Monthly INsync Chit Chat February 2024
A Long Flight Ahead [by David Cox]
When I heard, in the fall, that the annual Chartered Market Technician Association (CMT) symposium was being moved from its usual New York location to Dubai, I thought, “Wow, how could I not take advantage of the opportunity!?” I’ve since been invited to speak at the event, which will be held at the Museum of the Future, itself a landmark devoted to innovative and futuristic ideologies in the financial district of Dubai. With the conference happening on the leap day, February 29, of a leap year, it stands to be an exciting time (after a 13.5-hour direct flight from Toronto), and I’ll have an opportunity to share insights into our investment process and how the tools of technical analysis are directly applied to portfolio management.
My two middle boys, Asha (16) and Emry (13) were set to compete at a Bible quizzing meet (Eloise, age 9, and I were eager spectators) in Mississauga a few weeks ago, but it was cancelled. Why? Some snow fell the night before (it is winter, after all) and, while the roads sure looked clear by the morning, like seemingly too many organizers, schools and event planners these days (in my opinion), cancellation due to “weather” happens. I’ve even seen events cancelled because of the weather forecast about snow and I sure don’t recall that happening when I was a kid. Of course, most of us walked to school then, which arguably is a lot safer than having everyone driven but winter was a season, and cold, snowy conditions with some ice were expected in Ontario. Now, it seems the default is to cancel and wait for spring. My two cents!
News –Some That You’ve Heard, Most That You Haven’t [by David Cox]
Federal court rules Emergencies Act invocation “not justified” and Trudeau government’s use during “Freedom Convoy” violated Canadians’ charter rights. The International Court of Justice ruled that Israel must cease its attack on Gaza. Toronto is raising property taxes 10% to pay for refugees. Massive German farmer protests continue to erupt as farmers protest diesel subsidy cuts, increased taxes and regulation, while spending endless amounts on war. China must cut U.S. treasuries in “orderly” fashion (and continues to do so). Four of the world’s 5 largest container-shipping companies, CMA, CGM, Hapag-Llloyd, Maersk and MSC, have paused or suspended their services in the Red Sea. The U.K. government is already working on a vaccine for a disease that doesn’t exist in a “high security research facility best known for its work on chemical warfare”. [But] Disease X has been manufactured and announced in China, and exhibits a 100% fatality rate in “humanized mice”. The Federal Reserve reported a staggering operating loss of $114 billion for the year, the largest in the institution’s history (Chris MacIntosh notes that this places it hypothetically third in the ranks of the largest bankruptcies in American history, behind Lehman and Washington Mutual). The U.K. has proposed bringing back a draft to arrest the shortfall in military personnel. Houthis are shooting down ships with Iranian manufactured drones that cost < $50,000 while the Americans defend against the strikes with $2.5 million missiles. 154 countries called for a ceasefire in Gaza at the United Nations General Assembly (13 more voted for a cessation of hostilities). American journalist Gonzalo Lira has died after imprisonment and torture in Ukraine for the crime of reporting inconvenient facts from Ukraine that run counter to the desired narrative. Claudine Gay, the recent former President of Harvard, was forced to resign after being caught in numerous violations of Harvard’s plagiarism rules. South Carolina has removed Walt Disney from the state’s approved investment list due to its far-left activist agenda stating it has “abandoned its fiduciary responsibilities to investors.” State of Tennessee is suing BlackRock over its ESG bias. U.S. Justice department is looking for 8 new attorneys to defend the government in vaccine injury cases.
Things We Recommend [by David Cox]
A Canadian needs to look no further than Bill C-11 or C-18 to see the ongoing path to further censorship desired by the government. Mainstream journalism seems no longer intent on digging into stories, instead, they share the agreed upon government narrative. I like to watch Redacted News, an online program hosted by Clayton & Natali Morris (both Americans) who dive deep into the stories from around the world that the media isn’t paying attention to. They broadcast on both YouTube and Rumble, but many don’t realize the extent of censorship by social media companies these days, which has been admitted and well-documented. YouTube prevents conversation, dialogue or video on topics that go against mainstream media, which can widely mean views on war, vaccination, banking, climate change and so forth. All of these are censored to “protect you.” Have you been on Rumble ever? Rumble is a YouTube alternative, where they don’t censor speech. Have you seen Redacted? Check it out, if only for a refreshing change to your news consumption.
Lifestyles To Consider! [by Criselle Tung]
In the digital age, it's too easy to find ourselves lost in the realm of social media (guilty as charged!). While the convenience of instant communication through chats, reacts, and comments is undeniable, it comes at the cost of genuine authenticity in our relationships. Comparing our lives to others’ can leave us feeling overwhelmingly burdened.
Amidst the apparent advantages of this era, we still need to take a breather once in a while and prioritize our well-being with a “Digital Detox” – perhaps your Valentine would appreciate the extra attention! Step away from the constant buzz of notifications and immerse yourself in the simplicity of the present.
In the spirit of mindful living, engage in tech-free moments. Whether it's a quiet evening with a book (and maybe wine!) or a face-to-face conversation, appreciate the authenticity of genuine connections. Strengthen your bonds with loved ones and create memories that go beyond the digital realm.
Unplugging ourselves is also an invitation to indulge in self-care and mindfulness. It gives us the luxury of uninterrupted moments, free from the distractions of technology. Set healthy habits by defining screen-time boundaries and creating tech-free havens in your living space.
As you unplug to reconnect, embrace the simplicity, and rediscover the extraordinary in the ordinary.
How’s the (Bigger Picture) Market? [by David Cox]
Last month, I showed that horizontal line marking potential resistance at the late 2021, prior highs. Well, little resistance did it create, as the market carried on with its uptrend and price went straight through it without any fanfare. Stock markets that are trading at all-time highs are bullish and new highs are certainly not something we’d expect to see if things were troubled. When all investors are profitable, at all prices (the case when at all-time highs), they have no urgent need to sell, since they’re no longer trying to recoup their investment, but trying to profit from it. Sure, there are always sellers but it’s the short-sellers, in this case, who struggle as the market continues against them. Bigger picture, we have a massive uptrend on our hands, so let’s not overthink it.
Source: Optuma
* * as at January 30th, 2024
Market Summary and Trend of “All Assets” [by David Cox]
As usual, we’ll sort by one-month % return. If you look at the top of the list, we can see that oil and some commodities are strong, but if you look at the trend to the right of them, you’ll see that this is at a point of short-term strength in sideways, at best, and/or downtrend context. I actually like when the calendar turns and we get to start the YTD % return column again, which only serves to remind us that although last year was a great year for investors(!), this year could be something different. New assets could dominate that didn’t last year, and last year’s leaders can lag, but as time takes place and we monitor price on multiple time frames, we can continue to gauge overall opportunity and risk in the market.
Source: Optuma
* * as at January 30th, 2024
We All Need To Keep Learning! – “Relative Strength Index (RSI)” [by David Cox]
The Relative Strength Index (RSI) is an oscillator, developed by Welles Wilder, that helps to gauge momentum. While values in theory range between 0 to 100, 20 to 80 are common. We typically say < 30 is “oversold” and > 70 is “overbought.” That said, context related to the trend is crucial because it’s naïve to suggest oversold means buy and overbought means sell. It absolutely does not.
In an uptrend, I prefer to keep Connie Brown’s (fellow CMT charterholder) research as discussed in her book "Technical Analysis for the Trading Professional," in mind. In a strong uptrend, prices do not typically fall below 40, and in a strong downtrend, prices do not typically move above 60.
Like many indicators, RSI can be used for identifying bullish divergences (check my “X” feed for examples of #bulldivergence), whereby the RSI makes a higher low after a pullback while price makes a lower low and the opposite, a bearish divergence (price makes a higher high while RSI makes a lower high). From experience, a surge in RSI to overbought levels, for the first time in a while and after a downtrend, can be a helpful tool in identifying trend change, as it can signify unusual and strong momentum building. The opposite is also worth further study.
In the weekly chart of the S&P 500 (below), you can see the 2018 price highs had a bearish RSI divergence and the subsequent lows, in late 2018, came with a bullish divergence (not all highs or lows have divergences!). That said, I admit that I love to see them when they’re present and can provide important clues [ADDITIONAL NOTE: I like to use RSI(5), which isn’t the much more common parameter of 14 periods].
Source: Optuma
* * as at January 30th, 2024
This Month in Innovation [by Conor White]
The City of Detroit has installed what it says is the nation’s first wireless charging public roadway for electric vehicles (EVs). Using inductive charging coils, a 400-metre stretch of the city’s 14th Street is now capable of charging EVs equipped with receivers as they drive on the road.
Google DeepMind’s AI, AlphaGeometry, surpasses the state-of-the-art approach for geometry problems, advancing AI reasoning in mathematics.
Elon Musk shares a video on X of Tesla’s Optimus Bot folding laundry.
Start-up company Rabbit designed a new “pocket companion” that uses artificial intelligence to complete tasks.
One UPtrend, One DOWNtrend [by David Cox]
Let’s contrast another pair of securities as we step back, even employing the previously discussed “back of the room test” and learn to identify uptrends and downtrends (hint: anyone can do this. Second hint: buying and/or holding stocks in strong uptrends can be hard though because one can believe it’s gone up too much. Similarly, buying the weakest stocks with the assumption that surely it must go up again is also high questionable and consumes a lot of mental capital).
The stock of BlackBerry (previously, Research In Motion), an iconic Canadian technology stock that seemed to have a dominant hold on the once-new and burgeoning handheld phone (later called smartphone), has reverted to the past. The stock made 22-year lows this week and is trading at a level first reached in 2002! Contrast that with Apple, who sort of ate their lunch (pun intended) and become the dominant device as chosen by consumers, whose stock has been in a long-term uptrend.
Source: Optuma
* * as at January 30th, 2024
Sharing Our Tools of the Trade [by David Cox]
One of the key tools that we use for screening, including both fundamentally and technically, is MarketSmith (formerly Daily Graphs) by Investor’s Business Daily. I’ve been a subscriber for probably almost 20 years and it’s invaluable in our work. There is so much information available at a glance, and the ability to visually see, analyze, compare and screen for fundaments like earnings/sales growth, return on equity, and debit is seamless. We also like to pay attention to institutional sponsorship, which is a way of looking at the movements of the large, reporting issuers and MarketSmith makes it all simple. I know that many individuals would find it impossible to justify the cost of this subscription, let alone others that we pay for, but it’s my day job and so, it’s a tool I wouldn’t want to find myself without.
Here's a snapshot from MarketSmith for Cintas (CTAS) on the weekly template. One could sit and spend a long while studying the information contained within.
Source: Marketsmith
* * as at January 30th, 2024
We Like Fundamentals Too! [by David Cox]
This month, let’s look at Textron (TXT:US), a $16.7 billion industrials company in the aerospace industry group. The stock recently broke out and is trading at new all-time highs after reporting another solid quarter of +7% y/y sales growth and +30% y/y earnings growth. The stock has historically shown a consistent track record of earnings stability (MarketSmith shows 24 and that means in the top quartile for consistency). It’s also a stock that likely shows up on the value investor radar, given it’s trading at a below market price to earnings ratio of 15 (0.7X the S&P 500).
Source: MarketSmith
* * as at January 30th, 2024
Here’s the chart of Textron, and its recent earnings day breakout.
Source: Optuma
* * as at January 30th, 2024
Chart of the Month [by David Cox]
I always like to keep my eye on the big picture and the problem with stock prices is that they’re more volatile (and less useful!) with each successively shorter term that they are used for. Average true range (ATR) is a volatility measure and speaks to the amount of price volatility that is happening. Typically, higher volatility means lower stock prices and given the stock market, which is sitting at all-time highs, no doubt causing some to want to expect (and/or bet on) falling prices, let’s look at my S&P 500 ATR model. In the red circles, you can see that when our ATR measure starts to fall and crosses below its (blue) moving average, a buy signal for equities is generated. The vice versa shows the periods of time when volatility is increasing and has worked well to identify future falling prices. No model is infallible, but my point is that the measure is in no way about to cross upwards at the right edge. For someone intent on expressing a bearish view of the markets, bigger picture, I’d suggest waiting until this model turns upwards (and I put another green circle on it). Don’t worry, when it happens, I’ll be sure to cover it.
Source: Optuma
* * as at January 30th, 2024
A Service You Don’t (Maybe?) Know About [by Donald Daggett]
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Social Media and Our Website [by David Cox]
I know that some of you will likely never find themselves on “X” (formerly Twitter!). That doesn’t stop me from posting charts and discussing market activity as it comes.
Upcoming Dates, Seminars, and Announcements [by David Cox]
What: CMT Association Annual Symposium
Where: Dubai, UAE
When: February 28–29, 2024
Who: I will be speaking at the event on Thursday, February 29th and sharing parts of our process and how to integrate tools into portfolio management.
What: Raymond James Portfolio Manager Conference
Where: Calgary, AB
When: April 8-10, 2024
Who: I will be attending.
What: Bitcoin 2024 Conference
Where: Nashville, TN
When: July 25-27, 2024
Who: I’m very excited to check out this growing event!
Wishing you a great month ahead and please never hesitate to share your feedback, your criticisms or ask a question! It’s 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
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