Full episode: Market Call for Monday, October 15, 2018
Hap Sneddon, chief portfolio manager and founder of Castlemoore Inc
Focus: Technical analysis
Fundamentally in the U.S., corporate earnings are rising, consumer and business spending are above average, job openings and employment growth are at record highs, manufacturing activity is robust and shipping is reaching capacity. The U.S. represents the high bar; globally, it falls off from there. Canada, for example, has been modestly trending down since Q2/18, but with trade deals recently consummated between Canada, Mexico and the U.S., and positive announcements in trade relations between Europe and the America, it leaves only the appearance of green shoots between the U.S. and China to build a true global detente and broaden out the economic results only the U.S. has been experiencing.
The technical picture the last six months too reflected this fundamental and economic situation as the U.S. market increasingly has been an investment vortex drawing in global fund flows. It’s almost become the only game in town. But when we look at copper (bullish), oil (bullish), the U.S. dollar (bearish) and the 10-year U.S. Treasury bond yield (bearish), we can see price action that is anticipating this economic broadening out.
Despite the current overall market weakness, both the technical and fundamental analysis forecast a reversal of the negative price trends over the last six months to a year. However, a deepening of the poor trade relations between the U.S. and China could usher in more legs down and quash this current positive set up for non-U.S. markets, ultimately dragging the U.S. down as well. This being said, this inflection point of sorts presents a good risk-to-reward entry, as positive seasonality kicks in soon.
ISHARES S&P/TSX GLOBAL BASE METALS ETF (XBM.TO)
Bought on July 14, 2017 at $11.56.
The play in base metals is a resolution to the current imbalance in the economic horizon which seems to only favour the U.S. Sector prices will benefit from increased demand from electric vehicles and infrastructure projects, China’s long term One Belt, One Road policy and a general supply gap. Base metals present a good risk-to-reward, with a first target of $16. A weekly break below recent lows at $11.95 implies deepening trades issues and signals a “sell.”
Bought on July 6, 2018 at $16.69.
This intermediate exploration and production company has balanced oil and gas growth plans from properties in both Canada and the U.S. Not only has it had some excellent drill results and is expecting more, but it also has been raising its capital budget, which is almost entirely funded from it robust free cash flow. Most importantly, it has one of the best technical profiles in the energy sector.
OPEN TEXT (OTEX.TO)
Bought on Nov. 23, 2016 at $45.33.
The company reported earnings in late summer that were at the high end of street consensus, with both expanding margins and an increase in big deals being notable takeaways. This largest Canadian enterprise software company has a growing base of recurring revenue from its acquisitions, is raising its operating leverage and is now also driven to improve organic growth. Its adaptable and flexible balance also gives it a solid foundation. The company has always had rumours about it being a takeover candidate, and in this, nothing has changed. The technical profile puts support close at hand, representing a good risk-to-reward at current prices.
PAST PICKS: NOV. 17, 2017
- Then: $29.01
- Now: $21.00
- Return: -28%
- Total return: -22%
ISHARES NASDAQ BIOTECHNOLOGY ETF (IBB.OQ)
Stock split 3-for-1 on Dec. 1, 2017.
- Then: $311.21
- Now: $110.23
- Return: 6%
- Total return: 7%
ISHARES S&P/TSX GLOBAL BASE METALS INDEX ETF (XBM.TO)
- Then: $12.91
- Now: $12.15
- Return: -6%
- Total return: -4%
Total return average: -6%
CASTLEMOORE CDN EQUITY PORTFOLIO
Performance as of: June 30, 2018
- 1 year: 11.53% fund, 7.22% index
- 3 years: 6.10% fund, 3.80% index
- Average drawdown: -3.99% fund, -7.50% index
- Average recovery (months): 6.5 fund, 13.3 index
Returns are net of fees.
TOP 5 HOLDINGS AND WEIGHTINGS
- Kirkland Lake Gold Ltd: 7.5%
- Bombardier Inc: 7.4%
- Open Text Corp: 7.0%
- Shopify: 5.8%
- Sun Life Financial Inc: 5.4%