Volatility Returns in to the Trading Range 

General Comments 

The past week had plenty of volatility—first to the downside, and finishing on the upside on Friday, which left the week mostly unchanged. The broken record continues for over a year now—choppy grinding action with a multitude of triple digit days, and yet a narrow tight range for month after month, and the internals of the market looking worse as we go. This past week, the downside was mainly on Thursday, as the European central bank announced that it is taking its interest rate from zero to minus 30 basis points, and leaving their bond buying program alone. This was met by dismay in the markets, as apparently 60bb Euros of foolish bond buying is not enough for banks to make enough profit to suit them.

As an aside, for those who believe central bankers have any idea what they are doing, recall that for years while Trichet was ECB head, rates were kept stubbornly high, which ground the Euro economy down even further, and also caused a huge and artificial rally in the Euro, which hurt European business further. Now the foot has gone from the brake pedal to the gas, and the current ECB head emerged with contrition on Friday to subserviently grovel before the bond markets to assure everyone that his QE plan had “no limits”, and would do whatever was necessary to placate the markets. This would be a stunning thing for him to say in private, but to do so in a press conference is astonishing. Expect Euro bond yields to drop as buyers have just been assure that even foolish purchases will be taken off their hands at even more foolish prices.

The US released their payroll report on Friday with the news that 210k jobs had been created in November. This is another anemic number that was celebrated as though the unemployment rate in the US was really 5.2% and not the much higher number that it actually is. The rally on Friday was large in index points and very thin on group participation.

But the US number looks outstanding with the Canadian report, which showed a loss of 37k jobs. Keep in mind this would be like the US losing nearly 400k jobs in a month. This is over a year after the oil price implosion and calls into serious question the positive GDP report released two weeks ago. Growing economies do not shed jobs at all, let alone an enormous decline like that. What is even more concerning is that we are losing jobs and contracting now even before the new leftist governments in Alberta and Ottawa have managed to substantially increase income taxes and pat each other on the back for creating entirely new “carbon” taxes, which will make next year’s numbers a good deal weaker than this year’s tepid performance. Our bloated 383 member contingent at the 12 day Paris “climate” vacation shows how serious these governments are about the climate as anything but a revenue generation tool. We continue to look for any opportunity to increase US exposure.

Source: Dorsey Wright and Associates

Source: Dorsey Wright and Associates

Source: Thomson Reuters

Source: Thomson Reuters


Our longer term indicators are all positive.

The shorter term signals are now negative, and in the middle of their range as well.

While the market continues to hang in better than anticipated over the past few weeks, the volume and breadth have not been encouraging. Clearly making short term market calls are difficult—and we continue to navigate on a stock by stock basis in the portfolios.


TSX Chart Dec. 07, 2015

Chart courtesy of Stockcharts.com

Interest Rates 

Bonds were very slightly weaker on the week, with the TLT’s finishing at 120.60, with the ten year yield at 2.28%.

Utility stocks found support at recent lows and started back to the upside. We continue positive on them here, but our expectations on the upside are more modest than they were in the summer. Getting back to the top of recent range still represents an upside of nearly 15%.

While there is no change to my expectation that that more will come around to our long standing view that it is a lot better to get a 5% dividend than a 2% interest payment, it is clear that these shares are much more volatile than I expected to see.


Our dollar was lower last week, finishing at 74.78. Our view on the dollar remains bearish. Anyone without the benefit of US currency investments at this point is encouraged to do so. The enormous new carbon taxes announced in the past week to delusional cheers will likely only grind our growth to lower levels. Our hope is that an energy rally back to the high 50s might drag our dollar back toward 80c. We would be aggressive sellers there.

The Euro was much higher at 109.10, on a wholly irrational rise after the ECB decision. In reality, this was a massive unwinding of a crowded hedge fund trade. The US dollar should resume its uptrend from here. Euro shares were weaker overall, but they could outperform Canadian shares in 2016.


Gold finished up slightly at $1,066, as the US dollar fell, and the shares had a big move up on Friday. But I regard this as an oversold bounce, and said last week a bounce was likely. Gold shares could easily grind a bit higher to where they were in September, but it is not worth trading in my view.

Base metals shares also rose. Copper was flat at $2.05, nickel at $6.00, and zinc at $0.76. We still have no interest in the metals shares.

S&P 500

S-P 500 Chart Dec. 07, 2015

Chart courtesy of Stockcharts.com


Crude finished the week at $40/20, which was down a dollar from last week. Natural gas was lower at $2.19.

Energy shares were softer, although continue to hold above levels they were at when crude was this level last time.

OPEC met this past week and agreed to maintain production at current levels. This will cause all producers more pain, including those from OPEC. It is stunning how much pain they are willing to take to reassert their supply dominance. Saudi Arabia alone has burned through tens of billions of dollars of reserves in the past year in order to make shale and oil sands producers hurt even more so. On the plus side, prices held mostly steady despite the news. Perhaps that may define the bottom end for crude prices.

Canadian Stock Focus

Stocks in buy range are: Gildan, Magna, Martinrea, Keyara, and Richie Brothers.

US Stock Focus

US Shares in buy range are: Ciena, Wells Fargo Bristol Myers, UnderArmor, Lowes, Acadia Health, Mylan Labs, Jabil Circuit, Duke Energy, Advance Auto Parts, Priceline, and Gilead.


Overall, the markets managed to rally to close the week mostly unchanged. Yet there was little to cheer in the overall news outside of decent profit reports from the banks. While the banks numbers were higher based on cost cutting this year, their growth will be tougher to come by in a slower economy going forward.

Now that we are into December, the chances of a pullback are less likely than a year end window dressing rally. It was a reasonable expectation that looked like it might have come true as recently as this past Thursday, but the payroll report on Friday and further comments from the ECB pushed the markets higher instead.

The Fed will still have to decide whether they raise rates before 2016, and this could certainly be one final catalyst. But the most likely outcome is a grind higher into the year end. It is more important to note that market internals are poor, with only 5-6 stocks providing much of the NASDAQ return for the year. The broader market would be almost as negative as Canada without Amazon, Google, Facebook, etc.

We will continue to add non extended names where appropriate, though buy lists are slimmer than usual. Getting more assets out of the Canadian market is our priority.


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.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Dundee Goodman Private Wealth or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. Dundee Goodman Private Wealth is a member of the Canadian Investor Protection Fund.
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.