General Comments

Short Week and Short on Payrolls

Markets were officially closed on Friday for Good Friday, but the US government released the payroll report in as the usually do on statutory holidays. Call it financial market irony. In any case, the report was much poorer than the acceptable if unspectacular reports of the past few months. Thomson Reuters reports that job growth was just 126k vs. expectations of 245k, and well under last month’s gain. US stock futures were open electronically for about 45 minutes Friday morning, and the S&P’s dropped 19.5 points, indicating a weak open on Monday. Bond yields dropped again, as the weaker economic news pushes out fears of the Fed raising prices soon.

I am a bit surprised by the weakness, but this payroll survey has a habit of lurching back and forth given the shoddy way the statistics are collected. It is as good an indication as we have to get a monthly handle on something as enormous as US employment, but the sheer size and dynamic nature of the subject makes any measure a moving target guess at best. We stick with our multiyear call that the US will continue grinding forward, but at a far slower rate than would be possible in an economy less encumbered by central statists. We are not concerned by this number as it is just one more in the fast, fast, slow, slow dance of the last 5 years at least.

The news will be supportive of bonds and utility stocks and REITs, which fits our recent moves very well. It is always curious to me to see that when a market is correcting back to solid long term support—as utilities did when we bought—something generally seems to happen in the economic news to ‘fit’ the rebound that ensues. We have said for a few weeks that growth was to be de-emphasized in favour of income, and we obviously are pleased to see that play out as we had hoped for. I expect the utilities to carry back to their December highs.

More unexpected has been the downslope in the transport names, which have given up more than I would have guessed in the past 2-3 weeks and are now mostly near solid support as well. Some of our recent buys in this sector hadn’t quite hit sell targets before this pullback. I expect they will on the next rally, which should start very soon. It may be a very good time for those who are underweight transports to change that.

Energy continued to rally, though storage continues to be filled. It would seem that investors are looking past that at this stage. Perhaps CNBC reporting that the US had 802 rigs active in the past week—686 less than a year ago—shows a few more people the proverbial ‘writing on the wall’ for supply. We clearly agree.

April 6, 2015 Review Chart 2

Source: Dorsey Wright and Associates

April 6 2015 Review Chart 2

Source: Thomson Reuters


Our longer term indicators are all positive at this stage. Short term measures are now negative in the US. The Nasdaq had gotten to a level above short term support that often requires at least some consolidation, as mentioned two weeks ago, and has now begun that pullback.


TSX Chart April 6 2015

Chart courtesy of

Interest Rates

Bonds ground a bit higher on the week, with the TLT’s finishing at 132.50, and the ten year yield was at 1.91% with Friday’s action.

This gave some support to the income stocks, which again held in well during a negative week in the main indexes.

I continue to feel the turn is now complete for utilities, and prices should continue to move higher. REITs should have similar performance, and have started recovering as well.

We have added some utility exposure and will be adding more US REITs as well, as they are now moving into range as well. Canadian REITs started on the upside last week.


Our dollar fell again last week after trying to nose above the 80 cent level a few times. Our dollar finished at 78.55, down almost a cent. As mentioned, the longer our currency stays under 80 cents, the more we question whether it will be able to bounce back to the 85 area soon.

I repeat that this is not the time for bulk currency conversions to invest in the US market. That said, conversions as needed for individual buys make sense, even if some currency headwind is expected.

The Euro fell back after rallying for two weeks, finishing at 108.40, down roughly a cent on the week. The bounce in the Euro may already be over, though we didn’t think it was going far at any point.

We remain negative on the European economies vs the US, but clearly the amount of the slide in the Euro makes us less negative than we were a year ago, or two years ago.

Overall, our strategy of concentrating on North America has been rewarding, and we can leave it at that.


Gold finished down $20 at $1,189. Gold shares were up a only a bit, and the group remains a stock market graveyard. When gold rose, the stocks moved begrudgingly.

Base metals shares were flat again. Copper was flattish at $2.74, nickel at $7.35, and zinc at $0.80. We still have little interest in the shares of either metals group,

S&P 500

S&P 500 Chart April 6 2015

Chart courtesy of


Crude finished the week at $48.45, giving back half of the $4 of the prior week, as the Saudi/Yemen conflict faded from the headlines. I continue to feel energy has bottomed from its basing behavior over since mid-January. The stocks continue to outperform crude, which is also a bullish sign.

Natural gas was mostly flat around $2.70

Energy shares remain mixed: some are out of buy range, while some have pulled back nicely and could be bought.

We are positioned enough for now, though we have room for further buys if the action merits.

Canadian Stock Focus

Stocks in buy range are: Surge Energy, Russel Metals, CIBC, Cardinal Energy, Rogers, Baytex Energy, Shaw Communications, BCE, Bonterra, Potash, Rocky Mountain, and Chemtrade,

US Stock Focus

US Shares in buy range are: US Bancorp, Duke Power, Dominion Resources, Southern Corp, Schwab, Sketchers, CSX, United Healthcare, Omnivision, Restoration Hardware, Pacific Gas and Electric, Cisco, Corning, Comcast, and Pepsi.


Overall, Monday’s expected downward action will bring the previously overbought growth names back to the lower half of the recent range. This is positive, as the transports and utilities are right at long term support. The US market has little to show in overall gains since early November, but has worked off that overbought condition in a very orderly manner.

The Canadian market also looks attractive, though for different reasons. In Canada, the banks have well underperformed so far this year, at a time of year when they are usual seasonal outperformers. The TSX was up about 1.7% for the first quarter and the XFN ETF was down 2.4%. Banks were even a drag in our portfolios, and we bought them back at better levels than most.

But with banks poised to recover and energy already doing so, roughly half the TSX looks in good position.

Seasonally, the second quarter usually starts weak, as the first three months are typically very strong. With the first quarter very slow in the US and nothing special in Canada, that pattern could well reverse this year. I expect the rally to be led by income names overall and banks and energy here in Canada.

This newsletter is solely the work of Greg Radovich for the private information of his clients. Although the author is a registered Portfolio Manager with Dundee Goodman Private Wealth, a division of Dundee Securities Ltd. (“Dundee”), this is not an official publication of Dundee, and the author is not a Dundee research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Dundee. Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by the author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.
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