets, we delved into his successful stock screening process that has outperformed the S&P/TSX Composite Index this year. As of September 30, Mokhtari's investment strategy has yielded a remarkable 21.9% return, dwarfing the TSX's benchmark gain of 14.5%.

A Closer Look at the Stock Selection Process

Mokhtari's analytical approach to investing involves a sophisticated matrix of variables, designed to identify stocks that showcase accelerating momentum and adhere to specific criteria within the TSX sectors. His monthly "Top 10 Ideas" list for October includes noteworthy stocks such as the Bank of Nova Scotia (BNS), Capital Power (CPX), Shopify (SHOP), and others, presenting a diversified opportunity for investors.

He explains, "We focus on identifying emerging themes, be it fund flows or evolving narratives. The momentum factor is a key driver for generating significant alpha." This meticulous focus on breadth enables him to pinpoint stocks that are experiencing positive flows, signaling a robust market environment.

Positive Market Outlook

When discussing the future of the TSX, Mokhtari sets an ambitious target of 25,700 over the next three to nine months, a projection compelling enough to spark excitement among investors. He emphasizes that this outlook hinges on potential recovery in the energy sector, which could elevate the TSX closer to this target by year-end.

For the S&P 500, he anticipates a range between 5,800 and 6,000, with possible pullbacks in the short term as historical patterns suggest a correction could be due after a strong September. However, he remains bullish on market internals, noting that strong breadth is a positive indicator for sustained upward momentum.

The Standout Stocks for October

Mokhtari highlights West Fraser Timber as a prime pick, driven by anticipated rate cuts, along with Granite REIT, which he believes will benefit from seasonal strength in the REIT sector. The Bank of Nova Scotia, despite trailing some competitors, shows rapid improvement in its ranking, reflecting a positive rate of change—an essential criterion in Mokhtari's strategy.

Interestingly, gold stocks have been omitted from the Top 10 list due to current seasonal softness, while energy stocks like midstream pipelines edge into the spotlight due to their attractive dividend yields.

The Bullish Narrative Continues

With encouraging data illustrating a positive correlation between market conditions and stock performance, Mokhtari advises investors to remain vigilant. The upcoming months, particularly after October, tend to yield strong returns historically, with nearly 70% of years displaying positive performance heading into year-end.

Mokhtari also advises staying alert for potential tax-loss selling opportunities in select stocks, such as Nutrien, as a strategic buying move.

Conclusion: An Eye on the Future

As we digest the insights from this conversation, it’s clear that Mokhtari’s disciplined, quantitative approach is yielding fruitful dividends in today’s market landscape. While he warns of the risks of cyclical rebounds in the U.S. megacap stocks, the overarching theme remains one of cautious optimism.

With opportunities arising from his Top 10 picks, investors may find themselves positioned well for the potential rise in the TSX. Keep those eyes sharp, be proactive in your investment decisions, and prepare to seize the upcoming market waves!