CIBC’s Sid Mokhtari on the best bank stock to buy and why markets are now vulnerable to a correction

CIBC technician Sid Mokhtari says strong earnings and leadership in semiconductors/AI are supporting the rally, but he expects consolidation in the next six months as breadth and volume remain weak. He sees the S&P/TSX Composite potentially reaching 35,000-37,000 and the S&P 500 near 7,300-7,350, both already at or above prior technical targets. His May model keeps a 30% energy and 30% financials weighting, with bullish setups in Cenovus, Keyera, Whitecap, BMO, Manulife and Power Corp., while Taiwanese ETFs look overbought and emerging markets are improving.

Analysis

The key signal is not that equities are extended, but that leadership is narrowing while internals fail to broaden. That combination usually supports another marginal high in the near term, but it also creates a fragile tape: once semis or AI momentum pauses, there is little secondary leadership to absorb flows. In other words, the market can keep climbing on a small number of names, but the probability of a fast, tactical reset rises materially over the next 1-3 months if volume and breadth do not improve.

The more interesting second-order effect is that this environment rewards relative strength over absolute upside. Energy and banks are not being bought because they are the cleanest macro stories; they are being used as latency trades for investors seeking participation outside crowded U.S. growth. That means under-owned Canadian financials and energy names can outperform even in a choppy consolidation phase, especially if rates stay elevated and crude avoids a disorderly pullback.

The contrarian risk is complacency around the idea that “dips get bought” indefinitely. That works until a catalyst forces factor rotation at the same time liquidity thins — for example, a hawkish Fed repricing, a yield-curve move that pressures financials, or a sharp semiconductor correction that breaks the leadership complex. The most vulnerable names are the overbought Taiwan/AI proxies, where upside may already be largely in the price and mean reversion risk is highest over the next several weeks.

Net/net, this is a tactical bull market inside a structurally cautious regime. I would treat new highs as a signal to express longs selectively, but only in names with strong relative strength, catalyst support, and defined support levels. The best risk/reward is in laggards with catch-up potential rather than the most extended winners.

Key Decisions for Investors

• Go long BMO over a 2-6 week horizon on weakness; use the lagging setup as a catch-up trade versus other Canadian banks. Target a move toward prior resistance with a tighter stop below recent support, as the risk/reward is better than chasing overbought leaders.
• Initiate a pair trade: long MFC / short SLF for the next 1-2 months if 10-year U.S. yields remain elevated. The trade expresses the rate sensitivity differential while avoiding pure beta to the broader financials tape.
• Add CVE and WCP.TO on pullbacks rather than breakouts; both are best framed as relative-strength trades with asymmetric upside if energy breadth holds. Risk comes from headline-driven crude volatility, so keep position sizes smaller and stops near recent support zones.
• Fade the most extended Taiwan/AI-linked exposure via short-dated call spreads or reduced gross exposure over the next 2-4 weeks. These names remain trend leaders, but their setup is vulnerable to mean reversion if breadth does not improve.
• Maintain a tactical long POW.TO versus GWO.TO as a relative-strength expression for the next month. The trade is less about sector direction and more about owning the better technical pattern within a crowded financials complex.