Monthly INsync Chit Chat - August 2023
I just took a trip down to Cali, Colombia in July for a week, which was my first time in South America! I’ve wanted to travel there for many years and the opportunity suddenly presented itself. It would have been helpful to spend more than a week studying Spanish before I left, because English isn’t very useful down there! It can be tough to make simple things happen like buying food, getting around and going to the grocery store without a way to communicate. And how about those times when you say something out of the phrasebook (feel excited!) and then the response isn’t what the book says should be the response. Too funny!
I hiked up Pico de Loro in the Farallones de Cali National Park, a VERY steep hike which had 1,250 metres of elevation gain in only 4.5km (B.C. would have had some switchbacks!) up to a stunning view of the surrounding Andes Mountains. I also went bird watching and enjoyed spotting the many different tanagers, including multi-coloured, golden-winged and beryl-spangled ones – so lovely! I was thankful to not be trying to drive around down there as it really is chaotic – there are as many motorcycles as cars and those motorcycles are zigging and zagging, even driving through red lights, some riders without even helmets! I assure you, my motorcycle use here around home has been many degrees safer and much more laid back!!
The News – Headlines
Trudeau removes much of his cabinet in attempt to regain support among voters. The U.S. seized 2,100 pounds of fentanyl at the southern border (enough to kill every American and still have some left over). Oil set for biggest monthly gain since early 2022 on supply cuts. Biden’s denial of business dealings with his son are proven to be inaccurate – millions of dollars of money flowed from China, Russia and Ukraine businesses to Hunter Biden over many years. Mali officially removes French as the official language, seeking distance from western powers and oversight. Worldcoin now promises a digital coin to those who are willing to have their retina scanned and give their data to them. Russia has banned sex changes and medical interventions on medical grounds and self-ID of gender. A new report shows that Germany is not on target to hit its climate goals by 2045. New study in Europe shows that there is a 1 in 5 chance of getting myocarditis from a Moderna booster shot and avoiding strenuous activity immediately thereafter can prevent serious consequences.
The Bottom Line
Stocks continue to rise. Bonds continue to struggle. Commodities appear to have turned upwards.
The Bigger Picture
The S&P 500 has continued to rise steadily along with a rising #MACD histogram as the 13-week and 34-week averages become further apart. This happens as the short-term trend leads the intermediate-term trend as has been the case for much of 2023.
Source: Optuma
* as at July 28th, 2023
Market Summary
Source: Optuma
* * as at July 28th, 2023
** changes from last month are noted in RED text
The lagging Toronto stock market and emerging markets (see “David’s Contrarian Corner”) have even risen this month. The TSX is not in an uptrend, but has bounced along with other equity assets in July. Commodities have turned upwards with rising 13/34-week moving averages and are back above the 200-day moving average as crude oil and gasoline both moved up sharply. It’s really just bonds that continue to struggle, as central banks further continue to raise interest rates and demand from bond owners has been unable to overcome supply as 10-year and 30-year yields remain very elevated after the 2022 rally.
Relatively Speaking (NEW & REVISED!)
Source: Optuma
* * as at July 28th, 2023
** changes from last month are noted in RED text
The “Relatively Speaking” table (above) this month serves as a useful lesson on time frame. The market has been acting bullishly, without question, and continues to do so in both the intermediate and long-term time frames. But the table above refers to, and monitors the short-term trend as defined by the technical balance between the 8 and 20-day exponential moving averages. In the short-term, we’ve had a very mild dip against the long-term uptrend. Each of offense vs. defense, growth vs. value, NASDAQ vs. S&P 500 and discretionary vs. staples have crossed over bearishly, but ALL are in uptrends bigger picture. I see no reason for concern with these changes, just an acknowledgement of the short-term dip against the long-term trend. And perhaps more importantly, evidence that the market is broadening out further.
Commodities
Lots of improvement with commodities this month as the amount of green on the table below has grown considerably in the past month. Oil led the gains with a +18.3% gain in the last month and gasoline +14.6% is not that far behind. This of course presents potential problems for these central banks who have been thankful that CPI (inflation) numbers have been falling but I remind you that there are formulaic reasons for such activity and the U.S. particularly made a change in early 2023 to manufacture today’s declines. Let’s keep a close eye on commodity prices and we’ve all likely noticed that gasoline prices are rising again, though in summer, that’s seasonally typical.
Source: Optuma
* * as at July 28th, 2023
Relative Strength Report
A few changes here as the market expands in different ways and of note is the ARK funds, all of which are showing some relative strength vs. the market as growth stocks firm up and many of the massive laggards since the ’21 highs come back to life with many breakouts along the way. Technology continues to show impressive strength with many industry groups making the leaderboard. Maybe it’s the bounce in regional bank stocks we should be most curious about though as banks have been dominating headlines earlier this year and seeing investors taking renewed interest might be important. Solar stocks are an obvious sore spot for the market and behaving very weakly.
Bullish/Strong: Semiconductors, Homebuilders, Energy, ARK Funds, Greece, NASDAQ, Software, Regional Banks, Cloud Computing
Bearish/Weak: Gold/silver stocks, Solar, Inverse ETFs, Bonds
Our “Financially INsync” Universe
In the top panel below, like the market, our #INsyncUniverse of stocks, which currently has 105 constituents continues to rise, which in itself isn’t a surprise. In the lower panel, we can see that our universe has been underperforming slightly now on a 3-month and 6-month basis. I think this is evidence of the breadth expansion and recovery of weaker stocks within the market. Remember, a trend can be absolutely rising and relatively falling – i.e., trends have different degrees of strength, and there are inevitable stronger trends and weaker trends and why we value relative strength analysis to help guide our portfolio decisions.
Source: Optuma
* * as at July 28th, 2023
The second chart of our universe shows that the breadth divergence has been cleared up and like the broader markets, we have a very healthy backdrop of stocks > 50-day and > 200-day moving averages.
Source: Optuma
* * as at July 28th, 2023
David’s Contrarian Corner
The emerging markets are waking up? They’ve been relative underperformers for MANY years, but they’re showing some signs of life as we put July behind us. I’ve drawn a horizontal line at the early 2023 highs, which would represent not only a breakout, but would confirm an uptrend through the demonstration of both higher highs and higher lows. Seeing more markets, globally, perform and move upwards also adds to the positive outlook for risk assets for investors.
Source: Optuma
* * as at July 28th, 2023
My Hot List
I will continue to point out that the crypto stocks are outperforming the underlying Bitcoin, which is constructive price action and deserves continued attention. The concept that we can gauge investor sentiment and bullishness by watching the more volatile stocks and opportunities compared with underlying type factors and commodities in a given investment area is important. This is the same idea of comparing the performance of energy stocks to oil, copper stocks to copper prices and so forth. When the stocks are rising more strongly than the underlying, it’s evidence of investor interest, which means we need to notice and pay attention.
Chart(s) of the Month
For the first chart, I’m going to show the consumer discretionary vs. consumer staples chart, as I mentioned above, which has crossed short-term bearish 8/20EMA (red circle). As you can see though, this relationship is not only above the breakout levels of the fall 2022 highs, but has a clear 2023 uptrend in progress. Discretionary stocks which include cruise lines, homebuilders, automobiles, hotels and retail type stocks are related to consumer spending and economic prospects and when discretionary areas outperform the more defensive consumer staples (think grocery stores and food companies), they demonstrate investor penchant for risk taking.
Source: Optuma
* * as at July 28th, 2023
For the second chart, let’s look at the U.S. oil producer stocks vs. software stocks. This is sort of a proxy for value vs. growth. The energy stocks had a huge year in 2022, but have been largely weak since and certainly underperforming technology stocks, but…. Here’s the short-term (8/20EMA) and the intermediate-term (20EMA/50SMA) moving averages crossing. Sure, it’s not a higher highs, higher lows relative trend yet, but it’s the start of some outperformance. An investor should then turn to the absolute charts of stocks and/or ETFs in the energy space to better gauge opportunities that might exist.
Source: Optuma
* * as at July 28th, 2023
Social Media Corner
I know, I know, many of you still don’t use Twitter, which is fine! In fact, Twitter is gone! Did you know that? It’s now called “X”. Perhaps you find it strange that Elon Musk would buy a company for tens of billions of dollars, and then change the brand and related recognition of such brand, but he’s been a very shrewd and successful entrepreneur. Which makes me admittedly intrigued by his decision-making. Not sure on the new nomenclature, but here’s a couple of “Xs” that I “X’d” this month. Sounds quite different than tweets, doesn’t it?! I can be found at @DavidCoxRJ so check it out!
Upcoming Dates, Seminars, and Announcements
We have been opening some U.S. accounts and have made great strides with the new platform! If you’re outside of Canada, and would like more information about what our team can offer you, please reach out! And of course, we’re open for business in our home and native land Canada and if you’re experiencing challenges in your investment portfolio and would appreciate a second opinion, please ask.
Summer time means holidays and each of us on the “Financially INsync” team have taken and booked some time away from the office to get some rest and relaxation but we’re always here for our clients and communicate without pause. Have a great summer time!
Your feedback, questions and/or comments are always welcome… Sincerely,
David Cox, CFA, CMT, FMA, FCSI, BMath
Senior Portfolio Manager, Wealth Advisor
Raymond James Ltd.
Phone: 519.883.6031
Unit 1 – 595 Parkside Drive | Waterloo, ON | N2L 0C7
david.cox@raymondjames.ca
www.financiallyinsync.com
@DavidCoxRJ