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

Canadian Insurance Companies. He prefers the diversification an ETF offers rather than holding individual stocks. When yields are rising, the profitability of lifecos goes up. The next recession will likely cause interest rates to fall, even go negative, and this is a real risk to this sector. This is a trade – don’t get married to it.

Educational Segment. Richard Arms, technical expert passing. He was a legendary mentor for technicians. The Arms Index was designed by him. It looks at the number of stocks advancing and declining relative to their trading volume in a ratio. When the Index exceeds 1 it implies more selling volume. The current market action is telling us we are getting selling into strength. He applied candlestick patterns to trading volume -- the width of the candlestick shows significance based on volume. The sell-off of the S&P in early February indicated a potential reversal pattern. Now, the sell-offs on recent highs are confirming we are seeing more selling into the up-tick rather than buying into the pullbacks.

General Market Comment. He thinks the S&P500 has tried to regain lost ground, but it is stalling at a critical level. The Nasdaq made a new high recently, but there was a key reversal and it could be a false breakout. The TSX is having a bearish setup, unable to trade back above key resistance and is in a worse setup than the S&P500. The Canadian dollar is the symptom of all our problems. He thinks it will continue to weaken against the US dollar and could weaken another 3 cents.

TSX Composite Comment. He is worried in the short-term. There has been an over-supply built up in the market and there has been two key peaks, which we have not been able to trade above and that could signal a move lower. Weak consumer spending and a wide WCS discount for Canadian crude oil are all hurting the economy. He sees July 1 key in the NAFTA discussions as it is the Mexican general election.

MACD Comment. Moving average convergence divergence signal measures two moving averages against each other. He likes the 5-day and 34-day moving averages. When prices are going up, the 5-day rises faster, which can be a signal of a bull trend when it crosses above the 34-day average. As the price increase accelerates, it begins to be divergent to the 34-day average. When prices plateau, the 5-day average may flatten and converge with the 34-day average. It becomes ominous when the 5-day moves below the 34-day average as it could signal a trend reversal.

Should one invest in GICs and wait for the market to trend? He thinks if you can afford to lose a little bit of money, stay in stocks. No one knows the future, but he feels US investors may be settling into the political environment. However, if investors begin to pay more attention to changing political winds, it may signal a down turn in the market. The other sign post to watch is if central banks are raising interest rates too fast. If they are cautious and accommodative, this will be bullish. Finally, the economic data needs to be watched – recently it has been weaker.

Is there a correction coming in 2018? He has a suspicion that economic data will continue to moderate and add to downward pressure. You also have to consider investor sentiment and pay attention to their political views. Be watchful about market sentiment.

Will Canadian markets continue to underperform the US? These markets are closely related to one another. There is some divergence with the TSX underperforming the S&P500. The TSX could continue to under-perform going forward.

Do you buy partials or buy your full volume? It depends on the strength of the signal. A strong signal means you should buy your full volume, otherwise scale-in to your position.

Not much has changed since the early-February correction. This consolidation is a multi-month process. Patience and process matter in this volatile climate, like caller last month who takes a half-position then waits one month for fear of catching a top. He's largely invested, but at over 22% cash currently. Lofty valuations in parts of the market now, so there's risk. Stock volatility has returned. He's watching bond spreads. Small caps are starting to outperform--good. We're in a mishmash with little sector rotation. So, he waits.

How do you use volume in technical analysis? In a nutshell, looks at buy volumes and sell volumes with thresholds of 80% and 90%. A real wash-out is an exhaustion of selling pressure to look at 90% down days, based on volume traded. Say,100,000 shares are traded with 90% were sold, so that's a a sign of exhaustion, though typically you need to see two in a week. It's a great tool to watch flush and wash-out. (He also combines it with declining and advancing issues.)

General Market Comment. He likes how oil inventories are down, but the problem is winter is over soon and demand falls by 2-3 million barrels per day by June. World inventories will rise by 200-300 million barrels by then. There is 500,000 barrels per day of export growth out of the US and Saudi Arabia has cut exports to the US as a result. He looks at US inventory, production and international movements as the key statistics. He sees US production going up 1.2-1.5 million barrels per day this year, along with Canadian production growth, this will absorb all the growth in World oil demand this year. By April, he expects to see inventories build in the US and OECD countries and prices will return back below $50 US/barrel.

Energy Bull Markets Comment. He is near term bearish on oil prices, but thinks this will help fuel the next bull market in energy. The Reserve Life Index has fallen to 5-6 years – the lowest level in decades. Companies want to see flat production in 2018 and will pay dividends and pay down debt with surplus cash flow. He is bullish on natural gas stocks, but sees about 20-30% downside on oil company stocks in the next quarter. This will set the stage for the next long-term bull market. He sees WTI at $100-$150 in 3-4 years from now. Many companies are priced below book value today, but have room to go to 2 times book value – a 400% upside potential.

US Natural Gas Market Comment. He is very bullish on natural gas prices in the US. Cold weather has knocked inventory down, with 93 bcf drawdown this week. He expects US LNG exports to rise from 2-3 bcf per day up to 9 bcf per day in the next two years creating more markets for Canadian gas into the US.

Tonight was a special Talking Tax show. No opinions were recorded.