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

Markets. He is not a believer that the US is going to continue uninterrupted to new high levels. Corporate growth has not proven to be anything significant, and the US is going to eke out about 1.5% next year. That is a good place to be, as valuations are quite stretched if you consider their kind of continuation of growth. Asia looks kind of interesting. Europe is a little expensive given that we could effectively go back into recession, so there might be some opportunities there. Latin America is something he is starting to think about for next year. It has been in a hole for a long period of time and is not just an energy story, but is also agriculture and mining.

Markets. Typically the net Selling pressure for tax loss selling candidates is around December 15th. He saw the initial bounce off the bottom, and today retraced about a 3^rd of that. Typically this lasts until about mid-January so some of his Top Picks, at year end time frames, are very tactical and shorter term in nature. He thinks we are getting an oversold bounce. One example is Argonaut Gold (AR-T) which is probably down about 80% this year. It came out of the TSX composite index as well as coming out of the GDXJ Index. There were 24 million shares of selling pressure last week. At some point, you get a reflexive sort of bounce off of those types of situations. Strategically he is still negative on the broader commodity space. One of the big things that he thinks will continue is that the US will continue to outperform the rest of the world, particularly in commodity driven countries like Canada, Australia and emerging markets. Also, thinks the US$ will continue to strengthen as well. A Canadian company that sells mostly into the US, and has US dollars as its revenue, with Canadian dollars as its costs, would be a big beneficiary. These are the types of companies he is looking at from the long side.

S&P 500. We are typically in a period of seasonal strength for Santa Claus, from December 15 right through until January 5. The S&P 500 on average, during the last 20 periods, has gone up 16 of those periods, so it is a good time from the seasonality point of view. Average return for the S&P 500 is 2.2% per period. The good news is that the Toronto market does even better. Average return is about 2.7% from December 15 right through until January 5. A lot of the energy and gold stocks have really been sold off because of tax loss selling pressure. Once tax loss selling pressure comes off, we are off to the races.

TSX. Had a significant jump last week. The energy sector had been way oversold and was do for a bit of a bounce. From the low last week to the close on Friday, the TSE energy Index is up over 20%. Typically, at this time of year, energy stocks tend to form a base pattern. We are a little bit high right now, so you may want to wait until the base is formed a little bit more. Typically oil prices bottom right around January, and the energy sector has a very important period of seasonal strength from the end of January right through until May of each year.

Oil is down significantly. What has happened recently is that traders have gone long on crude oil; net long positions on West Texas Intermediate crude have increased to their highest level since August. On a seasonal basis, crude oil has a history of bottoming around the middle of December. But it doesn’t do much for another couple of months, until we get into February-March-April, when crude oil prices as well as gasoline prices start to move significantly higher. We have to go through a base building period for crude oil as well as gasoline prices, before we will be set for another move, and the move will be on the upside.

How do you view the wheat charts? Corn, wheat and soybeans have bottomed and have formed a gorgeous reverse head and shoulders pattern on the chart. Farmers right now are unwilling to sell their grain, because they think they can get higher prices early next year. Because of this, grain prices in general have been doing very, very well during the last couple of months. The chart on wheat shows a very similar head and shoulders pattern. The target would be a little bit higher than current prices.

Markets. Thinks the markets have been lifted by the belief that Central Banks are going to be the ultimate Put and the great saviour. Look at what is happening in the US, the promises that Draghi is making in the ECB, China cutting their rates. At some point he would just like to see better economic growth. US is doing all right, but thinks they are going to run into some headwinds next year. Trading partners are doing so poorly which will impact their numbers at some point. The market is a little elevated right now, and it needs a healthy correction of 10% or even 20%. Not seeing a lot of things that he would want to be buying. It is pretty hard to find decent value out there. He is getting a lot more defensive in his holdings.

Pipelines? He is not a fan of them here. People have been hiding in them for the past couple of years. They are defensive, but he just can’t buy the valuations.

Conventional drilling versus fracing? Fracing injects steam and chemicals into the ground, which breaks up rock in order to get oil to flow out of it. There are environmental impacts that are still being debated. Feels there is still a bit of an issue with fracing, more than there is with conventional deep drilling. He would rather own the deep drillers than the fracing companies, until some of this sorts itself out.

TSX. He has been talking about a double bottom. It is early to say, but if you look at what has happened, there was a low in October, and just over the past few days, there was a little bit of a lift. We could possibly be putting in a double bottom over the next little while, as long as the October lows hold and we could see a nice bounce. A double bottom, by definition, would be if we break the neck line at just under 15,000. If we break that, it could be quite bullish. The problem is that the main components of the TSX are energy, banks and base metals. The banks aren’t too bad, but the other 2 are not looking so great.

S&P 500 From a technical perspective, this has been and continues to be a much better place to be. You are looking at higher highs and higher lows. There is absolutely no take-out of the lows. Technical analysts also look at breadth, the number of sectors that are participating in a given rally. There has been fairly wide anticipation through this whole bull market.

Oil. Technically there was some support at $54-$55. There was a bit of a formation after we hit a bottom in 2009, where it bounced from around $37 to the $54 area. Some consolidation $54-$55 on WTI, and that is exactly where it hit recently. We need to stay above that level. The bigger trend for oil is Down, and in a bear market, there is usually a reflective bounce. He thinks that is what we are getting right now. We may get another couple of weeks of upside on oil, but his instinct is that this is in a genuine bear market. He has only one energy position in his portfolio, and will use this upside as an opportunity to get rid of it in the next 2-3 weeks.

WTI Oil. Most of the commodities peaked at around 2011. From 2011 to now, the charts had formed a very large symmetrical triangle. This summer, it broke down out of that triangle. It is holding support now at around $54-$55, but after a short-term bounce, he thinks it is going to hit in the $40’s.

How do Moving Averages work? These are simply trend followers. The only thing you should use a Moving Average for is to determine if the trend is in a particular direction at this particular moment. It is not a great trading vehicle per se, so if you are trying to time your entry or exit off of a moving average, he is not so sure he would do it. He would prefer just the basic formations and use things like oscillators.

Markets. We have been going through an18 month market transition. In 2012 what worked was China and the countries that supplied into the China growth story. As the growth story in China slowed, the consumer-lead growth story started to lead. The one commodity that held up in value was oil. Then the oil producers sold off starting with the weaker ones. He steadily reduced his producers to zero starting in September. The broad market then started to step away over the last 6 weeks. The net is that this is a continuation of what has been happening over the last 18 months. It sets up a very positive environment for the consumer market. There is likely to be a really strong economic tail wind. He is focused in developed markets. He would use this strength as a continued opportunity to sell. You have to look at the impact of emerging market debt. As the US dollar goes up, that debt is going up.

Banks. The banks are set up for the environment that is coming toward us. You have to pick your spots. RY-T is probably the most attractive because it has such a large wealth management division. The other bank he likes is TD-T because of the US footprint where they are executing well. He would prefer a US bank because of the dividend growth. WFC-N is one pick.

Pipelines. Pipelines stocks are a group a lot of people have made money in. It was a big weight in his income portfolios over the last 5 years. Pipelines are the least correlated to the price of oil, but what has happened is that people have lost confidence in the pipelines and multiples have contracted. They have long term contracts. Low energy costs for 18 months could cause some volume loss, however. IPL-T is probably one of the more resilient ones. He would not put on any new positions just yet, however.