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

Markets. Thinks there was a Santa Claus rally, but thinks it came out early in September and October. We have a two-tier market. There are some things that are pro-cyclical doing really well, and then a bunch of defensive names that are doing really well. The risk/reward on the TSX is a pretty good market to make an investment in at these levels.

When 20, 50 and 200 day moving averages intersect at the same time, stocks normally takes off. When it comes to moving averages, he prefers what traders are looking at, which tends to be the 125 day. To check this out, do a 20, 50 and 200 day moving average on your chart. Mark out the inflection points. Then do a pure 125 moving average, and see if it is a little bit simpler. You might see that its gets rid of a lot of the noise and is a little bit better.

Market. Expects 2016 will be more of the same, i.e., volatility and uncertainty. There seems to be a lot of interesting things from a techno analysis perspective going on. The US 10 year 200 day moving average has turned up, which is usually a pretty good indicator that the trend has turned, and that happened at the end of October, in advance of the Fed raising rates in December. The two-year US yields have been rising for quite a long time, and popped again quite recently from October onwards in anticipation, so the yield curve is flattening. As long as it doesn’t get to the point where short rates go above long rates, then we are happy. Gold seems to be very close to giving a quarterly techno analysis Buy signal, and that will be the surprise in the 1^st quarter of the new year. The Commodity Research Bureau (CRB) Index, a basket of commodities, is pretty close to giving a new monthly Buy signal. Thinks inflation might be a surprise in 2016.

Markets. It has been very challenging, especially if you were a Canadian oriented investor. Diversifying to European and US equity markets is a theme that will need to continue into 2016. He thinks there will only be one or two rate increases next year. If the Fed were more aggressive it would mean there is more inflation. We are in a slow growth economic environment. You will see a lot of volatility next year. It is going to be tough for most investors to time the volatility. You have to be long term, be patient, and look for dividends. There are cheap equities in every sector because we are starting to price in recessionary risk to Canadian equities. Canada could outperform the US in the equity markets.

Mortgage REITs. They make money by borrowing short and lending long. It depends on how much rates are increased by the Fed. If the yield curve flattens it means US REITs may have to cut the dividends.

Markets. 2015 was another win for growth stocks. This probably has more to do with smaller caps versus larger caps. The larger cap growth names have held up pretty well, but if you look under the surface of the market, small-cap names, particularly in the commodity space in Canada, were terrible this year. As we near the end of tax loss selling, he expects we will see a pretty sharp bounce, which we are actually starting to see today. However, underlying fundamentals are still baseline negative. Today he wants to talk about the small-cap January effect, and will try to pick some of the more oversold names for a 6 week trade. Some of the small-cap names have been thrown out with the bathwater, and he has been picking up some names that have solid fundamentals and growth. This could include some that have a rollup acquisition strategy, where he thinks there are opportunities.

Gold? Thinks we are starting to see a bit of a turn in the US$, and that would be positive for the golds. His largest gold holding is, Tahoe (THO-T).

Market. He is still up for the year. Usually, from this point onwards, the market typically will get a bit of a Christmas rally because the tax loss selling is all done. On average, from here to the end of the year, the markets go up 1.5%, and if he gets that on top of his portfolio he will have an OK year, maybe up 4.5%. It is those years when you make 15%, 20%, 25% that people get excited. The indexes are off 7%-8%, but there are a lot of individual sectors that are off 50% or 60%. Now there is a lot of value in the market. There are a lot of growth stocks in Canada right now that are trading on single digit P/E ratios, and that is where the money is going to he made in 2016. Doesn’t think that the upside is necessarily in the indexes per se, it is in the subsectors where there is growth.

Markets. This US bull market is long in the tooth and is getting narrower and narrower, fewer and fewer stocks. He is pretty cautious right now. Portfolios have quite a bit more cash and a lot more bonds. The US job rate has been great and he sees utilization going well. The problem is that the markets themselves do not always couple with the market in the same timeframe. He sees defensive rotation happening such as into consumer staples, classic defensive type positions. Telecoms and utilities are starting to make some headway, even though there is a rising rate environment in the US.

Healthcare? In September, healthcare broke a long-term relative uptrend, which to him is a flag. For the bulk of 2014 and up to September 2015, he had been very overweight healthcare. As of September, he went back to market weight, and is a little more careful in his picks in healthcare. Prefers UnitedHealth Group.(UNH-N).

A US infrastructure stock? There are all kinds of infrastructure plays, but many of them have a very strong correlation with commodities. He worries about the stocks right now. The core names are all facing very tough headwinds. There is a time and place to be in the market, and this is not the time for infrastructure.

Markets. He is seeing volatility, which is what we have been waiting for. When a market gets stuck like ours has for the longest time, you need these triple digit kinds of days to get us back on track. When he gets that kind of thing, it shows him that something is about to change. He thinks it is going up. We have been playing off that 18,000 on the Dow down to 17,000, and thinks we are going to get back to 18,000, and the next test will take us through. He likes to see big moves on big volumes. Right now we are seening good volume. Likes the TSX better than the Dow. The TSX has melted down to 13,000sh. Doesn’t know what the catalyst will be to drive it higher, but is at a level now where it hasn’t been in a while.

Energy. Markets move on crude oil strength. It’s down $70, and then moves up $0.30 and you see people rallying. There are Short positions going on, because it is easy to keep selling something that keeps going down, but the first couple of days up, there is going to be some panic, and that will be our 1^st upside falling for a bit and this is where the trades will start, swing in the TSX. He is not seeing any Buying but is seeing more Selling, which gets him excited. Looking for that one big throw up, and “get out of everything” kind of thing. We are getting close. Percentagewise this is way oversold. Even if you don’t believe that it is going higher, it is going to stop

Markets. The Canadian market has a Santa Clause rally 84% of the time and the Russell 2000 even more often. The Materials Sector comes back 4.7% average and goes up 100% of the time. Industrials are up 90% of the time. Everything is lining up this year. The market is already up since the low of December 14^th. Santa Clause rallies run until January 6^th. The next two months are then rather flat.

Hedge Canadian Dollar? The Canadian dollar is in a downward trend and there is no sign it is trying to bottom. The US$ appears to have peaked about 100. During the last three weeks it looks to be rolling over against a basket of other currencies. This probably means the Canadian dollar does not have a lot further to go down. He is not looking for much upside pressure either.