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

What is a market "melt-up"? It's markets rising but defies logic. There's a lot of money on the sidelines. Towards the end of the year, money managers need to perform for the year, so those managers put money into the market to play catch up. FOMO plays a part. A melt-up is chasing performance.

Educational Segment - costless collar (https://www.theoptionsguide.com/costless-collar.aspx) and Ray Dalio (https://www.cnbc.com/video/2019/11/22/global-markets-outlook-dalio-bearish-bet-squawk-box.html) Last week, Dalio (see link below) spent 70 basis points on his whole portfolio to hedge downside risk. Maybe he used options on the S&P, or on future or ETFs. He probably used a costless collar: you buy a put "at the money," say $3.11, to protect the downside. To pay for that, find the price of the call to match that put, usually slightly above where the market is. Your profit is capped at the level you write your call. Your entire downside risk is hedged with the put. He likely bought a put at SPY at $3.11 out to April 2020; this means he expects downside risk in the coming months. 70 basis points is 70% of one S&P point which is $2.18 of premium he spent. So, if he bought the $3.11 put ($11.29 and spent $2.18), that leaves $9.11, he could have written a $3.14 call and had the position fully paid for. So, he can still pay the dividends, protect the market risk 100% to the downside and still make one more percent if the market goes higher before he gets called away. He loves these option strategies especially late in the cycle. They avoid or lessen capital gains tax.

Predatory short selling and the harm done on small-caps. Smallcaps have underperformed in this momentum market. Among weed stocks, they weren't shorted until they broke down; then recently there was a short-covering rally, up 20-30%. The trouble happens when short-sellers write reports then work as groups to short them. It's tough to do a short-sell on a small-cap because they are illiquid and hard to borrow. Shorting is part of the market, but is sometimes malicious. The laws are far more lax in Canada than America. Some short-sellers make up rumours as an excuse to short.

He's overall bullish for the rest of 2019. In Canada, REITs and utilities have hugely outperformed, but value and cyclicals have not. The rotation in recent months will continue to early 2020. Be selective in names. Investors are inflating, large caps with the TSX up 18% YTD, but smallcaps up only 5%. Companies want to get into ETFs, which further pressures smallcaps. There's so much demand for ETFs, which is creating problems.

There has been gross underspending in most commodities in the last decade. Companies are effectively streamlining in the sector. Today’s Newmont acquisition is a sign of this consolidation. Also, gold companies are starting to use oil and gas techniques of directional drilling.

There is a move out of utilities into cyclical stocks. He expects this bull market cycle to continue for the next couple years. Banks around the world, including the Federal Reserve are being supportive. Dividend yield for equities are above the yield of 10-year US bonds. When this happens, stocks usually continue to outperform bonds by 20% in the subsequent 12 months.

Market Outlook He considers trade talk issues the "cow bell" that is leading the market in and out of favour. He held a lot of cash in the summer and then on Oct 31 he increased his beta as he saw a buy signal. He now thinks the market is overbought as his "bearometer" is showing big money holding more cash, while retail investors are already all in. He expects near term volatility, but he does not expect any crash over the next few weeks. Market breadth is good so there is lots of reasons to be bullish. As soon as he sees the market making lower highs and lower lows he will be out.

Oil Stocks If we get a break above consolation, he will get back into oil stocks in general. He sees an ascending triangle right now with higher lows for oil prices currently -- good, but he will keep watching. He would need to see a break above $60, holding for few days, before he will get excited.

The market is a little expensive overall but he doesn’t pay attention to the wider market. Things are going pretty well. Industrial and healthcare stocks are struggling so you could find some good value there. You could find some good valuations right now if you look.

You could see a 10-12% correction, but he thinks there are good values now. There are also lots of areas that are fairly priced that you don’t have to worry about.

The principals are, you have to buy when people are nervous. Healthcare is extremely ingrained in this society, and you can’t change the whole system. There are opportunities in health insurance and on the administration side. It’s one area that he is looking into closely.

He doesn’t trade volatility but he trades facts. Don’t trade based on headlines and chose businesses that you want to be invested in the long term.

Market. The premier of Alberta is looking forward to working with Christa Freeland to come to some accommodation with the federal liberals to move forward on energy. They want to get moving forward on the TMX line. Takeaway capacity is an issue. LNG is moving forward. There is a delegation moving forward in China regarding facilities on the coast of BC. He thinks in 2020 we will be looking at higher commodity prices. Tax loss selling, however, could be nasty this year.

Is the lower market downturn today concerning? Slowdown today after several weeks of nice moves and new highs. Not surprising to see the pause. The S&P is at the higher range of a 10-year valuation. Not surprising that trade issues have caused a bit of a slide in markets.

Retail sector results are mixed. Some doing well, and others like Home Depot are not. You have to be selective in the space. Be careful. Be more defensive like dollar stores, or off-retail, Costco. Avoid luxury brands.