Sid Mokhtari, chief market technician at CIBC Capital Markets.Supplied
The S&P/TSX Composite Index keeps setting new record highs and is on track to potentially deliver its highest calendar-year return since 2009, when the index rallied more than 30 per cent. As of the close on Oct. 3, the index is up 23 per cent year-to-date, and seasonal tailwinds could provide further upside to markets with the upcoming third-quarter earnings season approaching.
On Oct. 3, The Globe and Mail spoke with Sid Mokhtari, CIBC’s chief market technician, to get his technical take on equities and whether he sees markets nearing a top or believes they could rally further.
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. His recommendations have consistently outperformed the broader index across a wide range of market conditions. In the first nine months of 2025, his portfolio of stock selections delivered a remarkable 38.08 per cent price return, compared to a 21.41 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 October, his diversified basket of stock selections includes eight additions – Aecon Group (ARE-T), Capital Power (CPX-T), Celestica (CLS-T), Keyera (KEY-T), TC Energy (TRP-T), TD Bank (TD-T), Teck Resources (TECK-B-T) and Triple Flag Precious Metals (TFPM-T) – and two carryovers from the previous month, IGM Financial (IGM-T) and Shopify (SHOP-T).
Discussed below are Mr. Mokhtari’s top stock and ETF picks, along with his views on how market action may play out in the fourth quarter.
We’ve entered the seasonally strong fourth quarter for equity markets. You noted in a recent research report that markets tend to gain momentum starting in the back half of October. Interestingly, that corresponds with start of the earnings reporting season. The S&P/TSX Composite Index and S&P 500 blasted above your technical targets and are at or near record levels. What do technical indicators suggest to you for these indices and what are your new targets?
From a target perspective, we’re now in price discovery. Our best-case scenario for the TSX would have been 29,750, and we’ve gone through it with banks performing well. As well, gold continues to keep the index buoyed. The weight of the gold sector is now over 12 per cent of the TSX index so it’s been a very large contributing force of strength for the TSX. We are also seeing parts of large-cap energy beginning to participate and that’s another net positive.
So, we’ve gone through the top end of my target level, and it’s difficult for me to identify the next level until I have either a pullback or a period of digestion for the index and then I can calculate the amplitude of that range and project the next level.
At this point, I say to clients that we’ve gone through our levels and it would be prudent to let things work until we can start seeing something that is out of line with technical indicator formats. For now, I think we’re still in good shape but I’m cognizant that we’ve gone through every level that I could have measured on the upside.
So when you say “let things work”, you believe the bull market remains intact, especially given the seasonal tailwinds that we have in the fourth quarter?
By every measure of mean reversion oscillators, in other words stochastic or RSI [relative strength index] or the spread between moving averages, many of the TSX as well as the S&P 500 stocks are really overbought.
So, the one way we can think of continuing this magnitude of strength is by seeing rotation. In other words, parts of the index will pause and segments that have lagged will pick up the baton.
So, is now the time for investors to get defensive?
Factors that are in our leading quads are ETFs associated with growth and momentum. I think GARP, growth at a reasonable price, models are likely to continue to work.
Areas where we’re not seeing significant strength are linked to quant factors associated with dividend yield, low volatility, and, by some measure, value that have fallen into our lagging quad. On the other hand, this month’s top picks showcase a stronger tilt in favour of growth factors. Given the robust market performance, I’d suggest that investors adopt somewhat of a barbell strategy, balancing both offensive and defensive stocks within the growth domain.
My defensive exposure is Capital Power, for instance. It’s a utility that is offering an element of defensive bias from a portfolio perspective but it’s an offense stock within utilities. It’s a stock that is tied to data centers as well as AI factors. TransAlta (TA-T) and Capital Power are benefiting from power generation that is needed by AI centers in both the U.S. and Canada. This is the type of a utility that is that is likely to be perceived as a growth utility.
What sectors are technically showing the greatest upside potential?
When we scan for growth opportunities, we find them within technology. Celestica, Shopify, OpenText (OTEX-T) and BlackBerry (BB-T) are considered to be growth technology companies.
Growth names are also tied to industrials through engineering companies as well as aerospace and defense companies such as Bombardier (BBD-B-T).
What about financials?
When we seasonally adjust all the sectors based on their strength, historical observations and hit rates [a hit rate is a measure of frequency of observations] associated with their relative performance to the benchmark index, those sectors are very much tied to financials, industrials and technology. Other sectors do participate as well but the best hit rates are tied to those three offensive sectors.
What sectors are unattractive from a technical analysis perspective?
Defensive sectors are not scoring well in relative terms. In other words, alpha is not coming from defense, it’s coming from offense.
When we look at sectors in Canada, we find that by some measures both consumer discretionary as well as consumer staples are not showing much relative strength. We also see similar behavior out of utilities in Canada. It doesn’t have a lot of relative strength. We certainly are not seeing relative strength durability within energy so we’re very selective about our energy picks. We need them to be associated with the midstream segment or dividend yield with companies such as Enbridge (ENB-T), TC Energy, Keyera, Pembina (PPL-T) and Gibson (GEI-T).
Speaking of energy, is WTI crude oil going to break below US$60?
From our perspective, it is a commodity that does not have enough momentum to reverse its course of a downtrend that it has been in for years.
WTI is below its 10-week, which is a 50-day moving average, and that moving average is also below its 40-week, or 200-day moving average. So, it’s a very defined downtrend with the next level being US$57 and potentially toward a US$50 level. So to your point, US$60 is very critical, but we would not be surprised if it probes lower.
Let’s turn to the discussion over to your top 10 best ideas for October. Can you highlight a few stocks for our readers?
Like I said earlier, we were very selective about our choices in the energy sector. They must be tied to the midstream segment or dividend yield and have an element of growth.
Keyera recently broke out of its upper band and does have more upside propensity. It is in our improving quad. We also like the name from a fundamental perspective, highlighting Keyera as having positive catalysts for its growth.
This month, we switched Enbridge for TC Energy in our basket of top picks as TC Energy was sitting at a higher rank relative to Enbridge.
I think financials could do well. IGM Financial is a carryover from the previous month. Asset managers are generally ranking well. We like Onex as well as AGF.
We had BMO (BMO-T) in our basket of top picks for three months in a row. This month, we switched BMO for TD given how TD’s delta factor was much higher relative to BMO. We noticed that BMO’s performance was slowly becoming stagnant given the magnitude of the run it has had over the past three months.
Shopify is a name with a good technical backdrop. In the technology sector, it ranks number two and Celestica is number one. They both are high beta stocks with growth backdrops. Celestica is tied to the AI theme.
Given financial and technology stocks tend to outperform in October, let’s run through your technical targets for IGM Financial, TD, Celestica and Shopify.
We do see more upside potential for Shopify having broken out of all its ranges on the upside. In Canadian dollar terms, between $200 and $210 is a support area where Shopify should be able to hold itself. And the measured move for Shopify and price discovery is closer to $254.
As far as Celestica goes that’s a very high momentum, high beta stock. The measured move for Celestica on this push can be calculated toward $378, $380. It has a strong technical pattern referred to as a “bull flag”. To elaborate on the “bull flag”, also known as “pole and pennant”, it’s essentially a pattern associated with uptrend continuation. In simpler terms, it indicates that the share price is taking a breather after a period of strong momentum. Celestica has a very strong band of support closer to $320.
And the financials – TD and IGM Financial?
Let’s discuss TD first. TD is strong name. It did breakout of its range in recent days. We think the name is probably going to be able to make new highs as time progresses. I would say the measured move is $120 from the leg that we have currently.
For IGM Financial, $57, $58 would be my levels on the upside.
Are there thematic ETFs that are technically ranking well?
Global X U.S. Infrastructure Development ETF (PAVE-A) is ranking well. It’s been pausing for the past few months but it continues to rebuild its momentum above all its averages, and all those moving averages are showing quite well on the upside.
The other one that we are highlighting is iShares U.S. Aerospace & Defense ETF (ITA-A).
For global equity investors, could you comment on your global ETF scorecard and potential investment opportunities?
Focusing on our global ETF scorecard, the iShares China Large-Cap ETF (FXI-A) stands out as number one among the 60 ETFs we monitor, followed closely by the iShares MSCI South Korea ETF (EWY-A). Generally, we favour the iShares MSCI Emerging Market (EEM-A), which holds the sixth position. We are not surprised by the recent strength in emerging markets as they tend to benefit when U.S. Treasury yields and the U.S. dollar decline.
Where does Canada and the U.S. rank on your global ETF scorecard?
iShares MSCI Canada ETF (EWC-A) is sitting at number 27.
The SPDR S&P 500 ETF (SPY-A) is sitting at number 11 with a 26-point jump. We’ve seen a sharp technical ranking improvement for the U.S. We’ve seen strong leadership within U.S. technology, which continues to defy gravity and push to the upside. We’re also seeing industrials as well as financials along with parts of consumer discretionary showing quite well. So, America is certainly showing resiliency in terms of relative strength against world indices.
U.S. tech stocks you said, “continue to defy gravity and push to the upside”. Does that concern you and suggest that we will get a pullback? Or is the trend your friend and investors should stay invested in technology stocks, after all, tech stocks are driving earnings growth.
I would say this is an overbought condition that has affirmation of strength. Usually when we become concerned about an overbought condition it is when the price pushes to the upside and maintains its course trajectory but the indicators beneath the price do not confirm that price movement. Today, we have confirmation of the price movement so we think dips are likely to be bought within the technology space, particularly in large caps.
We still think U.S. large caps is the right area of focus. So even though I do think that maybe mid-caps or small-cap stocks from time to time participate in the broadening fashion of the market, large caps are still leading the markets.
Given the sharp move higher in U.S. equities on your global ETF scorecard, do you prefer U.S. equity markets over the S&P/TSX Composite Index?
As we approach the year’s end, the U.S. tech space could potentially continue to deliver relative performance in U.S. equities, surpassing Canada. I do admit that we still see reasonable technical tailwinds for the TSX members also, albeit from a relative perspective the U.S. might outperform in the fourth quarter.
The Canadian dollar was under pressure in the third quarter. What’s your outlook for the Canadian dollar relative to the U.S. dollar?
I would say it’s in a very tight range with downside that is closer to 71 cents and upside that is sitting at about 73 cents. So, that’s a very tight range that I think we’re going to be stuck in for a while before we can find a directional bias for it.
Is there anything that we didn’t discuss that you want to highlight?
One point to keep in mind is the current overbought condition of the markets. It is reasonable to suggest that positioning in a barbell fashion may have better performance merits going into year end. Growth is evidently working, and growth factors are leading in our matrix models. However, considering the overbought scenario and potential mean-reversion risks, it might be wise for investors to also consider value exposure that have lagged, and to me, the U.S. industrial sector fits that narrative.
This Q&A has been edited for clarity.