Markets Not Having a Happy New Year 

General Comments 

The past week has been one of the worst starts to a trading year in some time. After a lame but largely uneventful week before New Year’s Eve, the selling came seemingly out of the blue, starting with a barrage from China. The numbers below look more like annual returns rather than a week, but they look substantially worse in the Chinese markets. Most annual ‘forecast’ predictions are now flipping into furiously providing reasons for further downside.

We did not send a letter last week, though our comments over the past month have been far from bullish. We definitely did not anticipate the year starting with such a burst of negativity to the downside, though we have a prudent cash buffer simply because we were unable to find enough opportunities that met our criteria in order to be fully invested. At this point, the selling of last week has brought some names we have been watching into buying ranges. As always, however, sharp declines raise caution, and the fear of trying to catch the proverbial ‘falling knife’. Having a solid strategy provides a lot of guidance at such times, but the urge to try to understand the downside move is understandable.

So let’s review last week and see if it makes intuitive sense that the world has entirely changed in a few weeks, or whether an opportunity is at hand. The reasons for the decline last week are many and have been documented in the financial press. It started with weaker than expected manufacturing numbers from China, and of course China was a wild card last year as growth has declined from the 8-9% of the early part of the century to roughly 7%. It will likely continue to drop, for the simple reason that growth from a much larger base is always harder to achieve. But that is still substantial growth, and the decline of growth story is not new.

The other issues include tension between Iran and Saudi Arabia after mass executions by the Saudis. Generally, Middle East tensions cause oil to go up, rather than down. Everyone seems to have forgotten that at this point.   Then the US ISM manufacturing report came in at 48.2—the weakest since 2009. In any other week, this would not have mattered much, but in liquidation, it was fuel. This negative view of the US economy was offset, however, by a better than expected payroll report on Friday. The US created nearly 300k jobs—again, this is unexceptional historically, but gangbusters for this anti-business administration. Prior months were also revised higher. And yet the market fell again Friday after an early rally.

The selling has taken the indexes back toward August lows, but doesn’t appear to have a lot of justification for doing so. Barring further follow-through to the downside, we are looking to add names we have been watching on their pullbacks to our intended buy points. In the interim, our utility positions and cash buffered us nicely during an ugly week that we expect will provide opportunity as well.

January 8, 2016 Review Chart

Source: Dorsey Wright Associates

January 08, 2016 Review Chart

Source: Thomson Reuters


Our longer term indicators are negative for all indexes, though all are near the 30% ‘green zone’, where reversals are especially relevant.

Short term signals are all negative and well oversold at this point. Only 14% of NYSE stocks are above their 50 day averages, and this is extremely low. Reversals up from this level are usually strong—but we would like to see the reversal before making forecasts.


TSX Chart Jan. 08, 2016

Chart courtesy of

Interest Rates 

Bonds were stronger on the week, with the TLT’s finishing at 123.30, with the ten year yield at 2.19%. This is the usual bond bounce in weeks when stocks are under pressure.

Utility stocks found support at recent lows and rallied strongly this week with bonds. This helped our portfolios outperform in a lousy week, which is one of the reasons why we own them. 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 a gain of nearly 15% from late December.

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, though these shares are much more volatile than I expected to see.


Our dollar was lower again last week, finishing at 70.74. Our view on the dollar remains bearish, though it is certainly short term oversold. Anyone without the benefit of US currency investments at this point is encouraged to do so. Our hope is that an oversold bounce in energy back at least the mid 40’s might drag our dollar higher. We were hoping for the 80 level, but now would be happy to do further conversions at 75 or better.

The Euro was lower at 109.20, with not much real movement over the past few weeks. The US dollar remains strong on the back of the rate increase. Euro shares were weaker with all equities last week, but they could outperform Canadian shares in 2016.


Gold finished up at $1,097, finding bids in a tough week for stocks. Gold shares had a big week and helped the TSX outperform for a change, but are now approaching resistance. I expect them to falter here as they’ve done many times after brief rallies in the past year.

Base metals shares also fell. Copper was lower at 2.02, nickel at $6.10, and zinc at $0.78. We still have no interest in the metals shares.

S&P 500

S-P 500 Chart Jan. 06, 2016

Chart courtesy of


Crude finished at $33.16 which was down again on the week, in spite of mid-east tensions. Natural gas, however, rallied to 2.47, and is up over 20% in three weeks.

Energy shares were very weak, particularly the large caps, and many are now at fresh lows. Most shares had been holding in better than the crude price, but are now back in liquidation. They should find a bid shortly given the natural gas price. We expected the gas price to bounce with the onset of any semblance of winter temperatures, and this should give at least a bounce to energy shares if crude can stop falling.

Canadian Stock Focus

Stocks in buy range are:  BCE, Liquor Stores, Martinrea, Keyara, Shaw Communications, Richie Brothers, and now most bank shares.

US Stock Focus 

US Shares in buy range are: Amgen, Wells Fargo Bristol Myers, UnderArmor, CBOE, Korn Ferry, Munro, Nike, Visa, Intel, and Gilead.


Overall, the action was ugly and may very well take a few weeks to set up a rally. On the other hand, we’ve seen many V-shaped bounces in the past few years and will handle this sell off by adding top quality names as they hit buy points—but not all at once.

The action last week was particularly hard on bank shares on both sides of the border. This was surprising in that while both groups were holding in very well to the end of December, they were not technically extended to a point where steep selling usually occurs. I would expect them to find some support fairly soon. The minimal interest rate increase will have little effect on their businesses. The Canadian banks will likely have growth issues in our poor economy, which may limit their upside—but they should trade in a range in 2016, with current levels being on the lower side of the expected range.

We expect 2016 to be a range bound year that will likely not reward passive indexes any more than we saw in 2015. That said, energy should rally in the first quarter of the year, as we saw last year, and there may be profits to be made over the year, in rotating sectors. We will use the recent selling to employ some of the cash we prudently held late last year. This will help us in early part of the year, and we will not be greedy when booking gains. Happy New Year to all—it will get better than last week.

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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