Markets Monday Missive


Equity markets are currently in a monthly neutral phase, a condition that has remained for a year and a half for the TSX and a year for the S&P 500.  On the shorter term, markets are inclined to push higher off the June post-Brexit lows until they meet supply over head.

The current market structure requires investor portfolios have a high level of “convexity”.   Portfolio convexity means that assets are allocated and the balance adjusted across defensive and pro-growth securities, whatever class the securities are in.  This insulates assets from both the long and short term consequences of “catalysts”, particularly governmental.  Its diversification by risk not asset class. In addition, the investment climate requires investors examine what the best mix between absolute (actual annual return) and relative (the difference between absolute and a benchmark such as the TSX) performance is for their asset goals.

At present portfolio convexity for CastleMoore portfolios is not balanced and core portfolios are tilted strongly toward absolute returns.


A Broad View

SPX 2016 07 11

The S&P has resistance at 2141 on a monthly level. A reading higher than this at the close of July will make this level new support.  Notice the volatility stops that price has been banging into.


TSX 2016 07 11

The TSX needs to end the month at 14,670 or better for its neutral reading to change.

TNX 2016 07 11

Bonds (yields), as represented by this chart of the US 10 year, the most important single investment instrument on the planet, broke down at the close of June setting up a new first target of 1.25%.

GOLD 2016 07 11

Gold is in an intermediate and monthly bull trend. This was confirmed at the close of February this year.  Overhead resistance can be found in the $1500 range.  P&F target $1519.


The Shorter Term  – Relative Strength Rankings

Class 2 total 2016 07 08The CLASS rankings, which look at major asset classes, saw the US$ and Commodity complex fall out of the top five replaced by the Russell 2000 and Canadian long bonds.  The monthlies, which only change at the end of each month, show consistency with the weeklies. Weeklies are used to identify shorter-term trading ideas or the possibly the first move in a longer-term (monthly) “investment” move.

CDN US Sector 2 total 2016 07 08On the weekly sector front in Canada, utilities, income trusts and telco’s fell out replaced by metals & mining, small caps, and energy. In the US staples was outperformed by healthcare and thus fell to 8.  On the monthlies, we can see persistence in telecom, utilities, staples, gold & materials supporting deflationary impulses down in the deep.  This maybe counter to some conventional views as gold and materials as a inflation hedge.  In fact, the strongest impulse comes from currency volatility not GDP or growth.

INT 2 total 2016 07 08On the international index scene, the top 5 on the weeklies has not changed.

TSX 2 total 2016 07 08Last, the TSX of course reflect the Canadian sector data but in specific detail, showing a mix of utility, precious metals, infrastructure.


Chief Portfolio Manager