A Comment -- General Comments From an Expert (A Commentary)

Interest rate impacts on income stocks. Market expectations are for two more rate hikes for the Bank of Canada this year. Not all income stocks react the same to interest rate hikes. Those companies heavily laden with debt, like utilities, who might have refinancing risks could be at risk. However, dividend growth companies with lower debt and some REITs with growth opportunities will be interesting. This is where active managers shine.

Pipelines and no access to Asian markets? We are too late to the party, because of no pipelines. That leaves Canada stuck with the U.S. He likes pipelines, but we really need to get our resources to Asia where growth is going to happen. Our federal government has to take the lead in building pipelines. Ottawa has to take a stand. We need a national strategy. Maybe Justin Trudeau can benefit Alberta in contrast to Pierre who alienated Alberta in his time. The WCS vs. WTI spread will only widen, leading to higher inflation, and gold is a haven against inflation.

Market. He sees the potential for a nasty downside in the general market, on the order a further 10% correction. He thinks that natural gas has been beaten up badly but oil has not. Demand for oil will be lower in April/May/June than the winter. He expects a big increase in inventories and he thinks we will bust $60. If the market has a 20% correction, which he thinks is normal, then oil could drop below $50. He recommends holding off on buying oil stocks. He thinks natural gas stocks are cheap and that there will be a fabulous market for oil stocks at the end of Q2 2018, after we see the end of the coming oil shakeout.

Aramco. He thinks that they didn’t want to make disclosures and conform to accounting standards to the level required by SEC for American exchanges. So they are probably planning on listing just in Saudi Arabia or doing private placements with Russian or Chinese investors. ?

China denominating oil contracts in its currency is a game-changer, because of the convertibility to gold. History shows that whenever governments take on debts it cannot pay back, it resolves this by changing the currency reserve, which today is the US dollar, and in the 1930s was the UK pound. Now, it's the Chinese Yuan. This has massive consquences for the global economy. China thinks, all the infrastructure projects are in our backyard, so why do we need the dollar? It is re-monitizing all the gold it has taken from the west since 2008.

Price of Gold fixed to the U.S. dollar? He's working under the assumption that central banks have been manipulating the price of gold. Gold should be trading north of $2,000 and as high as $5,000, based on inflation and geopolitical events. If gold was this high, then investors wouldn't be running to the Dow as much. China has benefitted from this manipulation by buying gold in western and central banks. We should see a rise in gold's price in the future.

Junior Gold? At the recent PDAC he sensed a difference. All the producers he met are extremely well-positioned. Anyone producing now with low-cost production in quality areas has been making a lot of cash flow and balance sheets. The cost reductions of 2014-5 have since kicked in and those companies are now really benefitting. Now's the time for good stock-picking among all gold producers, including the juniors. His criteria: solid managment, low-cost production and geopolitical location of their properties.

Market. China is not hitting the soy bean market which would have been a bigger hit to Trump’s base. Theirs is a very measured response. It all has to get worse before it gets better. This is game theory. We are not at the brink yet in terms of pushing back against tariffs. Trump may get a better trade deal with China specifically. The intellectual property theft that China has been getting away with has to be addressed. Energy stocks disappoint him. Oil prices are holding up and he is disappointed in the stocks. And it is not just our landlocked oil – it is also the US.

LIBOR (London Interbank Offer Rate). It has spiked recently, because of technical reasons – repatriation, for example. When the LIBOR spread widens that usually means banks have little trust for each other, but not this time. He is monitoring it, however.

S&P 500 Technical Analysis - The next big level of support. We need to test the February lows. We are testing recent lows today. If we go below that we have to go back to the February low. We also have to test the February low for the NASDAQ. He does not think we can move higher until we test that.

Educational Segment. Will the FANG stocks take the Market Down. Markets are a sum of the parts. You have to look at the parts to know what it will do. He focusing on FANG. The FANG ETF plays the Internet and Tech. There have been no net gains in a year. You are not seeing higher highs. 50% of the NASDAQ is the FANG stocks. Trump is pretty aggressive against AMZN-Q. The trend is not broken on the QQQs. We have to test the February low before this market can gain re-leadership and run (150 level on the QQQ). AMZN-Q has had an unbelievable run. When it breaks it is most likely to find support at the 2017 highs. FB-Q can fall 15-20% more. This could do a lot of damage and Trump will do that if he has his way. AAPL-Q has already rolled over. It has pretty important support at $150. If it breaks it goes to $135. GOOGL-Q may be a target also of regulators, failed to make a new high and broke to new lows. But it would just be a correction in a longer term trend. FB-Q has already rolled over. $127.40 is the highs from 2017 to $106 is somewhere that it will find strong support. It is a big question mark for the market. If we get below the $150 on QQQ it would take us back to $145. The FANG group is 15% of the S&P500 and would take it back to the lows and possibly under cut it. The vast majority of earnings growth will come from Tech.

Market. The technicals are telling us lots of things. In the near term we want to watch the 200 day moving average as it was a support level for the S&P 500. It is at the lows of February now (Mid $2500s). If we hold above that we are good. There is a pattern that leads markets into correction and we are following that perfectly. In 2010 and 2011 we had this pattern. We had a correction in February and now in April and that is in line with those years. His thoughts are that we are headed into a healthy 20% correction sometime this summer. Don’t confuse this correction with a bear market. It is just a normal correction. Bull markets normally go more than 10 years. He thinks we have a significant bull to go but 20% is a significant correction.

MACD – What it is it and how do you use it. 12 and 26 are two moving averages. MACD is a moving average convergence / divergence. If the 12 is moving up, it is getting closer to the longer moving average. It tends to go up as they converge and goes down as they diverge. If MACD is moving in the direction of the market, you are fine.

Moving Averages. He uses the 50 day and 200 day moving averages because they are the classics, but he pays more attention to the 200 day. So many follow it that it becomes a self fulfilling prophecy. He pays attention because others do.

Start of Q2 with deep volatility: the markets started 2018 strong after an also strong 2017. This is now a healthy reassassment and putting fear into the market, which is healthy. Earnings are pretty good and interest rates, despite rising, are still low. Companies around the world are having a pretty good go at it. Yes, there are trade tensions. FANG stocks are beaten up, but starting to look pretty attractive. People are scared, but he's actually getting excited about the markets.