Is It Too Late to Ride the Gold Train North?

SYNOPSIS

Last Week… After the previous week where all major indexes rose 2.5% to 4.0% over the four days, we weren’t expecting much follow-through. However, there were some decent one-week gains for all indexes except the S&P/TSX Composite Index, which sustained just a tiny one-week loss. Our two small cap Canadian indexes (S&P/TSX Small Cap Index and S&P/TSX Venture Index) continue to lead the way on a trend basis. On the other hand US small caps as represented by the Russell 2000 are trailing, and in fact have a modestly negative trend.

ProfiTrend Portfolio (PTP)… The PTP is 86% in cash as we patiently wait for more blatant opportunities in all of the markets that we follow. The proportion of stocks with positive trend values across the board is improving, yet the proportion with attractive trend/consistency pairs has not. It appears that most improvements are very minor (even if they are numerous). There was no trading in the PTP last week. The three remaining positions include: two on a volatility ETN (two different start dates, but same security) and a gold stock. Much more on gold and gold stocks this week.
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Investor Confidence… Apparently institutional investors ignore everything in the US business media… no doubt a wise move! In spite of a rough start to 2016 in the equities markets, the “smart money” is still flowing into stocks. However, there are regional differences. This past month (February) a lot of money flowed into Asian equities, even while the US media told us that China was causing a world-wide recession. There was a drop of confidence in Europe, however, as cash flowed from equities into bonds. With North America largely unchanged, the all-inclusive Global Investor Confidence Index fell a mere 2.2 points to 106.5. Above 100 is considered pro-equities (higher risk), whereas readings below 100 suggest a lower-risk approach (bonds instead of stocks). Only the European ICI is below 100 now. As usual we have the charts, data and more commentary.

PTA perspective… Is It Too Late to Ride the Gold Train North?
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Gold and gold stocks have had a nice run since the beginning of the year, with the precious metal up 17% so far. Our discussion includes the usual pros and cons for having some gold in your portfolio. And, if you go for it, do you buy the metal itself, ETFs or individual stocks? You’ll find the answers in this week’s edition.

Combining Growth & Value Metrics with Relative Trend Analysis™

SYNOPSIS

Last Week… The markets showed a pleasant revival to the upside on the shortened trading week. All of our major indexes rose 2.5% to 3.8% over the four days.

ProfiTrend Portfolio (PTP)… The PTP is 87% in cash as we wait to see if this past week’s rally has any staying power. Meanwhile we’ve dropped our short positions, triggered by stop loss signals. Our PTP reading is -4%, up from -31% a week earlier, but not enough to beat the benchmarks (a rare occurrence). The three remaining positions are focussed on ETNs (anticipating a return to “normal” volatility as measured by VIX, as described in last week’s feature article), and a long position on a gold stock.
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Seasonality… March is generally a fairly positive market for the stocks in the major indexes. We offer you the historical details this week; and will continue with sector coverage next time.

PTA perspective… Combining Growth & Value Metrics with Relative Trend Analysis™
We took a side-trip presenting our research on the “Cat Came Back” volatility tactic last week, because it seemed timing. This week we return to walking you through how using value and growth metrics could complement a relative trend analysis™ (RTA) -based investment approach. The general idea is to build a more comprehensive model for investment decisions. Such an approach would combine the best of… (1) finding undervalued stocks, (2) choosing those that have growth potential, and (3) picking stocks with the best short-term consistent trends. This time we have a look at what might be gained from combining multiple fundamental indicators. We think that you may be surprised at how a very simple two-factor approach can blow away the limited success of the strategies still advocated by most financial advisors.

The “Cat Came Back” (CCB) Trade on Volatility

SYNOPSIS

Last Week… The markets were in retreat mode again last week. Declines in the major indexes over the week were -1% to -3%. Only the S&P/TSX Venture Index managed a gain (+0.6%). On a trend basis the least-worse-off indexes are the Canadian ones. That’s not saying a lot, but the rally in precious metals and a stall in the decline of oil are favourable developments in the Canadian resource intensive economy.

ProfiTrend Portfolio (PTP)… The PTP is 75% in cash as we wait out the uncertainty. We still have a few positions… intended to be profitable if either stocks keep falling or the high volatility (VIX) levels return to normal. We’ve added a long position on a gold mining stock and a short position on health care to the PTP last week.

Our PTP reading of -31% is down from +62% a week earlier. Our PTP reading will likely continue to fluctuate considerably given the small number of items in our account, and the (so far) brief holding time.
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PTA perspective… The “Cat Came Back” (CCB) Trade on Volatility

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We don’t believe that anyone can predict periods of high volatility (as measured by VIX), so we’ve been working on a strategy to profit from these events, after they announce themselves via a spike to the upside. VIX may not be a true measure of volatility, but the index behaves in repeating cycles of uneven lengths. We’ve christened a new two-step trading algorithm “The Cat Came Back Trade” (CCB), because it has the same sort of story behind it as the well-known children’s song. We can’t predict how far away the “cat” might go, but we can predict that it’ll come back… if not “the very next day” then sometime soon. Although this event trade falls outside of the relative trend analysis™ (RTA) methodology, we think you’ll find it interesting to see how it works. We walk you through 5 years worth of back-testing results. Average gain… 12% over an average holding period of 11 trading days (363% annualized). It’s not a core strategy, but you might want to try it out… maybe even this week. The conditions may be perfect.

Metrics for Growth Investing

SYNOPSIS

Last Week… Sadly, every time there is an up-week in the markets these days, and we start to get enthusiastic again, we’re promptly slapped back down with heavy declines. In fairness, though, the Canadian small caps represented by the S&P/TSX Small Cap Index and the S&P/TSX Venture Index extended gains from the previous week. That in part was due to strengthening gold and gold stock prices… perhaps the safe haven they were once thought to be.

ProfiTrend Portfolio (PTP)… The PTP is 87% in cash as we wait out the uncertainty. We still have a few positions… intended to be profitable if either stocks keep falling or the high volatility (ViX) levels return to normal.

Our PTP reading of 15% is down from 62% a week earlier. Our PTP reading will likely continue to fluctuate considerably given the small number of items in our account, and the short holding time. At least we’re still staying ahead of our benchmarks.
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PTA perspective… Metrics for Growth Investing
Last week we reviewed some research results from James O’Shaughnessy on which metrics to use for value investing. You learned that using the most popular and most widely used metric, the P/E ratio, is the worst possible way to find bargain stocks that will generate great returns. This week we discuss more of his research… this time focussing on metrics for optimizing growth investing strategies.

Investor Confidence & Seasonality… As of the end of January institutional investors remained relatively confident in holding stocks rather than safer income assets like bonds. The results for February (due on February 23) should be interesting. As for seasonality effects, many of the anticipated strengths in February are failing to materialize. However, recent gains in Materials, particularly Metals & Mining were expected in a typical February. Much of this has been driven by recent gains in gold. And finally, the underperformance of Health Care stocks is also to be expected in February… as is happening right now.

Metrics for Value Investing

SYNOPSIS

Last Week… After a tragic opening to 2016, the markets finally had an up-week, with the exception of the S&P/TSX Venture Index. All trend values for the major indexes that we track remained negative, however.

ProfiTrend Portfolio (PTP)… The PTP is still 85% in cash, but we have a few positions on the short side that we discuss in more detail in the main body of the newsletter. Our portfolio had a nice improvement over the past week, as two positions to the downside generated profits and one short position reversed to the upside. With a bounce in oil prices, the S&P/TSX Composite Index AGR turned positive, but the S&P 500 remains negative.

Our PTP reading moved up nicely from 7% last time to 62% this past week. Expect volatility with the PTP AGR due to the tiny and leveraged portfolio.

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PTA perspective… Metrics for Value Investing
We look at various ways to measure whether stocks are cheap or expensive. These are important for those interested in value investing. The more popular ones include: price-earnings ratios, price-to-book values, price-to-cash flow, and price-to-sales. You may know what each of these mean, but do you know which of them will produce the highest returns when buying bargain stocks? We’ll tell you.

Investor Confidence… The Smart Money Shrugs Off the January Meltdown
The latest State Street Investor Confidence Index results for January are surprisingly not that different from those reported for December. Apparently, the January downdraft hasn’t had any impact on institutional investors (yet).

Seasonality… February normally isn’t a strong month for equities, but Energy and Materials are supposed to perform well. That’s something we desperately need right now. This section now includes some niche sub-sector results that you might find worth checking out.