Wednesday Markets Missive


Stocks markets are currently displaying a low risk state, typical of August, with Q2 earnings coming to an end, and August holidays in full swing. At present volatility has been crushed.

This time of year potential upside catalysts are less frequent, while downside ones increase.  The potential for downside catalysts increase because any momentum from earnings fades, volumes are reduced, and desks are lightly staffed.  Often an event, whether economic or geopolitical, can easily push markets around producing an out-sized and dramatic move.  Last year for example, China made a large devaluation of the Yuan in August causing the S&P to fall 11%. Such events are unknowable and hard to plan out.  The best course is to remain in the strongest parts of the markets and raise hedging allocation when inexpensive, providing the best risk to reward.


Risk ST 2016 08 09Merrill Lynch’s GFSI Market risk chart above shows risk falling.

Risk LT 2016 08 09A long term read of volatility shows were are at the lowest levels of the last 5 years.



$SPXA200R 2016 08 08The percentage of S&P stocks above their 200dma is high…..

$SPXA200R_SPX 2016 08 08…as is the ratio when compared to the S&P price level itself.


$TSXA200R 2016 08 08The percentage of TSX stocks above the 200dma is higher than the S&P, in large part, due to a heavier weighting in resource stocks.


$TSXA200R_TSX 2016 08 08When this ratio is compared to the TSX price we also see a high reading.



Presented without comment. Send and e-mail to robert@castlemoore.com with questions.

Class Weekly 2016 08 05Class Monthly 2016 08 05CDN Weekly 2016 08 05CDN Monthly 2016 08 05US Weekly 2016 08 05US Monthly 2016 08 05INTL Weekly 2016 08 05INTL Monthly 2016 08 05


SPX SeasonalityThe 5 year seasonal statistics on the S&P shows August is the weakest month.


TSX SeasonalityThe TSX on a relative basis fares much better in August from constituent resource stocks that can be strong in the summer, e.g. gold, natural gas, oil and mining.


XLV SeasonalityHealthcare is currently in a period of strength.  Five year analysis reveals that August can be weak after a strong July, then strength again through to November.


BBH SeasonalityBiotech displays similar statistics to healthcare in general, but they are a little more amped.


XLU SeasonalityUtilities also display strength throughout the summer with a swoon in August. “Fed speak” on raising rates in the fall is back in the news. Look for opportunities between now and September.


XLP SeasonalityWhile staples tend to do well from late spring to fall based on 20 year historical studies this 5 year analysis shows its paid to own the sector most of the year with August and January being the only down months.


GOLD SeasonalityLast we come to gold which shows a strong August and….


GDX Seasonality…gold producers an even stronger one.  A general rule is that producers lead and provide greater returns than the underlying commodity.


Portfolio Manager