US Market Finally Pulls Back 

General Comments 

For the first week in the past six, the US market fell last week. As is typical when things get too stretched to the upside, the resulting selling was more than it would have been if the pullback would have started two weeks ago when we first ran into solid resistance. At that point, the market was able to push higher based on some large earnings surprises from Amazon and Google. Pullbacks are normal, and merely signify that everyone who refused to buy shares at the August or September lows has now done so, and are temporarily not able to buy more.

Although the numbers were solidly negative in the US last week, the healthcare group had some winners, such as Mylan Labs, and altogether did better than the indexes. This is primarily a function of the very negative performance of virtually everything in the healthcare area over the past several weeks. In a market where many names are still overbought, the healthcare group represents an area where buyers should be concentrating their attention. The extended names will likely wallow for another week or two at least.

Last Friday’s US payroll report was not strong in any kind of historical sense, but was not so bad that it could forestall further talk about rate increases in December. This nonstop fixation on rates also weighed on the market last week. We have been clear on rates. They will very likely rise a miniscule amount in December, but there is virtually no mathematical difference between 0% and 0.25%, so little attention should be paid. If it was not for the global strength of the US dollar, this rate rise would likely have occurred in the spring. At this point, it would be welcome relief to stop talking about it as though it meant something in itself.

The only relevance of a rate increase is in its effect on the US dollar versus the euro and the yen. Earnings growth has been weaker in the US this year, and outside of energy shares, this is largely due to the currency impact the strong dollar has had on the earnings of US multinationals. The intent has been to dampen the further impact at this point, now that the US dollar is valued more properly against those currencies.

Retail didn’t have a great week either in the US. But as with many industries wracked by change from online shopping, this is not the negative comment on the US consumer it would have been 15-20 years ago. The results from Amazon a few weeks again show this clearly, as do the current rate of auto sales, now in record territory above an 18mm unit annual rate. The economy continues to grind along, neither as strong as the bulls pretend or as weak as the bears contend. That does bode well for inflation, if nothing for full potential of the economy.


Source: Dorsey Wright and Associates

Source: Dorsey Wright and Associates


Source: Thomson Reuters

Source: Thomson Reuters


Our longer term indicators are all positive, and the follow through day from three weeks ago was clearly valid.

The shorter term signals are now negative, though I don’t think this lasts for too long.

While the October rally ground a little higher than expected, the breather we were looking for two weeks ago now seems to have started in earnest. If the market is down again this week, the media hand wringing may gain strength. But this would simply be an expected reaction to an overbought situation. I expect more softness in the next week or two, and a rebound into a decent December rally in the US. The Canadian situation is more tenuous.


Chart courtesy of

Chart courtesy of

Interest Rates 

Bonds were stronger on the week after two poor weeks. The TLTs finished at 119.70, with the ten year yield at 2.31%.

Utility stocks continued to wallow. While they well outperformed growth last week, they did little to recover their losses of the past two weeks. Now at the bottom of their ranges, they can be bought at these levels.

While there is no change to my expectation 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. We will have to adapt to their trading ranges.


Our dollar was lower again last week. Our view on the dollar has turned much more bearish. Anyone without the benefit of US currency investments at this point is encouraged to do so. The Canadian finished at 75.13, and we are still a long way from our preferred level to convert more funds. 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 lower at 107.40, as the US dollar continues to gain ground on the expectation of an interest rate increase, however small. Still, I am more open to Euro share purchases now that one third of the air has been removed from the Euro, but they are not in the ‘must have’ category in my opinion.


Gold finished lower at $1,081, and is now back at the bottom end of its range, after challenging and failing at resistance a few weeks ago. The shares have followed bullion fairly closely recently. Gold could mount a bounce in the coming week or two but that is for traders only.

Base metals shares also fell. Copper was a bit lower at $2.19, nickel at $6.10, and zinc at $0.76. We still have no interest in the metals shares.

S&P 500

Chart courtesy of

Chart courtesy of


Crude finished the week at $41.95, which was down again on the week. Natural gas was lower at $2.37.

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

We are more negative on energy than we were a month ago. Our outlook for crude prices is not as bright as expected due to stubborn oversupply from OPEC. Also, the election result is substantially bad news for the energy sector in Canada, despite the best efforts of all to pretend this is not the case.

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, Cambrex, Korn Ferry, UnderArmor, Lowes, Acadia Health, Mylan Labs, Jabil Circuit, and Gilead.


Overall, it was a poor week for markets, but in the US, nothing more than a normal pullback after a six week rally. In Canada, a much maligned energy sector took another hit with the Obama administration finally doing what everyone knew they were going to do by denying the Keystone XL pipeline. So much for our new PM’s lightweight argument that if Harper had been more deferential to the climate lobby, then Canada would get more attention from the White House. Instead, two weeks after the election, Obama proved that statement was simple air and wishful thinking.

This will not stop hundreds of politicians, staffers, and hangers-on from going to Paris in a few weeks to discuss over a vast waste of jet fuel and emissions, how to best tax the rest of the population trying to keep the economy moving forward. And that will just be the Canadian delegation.

We continue to be pleased with our US portfolios, and we will take any reasonable opportunity to increase that weighting.


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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