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

PIC3501: It's a long short fund. No MER. The manager shorts credits when he thinks they're expensive. Has done well over time.

It's classifying retail investors and their money flow. Not that retail investors are dumb, but that they're traditionally less sophisticated than, say, Warren Buffett. 

We can track money flow by following ETF and mutual fund flows, small lot trades. He pitches that against people like Warren Buffet, Teachers' Pension Plans, and commercial hedgers. Those would be the smart money. When the two are at opposite ends of the confidence levels of who's selling and who's buying, he has leading signals that say perhaps we need to be cautious or we need to be aggressive. If dumb money's selling and smart money's buying, maybe he needs to go in, or vice versa.

There's evidence to show that retail investors get it wrong more often than the pros. He's even written a book on it. There are lots of indicators to look at, like the put/call ratio and the VIX. So when retail investors are bullish, that's a bad thing; and when they're bearish, it's good.

Again, these are leading indicators. When big money is selling and getting out, you want to follow the smart guys. There's a point when they're going to start buying again. When retail people are bidding up, it's not a bad thing since it pushes the market up. But at some point, you hit the point of Greenspan's "irrational exuberance". 

Yes, their confidence levels are lower. It's a leading indicator. Doesn't mean that tomorrow the market's going to fall. But it does mean that the market's setting up for a correction, whether it's next week or 3 weeks from now. He's put some charts on his blog, valuetrend.ca. 

Things get overbought and they either fall, consolidate for a while like a yo-yo up and down, or go up again. Trends have to take pauses to be healthy. So the story might not be very exciting for a while.

He's always looking at peaks and troughs. Don't get too complicated with your analysis.

A series of peaks and troughs getting lower and lower is a bad thing. But if you have a series of lower peaks, but the troughs are more or less flat, that's another way of saying that's a consolidation. You're looking for that sine wave, up and down, type of consolidation. But it doesn't have to be a nice, even pattern. Just has to be a discontinuation of the pattern of lower highs and lower lows. Once it breaks out, it's really good news.

Investor interest in A.I., and tech currently propelling markets ahead right now. Not all A.I. companies earning profits, so will take time to see the winners. Expecting competitors to enter the chip space which will create competition for NVIDIA. Suspects a lot of the strength in companies like NVIDIA is due to investors FOMO in rising share prices. Preferred US Fed (personal consumption expenditure report) inflation index due at the end of February - and will be indicative of economy. If inflation is higher than expected - suspects market is due for a slight correction (3-4%). Demand side for bonds currently softer than past few months - indicating higher interest rates going forward. 

Narrative around "Magnificent 7" - and importance in the markets is turning out to be the "Mag 4", since Apple, Tesla and Google are down in 2024. Small cap stocks are not performing nearly as well as the "Mag 7" - this suggests economy is not as strong as people think. Narrow growth in the market could be indicative of problems in the economy. Believes current "Mag 7" bull market is not sustainable, and investors should be cautious. 

Company Highlight Finning International Inc. (FTT):

FTT operates as a heavy equipment and engine rental company, with a few main lines of business consisting of product support, equipment rental, sale of used/new equipment and refuelling. The company has a presence in a variety of markets including Canada, the U.K. and Ireland, South America, and other international markets. FTT is also a disciplined operator. The company serves a variety of different industries such as construction, forestry, mining, pipeline, etc. FTT is also a disciplined operator with a heavy focus on creating shareholder value through operating metrics such as returns on invested capital, free cash flow, EBIT margin, etc.
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Trimming positions with recent strength in the market. Numerous positions are rising above portfolio and evaluation thresholds. Investors should be weary of bull market as it makes it difficult to generate forward returns (worried about buying at too high levels). Overall - long term investors shouldn't worry about state of market - and should focus on investing in high quality business' at attractive prices. 

She's throwing caution flags on the S&P (oversold) which has already blown past her price target for it. Rallies often exhaust themselves. The S&P could climb to 5,179 then cools, so take profits along the way. The 5- and 13-day exponential moving averages (EMA) indicate that the market remains bullish, but she remains cautious given several recent new highs. Also, the IWM saw it tested at $195-196 but twice the floor support held (good news). If this continues to held, the IWM could reach $207.

Market Update:

Inflation in Canada slowed faster than forecast with a 2.9% reading in January, compared to an expectation of 3.3%, the deceleration was driven mainly by lower year-over-year prices for gasoline and food. On the other hand, oil prices are under pressure as Fed officials continue to push back on the timing of rate cuts. The Canadian dollar was 74.07 cents USD. The U.S. S&P500 ended the week up 1.3%, while the TSX was up 0.7%.

A lot more greens this week than reds. Energy added 3.0%, while consumer staples and financials added 2.9% and 1.3%, respectively. Consumer discretionary and materials remained flat for the week. Information technology edged down 3.0% while real estate ended the week slightly down 0.4%. The most heavily traded shares by volume were Suncor Energy, Magna International, and Baytex Energy.
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It's like a domino going through all of them -- CRWD, FTNT, CHKP all took a haircut. It's not necessarily a bad sign for the tech sector. There's still a lot of uncertainty in the macro environment. 

NASDAQ has come off about 500 points from that 18,000 level. The 50-day MA in the NASDAQ 100 is right around 17,200. If it goes beneath that, it can probably drop another 500 points.

Could get another 5-7% downturn, but a great opportunity to buy leaders in the technology arena.

He used to participate in China. But it was like playing a board game with your kids and they change the rules in the middle of the game. So he backed away. 

In Europe, there are some really good companies. Some are listed on the NASDAQ or they're ADRs. He always tries to buy in the home country, where there's a lot more liquidity. ASML and SAP are examples. Though bank brokerages may not give you access to foreign exchanges, many outside brokerages do.

Another example is CAJ. See his Top Picks.

Investment Comparison TIH vs. FTT:

Both TIH and FTT are solid operators in this niche of the industrial sector. FTT presents an attractive alternative to TIH but at a smaller size and cheaper valuation. On a growth basis, both companies are quite in similar terms of outlook with expected growth in revenues of around 4% over the next few years for both. That said, the 10-year dividend growth at TIH is around 11%, while it is around 5% in the case of FTT.

Comparing TIH and FTT can be summarized by whether an investor places more importance on valuation and quality. FTT is cheaper compared to TIH, but things are cheap for a reason due to a weaker fundamental profile. Growth for both companies will be dependent on the industrial activities of the economy, but we would side with TIH as a more sustainable value creator over the long term.
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