Ask me anything Fall 2023

October 5, 2023No Comments

Hello and welcome once again to the Smart Money Dumb Money Show. And I am your host as usual, Keith Richards. I’m President and Chief Portfolio Manager at ValueTrend Wealth Management, and today with us is Craig Aucoin, who is Vice President and also Portfolio Manager at ValueTrend. Craig, welcome back.


Hi everybody. Thanks Keith.


So, we’re going to cover the ‘Ask Us Anything’ questions, answers. How’s that for a mouthful? We did an ‘Ask Us Anything’ blog a couple of weeks ago and we had quite a few replies, so we’ve got a lot of questions to cover between us, so we’re going to try to go through them with some degree of thoroughness, but at the same time we want to get through all the questions. So hopefully we will meet those goals of being thorough, yet quick. And with no further ado, I’m going to start with the first question, ‘cuz that’s what you guys are here for.

So, we’re going to start off with Brian’s question first. And these are in no particular order. Brian’s name just happened to appear first on the question list. So, Brian asks us about the insurance industry. He gave three specific Canadian names. So I’m going to start with Craig. Craig can give us the fundamentals. He’s the CFA, as you guys know, (a Chartered Financial Analyst). So he’s the fundamental guy in the operation and he’s going to give us the backdrop on what he sees in the industry. Take it away, Craig.


Hi! Thanks Keith. All right, so insurance companies in Canada right now, specifically the Life Insurance, (Manulife, Sun Life, Great West), they’re seeing decent flows into their business. So, the reporting, the results recently have been okay, the real element that has changed for insurance companies is the yields that they’re getting on their surplus assets. So, in the past, those liabilities on an insurance company’s balance sheet, they haven’t really been getting paid on them. The yields have been so low that they’ve really been forced to accept those lower yields. So that’s improved. So, for their short-term, their cash, they’re getting more return on those. So that’s a positive, and it’s really benefited them. The one area of concern or question that I would have would be the longer-term liabilities on their balance sheet. They’ve had to take some bonds and, in the past, they’ve been forced to take lower yields. So those bonds have certainly lost value. So while the insurance companies may be able to hold them until they mature, which is fine, if they are forced ever to sell, they’re going to recognize and they are sitting on some larger losses there that they have to massage.


They have to just be careful – they wouldn’t want to recognize those losses is what I would say. But the business themselves this is an environment where I think the insurance going forward is pretty stable and pretty able to do quite well.


Okay, that’s a good point, Craig. And, the way we’re looking at the insurance companies are more as good old-fashioned dividend payers that are reliable. So the charts, and I’m going to share screen and we’ll go right to, there’s a couple of different charting software I’ll be using today, but I just wanted to look at, this is one that I use regularly. It’s quick and easy charts rather than stock charts. It’s right on my desktop all the time. It’s with FactSet. And what you can see here, is this is Manulife. So, it’s a weekly chart, and you can see I can hold my cursor here and there’s a bit of a lid. Now, like Craig said, it’s a stable sector. So, I mean it did fall out of bed in 2008, but since then it’s really been very choppy sideways, which isn’t so bad for a buy-and-hold investor that just wants the dividends.

Now, for capital gains type of people, if you try to buy it near the bottom of the range, which seemed to be maybe around $20, it might be a good play to the upside at this point, you’re closer to that top of the range. So, you find that with Manulife and SLF (which is Sun Life), the one you wouldn’t probably find that with a little bit is Great West. So I’m going to pull up that chart and you can see it’s trying to break out. So as far as capital gains go, I’m just going to rip this over a little closer. You can see it’s attempting to break out. It’s done this before though, about a year or so ago, and it failed – right at this exact point. So, I’m not going to count on Great West breaking out. But out of the three that Brian mentions, this might be the better of the three.  Either way, I think for capital gains it’s a higher-risk trade, but for long-term dividend-orientated investors, it’s fine. So that’s all I’ll cover on that.


The next question is from Mark, and I really don’t need a chart for this. I could have pulled up a chart, but I can explain this fairly straightforward. Mark asked, ‘If we use the Commodity Futures Trading Commission’s COT Report’, and that stands for Commitment to Traders. And I mean its – a lot of people use that for commodities, so he’s wondering if I, as a technical person, use that report and the answer is, no. Commitment of Traders is basically looking at the three types of traders. So there’s the big hedgers, right? So if you’re Barrick Gold, you will hedge the price of gold through commodities contracts because you’re trying to sell the stuff and you don’t want the price to slap you upside the head if you’re – it goes down after you’ve mined some.


So, you can be a commercial hedger and hedge your product, you can be a large speculator. Now that, sorry, I should say, “speculator” is the word they use within commodities. It really doesn’t necessarily mean it’s a speculation. And I’m going to give it a good example here. Let’s take OMERS or Teacher’s Pension Plan, two of the largest pension plans in Canada. I wouldn’t necessarily call them speculators, they’re not like these hedge fund managers that you think of. But they do sometimes take on positions protect their portfolios as well. So they’ll have huge positions in equity indexes, for example. So, they may do a futures contract to offset the risk if they feel the risk is high without having to sell their positions and raise capital gains or risk being wrong by selling. So that’s the large speculators. And then there’s the small speculators and that’s who you think are the speculators.


So, they’re usually referred to by guys like me who do sentiment stuff as “Dumb Money”. So, small investors are usually wrong and the big, big people are usually right. So do I – why don’t I follow these three groups? Because I don’t have to. Because I subscribe to Sentiment Trader and they have these optics, so I can look up oil and the optics includes the Commitment of Trader Reports as well as a bunch of other stuff. So Commitment of Traders is really just a sentiment indicator. It’s a good one, but it’s not the only one. So personally I just give ’em all in one bundle if I want. I could look at them separately, but I don’t. So hopefully that helps.


Next question is from Mike, and you can see we are kind of slamming through these because we need to, Mike asks, ‘Where I see XLE, (which is the US oil energy producers ETF), or XEG, (which is the one in Canada), both run by iShares – where would I find a decent entry point?’

And he also asks about uranium. See, I’ll let him get away with two questions. And I said, you’re not supposed to ask two questions, so I’m just going to answer them really quick. Just go back to the screen share. So let’s take a look at, first of all, XLE has been around a little bit longer, so I will just take a look at this. Now, I am also going to illustrate something that I made a comment on just the other day, and that is that the US producers right now look better and we will talk a little bit about that in a second. But if we kind of pull the chart over, you can see the producers are at a bit of a lid. Okay so, if I draw that line, you can see that there is some resistance here. And just for the record, Craig and I recently took some off the table. We did not eliminate our position in the energy stocks, but we took some off the table with two positions that we had decent-sized positions in. We cut ’em in half. So, we still have a position in oil, but we reduced them because we’re at a lid that’s proven to offer a fair amount of resistance.


Now, keep this chart in mind because you’ll see how the energy sectors down in the US and if we compare that to XEG on Toronto, which is the Canadian index, and you can see that it’s nowhere near the old. So the highs, you saw the highs on the XLE. Well, the energy sector in the Canadian market is not at its old highs. The entry position is – to get back to Mike’s question – I would buy on a breakout actually. Now, and the same goes with this.


You can see that in the near-term anyways, that XEG is also seeing some resistance and, you know, you needed to break that lid. Now again, we sold, and so far we seem to be okay on the trade, but you know, this is a short-term view for us that we think it will go through. But I’ve got to say I’m a little bit more intrigued by the US lately.


If you read the blog I just wrote called ‘Lots to Talk About Today’ or something, I just did it a few blogs ago, you’ll see that there was a comment by, a man, I can barely say this guy’s last name, Rafi Tahmazian – he’s the CFO for Canoe Financial. And he basically said that Canada is doing it all wrong. We are giving the Canadian government, meaning the Trudeau government – and, you probably see the sign in the background where I stand politically, I think anybody that reads my blogs does – they have been actually disincentivizing development in oil and gas.


And there’s a problem with that because we need it and we need it for the next many years. But the problem is that, as they disincentivize oil and gas production in Canada, it puts pressure on our producers to put it in his words, not mine, that Trudeau is ‘moronically stupid’, but hey, that’s not me saying it. So, just a case in point, you can see the underperformance of those Canadian energy stocks. Okay? So let’s just keep that in mind that the US stocks have – they’re not – it’s not all clear for them either, but it’s certainly a less blocked road. Not that it’s a completely unblocked road for them. Either case though, they’re both under pressure by the whole green movement governments – right or wrong.

And, you know, I think that they need a reason and a catalyst to break out past those resistance points. Let’s hope we see it. And that could be Saudi Arabia’s oil thing, I think I mentioned it on an oil video recently.


So, go to the next question also for me, and then we’ll get one with Craig in a second. But the next question, I’ll take it off your share screen. The next question is Francisco, and this is a quick and easy one. He said, I did a global video, a video on global ETFs, and you can look that up on the videos. And basically, he said, ‘You looked at the EWD chart, which is Switzerland, and you said it’s a trading range stock, and he felt that it might’ve been in a little bit more of a downtrend’. And so I want to just share the screen and show the chart of the EWD, and you can see why I’m saying it’s a trading range chart.


Okay? I do see EWD US. There’s Sweden, not Switzerland. And so you can see, here’s the chart. If we look at the range that yes, I could see where Francisco’s thinking it’s in a downtrend, but really it’s more from a very giant peak that it had in ‘22. But if you look at the longer-term range and technical analysis looks, when we’re trying to pick resistance and we’re trying to pick support, we look for the most touches as it’s called. The most times the price reached a certain level and failed or found support. And you can’t call the ‘21 peak as multiple times. I mean it was hit a few times during that year, but the bigger picture is that there’s been a lid of somewhere, I’m going to call it around 37 and a half dollars.


Okay, so there we are again, it’s range balance, right? It just came off of the top, no surprise. Look at how many times since 2011. That’s like 12 years. It has failed at 36½. This lid is very, very relevant. And this support level, look at how precise this is. This support level is around 26. Okay? So, this is what I was talking about Francisco, is that you’re trading the most likely scenario. It’s not actually in a downtrend on the very big picture, it’s in a very contained sideways range, 26-ish to 36-ish call it. I like using that word ‘ish’ because none of these points are precise. So, I hope that answers your question. I don’t see a downtrend. I see a very tradable range.


So, the next question is for Craig, and it’s from Joanne. Take it away, Craig.


So, Joanne asked ‘About the future for marijuana stocks’. This is a sector that certainly has lost its luster in the last number of years. The evaluations were extremely stretched and they’ve collapsed. So the future for them really hangs on US legislation and the focus is how that can impact these stocks in the future. There was a bill that went through the Senate earlier this week that is in the right direction. It has to do with the financing of the of the marijuana companies and how financial institutions can hold some of their cash and assets.


But the company-specific, they still struggle with being profitable. For instance, Canopy Growth is one that has made headways and they’ve really tried to legitimize themselves and diversify into other parts of business, and then, but now they’re going back to focusing just on the marijuana itself. Recently they came to market to do an issue. They had to attach warrants to some of that issue. Well, it’s not generally thought of as a great prognosis, when you have to attach warrants to an issue. Warrants are like a sweetener. It’s you do this for me, and I’ll give you this too. Well, the warrants are exercisable five years not too far different from where the price is now. All to say they’ve got some headwinds, marijuana stocks, and companies have some headwinds ahead of them and it’s not smooth sailing. Now in that, sure, you could, you might be able to trade it, ‘cuz there are some catalysts, but as far as longer-term, they do have some headwinds ahead of them. I don’t know, Keith, if you wanted to take a look at one of the stocks, technically the Horizons Life Science (HMLSF)


No, I mean honestly, this is the dog’s breakfast, Craig, right? I think I can dismiss that one pretty quick. No.


Yeah, it is a sector that has a lot of challenges ahead of it and we’ll see, but it’s certainly not a place that we would commit capital right now.


Yeah, I think you’d have to be smoking a lot of the product to like that chart.


So, with that in mind, we’re going to get to the next question, which is by Vince. Vince asks, ‘If I talk about the three and three rule, could I elaborate?’ And so, what I want to note is that the three and three rule that’s in my book Sideways, which by the way, I’ve just finished writing a revised edition, and today I actually have to do a final review of the manuscript. You’re catching me as I record this. I am under the gun by the publisher to do that today before I go to bed.


He wants it by midnight or I’m fired, so I’m going to have to do that. But one of the things I did revise a little bit is that three and three rule. So it’s something that Craig and I, you know, we’re a work in progress as everybody is in the trading world. So, things move, and back when I wrote that rule, that book was written in 2010. Markets moved a little slower. They’re moving pretty quickly now. So the 3% rule, the three days is our minimum. So Craig and I wait, for – for three days minimum on a breakout or a breakdown, but we can wait up to three weeks. So that’s our – that’s been a bit of a revision for us. But the other side is the 3%. We don’t wait for 3% specifically where we’ve become much more time orientated. In other words, it’s nice to see the 3%, but 3% is a fairly good move.


So, what we do is we look for the minimum three days up to three weeks. And if it’s only 2%, we’re still okay with that. It’s nice to see the 3, but it’s less hard and fast than the three-day minimum is, which is absolute. Now I will quickly share a screen because I wanted to just bring up a chart because part of the question is volume. So, Vince asked about, ‘Where does volume fit into this?’ And the answer is I’m not. This is traditional volume bars here and this is a chart that we own. This is a stock we own, we own Nutrien and we built a bit of a position. You can see a little breakout there. We bought, so this would be count three days we bought, and we recently added a little bit where we don’t have, if you take the online technical course, you’ll learn about moving in legs.


And we usually do three legs if we really like the stock. So we do 2% at a time. We’ve done two legs. You can see it’s trying to build a base, it’s making higher lows, higher highs, all that stuff that we like. This high is not higher than that. So, there is still some question on the validity of the trade, but the volume has fallen. So, you can say, well, that’s not good, but it’s really, I’ve become more of a believer in money flow than in straight-out volume. Why? Because money flow is volume on up days, times the percentage move up versus down days. So, it tells you, is money actually moving into the stock on a net-net basis? And you can see that line says, yes it is. And then this is a money flow index, which is basically just an RSI of this indicator.


So, I don’t use traditional volume so much anymore, but I do use the three-day rule. So breakout three days, boom, go in, put a second leg if it holds above that line, which it is, but we won’t do a third leg until we see a breakout of this high and hopefully the 200-day moving average. So we’re legging in a bit at a time. So hopefully that helps you, Vince. I’ll stop share on that.


And this is one for both of us, and it’s from Marc with a C, not a K. ‘Can you share websites?’ So, I can start off with a couple and then Craig, if you have any to add, I’ll let you have at it. We didn’t actually discuss this question before the video, so I’m just going to give a couple of my own. So I like – in fact, I read it myself every morning when I’m having my coffee and I’m half-awake – “Seeking Alpha” has an email thing that they’ll send to your inbox called ‘What’s Moving the Markets’, and it comes to your inbox every single day and it summarizes everything that’s going on in like three paragraphs.


So, it’s just the news, but it’s good to know the news. They talk about, well, the Fed’s going to speak at whatever time today, and whatever’s going on. They talked about the comments coming out of, I think it was Tesla, stuff like that. That was today’s news. So, I use that for what’s moving the markets, what stuff should we be paying attention to. And then another, we buy institutional global research. So I’m not going to say, oh, you guys should all run out and buy the $10,000 packages a year that we buy. You’re not going to do that. But the free stuff like Yahoo Finance, that’s another really good site. It’s free and it covers a lot of stuff that you could use to, as you say in your question, ‘keeping an eye on the market’s pulse’. So Craig, do you have any others that might be free to the retail user that you think of are worthy?


Well, listen, there are the news outlets, whether it’s Reuters or whether it’s Bloomberg, they certainly give you pertinent information. The one consolidated kind of and, you know, unbiased website or blog is Frances’ blog. She really, in the, the blog is ‘A View From A Broad’, I think it is called. And it really, it’s very concise. She’s quite timely and it’s a quick breakdown of what’s happening in the market in the morning. So, it’s one, if you’re looking for some free information.


Excellent. Yeah, and Frances Horodelski, is a long-time friend. She used to interview me all the time on BNN, and now she’s running this blog site ‘View From A Broad’. She says it just like that. She’s got quite a sense of humour, if you know her. And, I interviewed her recently, so if you type her name, just type Frances, because spelling her last name is a challenge. So just type Frances in the video section on the ValueTrend site, and you’ll see the interview I did with her and she’s awesome. I forgot about that one, so thanks for that, Craig.


Okay, Manny asked, ‘Will this market test the October 22nd lows of 3600?’ I’ll just quickly pull up a chart of the S&P. So, I’m going to go to stop charts because this is probably a better way of looking at it. So $SBX.


Okay, so this is the S&P 500. Some of you might’ve heard of that index, a little-known index. So this is that, that first level. It’s coming into that right now. It’s up a tiny bit today, but it approached 42 yesterday, inter-day it hit 4250. It’s now 43 and 03, as I look on this screen. The 200-day comes in around 4218 actually. And the support level, as you can see, which is former resistance, is same level around 4200. So, 4200 resistance, it’s where the 200 date comes in. It kind of bounced off of that yesterday because we hit 4250 or so. And you can see there’s a little bit of a kind of a spinning top there on the chart.


Now the question was, Manny was asking is, ‘Will it go to the old lows here?’ And the answer is, not unless it penetrates this much stronger support level, which is 3800. And I’m suggesting that 4200 is pretty strong, so I have yet to see that cracked. If that cracks, I mean then you’ve got the 200-day that’s been cracked at the same time, so that’s serious. So it will probably – if 4200 cracks, it will probably hit 38. But that’s to be seen. And, you know Howard Marks likes to say, I often quote him, you don’t predict, you do prepare and we’re prepared for anything.


Craig and I are holding about 27% cash on the equity platform, and I think it’s about 30% in the aggressive platform. So we have lots of cash, we’ve got lots of stuff that’s not so related to the S&P, and that’s why we’ve been outperforming. I can’t wait for our September numbers to come out, but whatever the case, the point is that don’t – I wouldn’t even assume the October lows until we see this 4200 and this 3800 level crack. So, I won’t make any kind of predictions because there’s no point. We have to see one level at a time if they hold. When they break, then we can make the next prediction, which is down to the next level. And it’s not even a prediction, it’s just a probability.


So, the next couple of questions are mine and then we go back to Craig. So, the next question is from Paul. And Paul actually posted two questions and he answered his own question. So, he asked, ‘Hey, when you do a stock charts chart on a high-dividend stock, it distorts the chart for both the dividend and sometimes stock splits.’ But for those of you who don’t know, I’m just going to do a quick stock charts thing. Okay, so I’m going to go to a high-dividend stock. Let’s just pick BCE. I know it’s a high-dividend stock and we own this stock. It’s not been fun to own it so far, as you can see, it is breaking down. We may have to sell the darn thing.


We’re forgiving that the market is pulling back, but we’re probably going to end up selling this stock. But what’s interesting here, is that I want you to notice the difference. So you see the big swings and even this recent breakdown. Now what happens is if I put an underscore before the name, you see how I put an underscore there? We push update, okay, so now we have a breakdown, but this is actually the breakdown’s coming into an old level in 2020, the Covid lows, but the chart changed quite a bit once we did the underscore, it took out the dividends because what happens is stock charts adds the dividends back in to price. It’s a really weird situation.


Stock splits are equally distorting of these charts. So, the damage on BCE on a pure stock price, and this is one that we’ve been losing on, it has been greater than the chart without the underscore. In other words, when you include the dividend – which it adds back into price which isn’t correct – because people buy price, they don’t buy dividends. So, when we look at charts with a high dividend, now I’m not talking about something with a 1% dividend. It really doesn’t distort the chart that much. But when we look at high-dividend charts, we always use the underscore to take that distortion out. And actually, if you look at Paul’s email on the answers – the Ask Me Blog, or Ask Us Blog, he answered the question himself, but I just thought I’d point this out to people.


Okay, so the next one is for Craig and it’s from Tamara. Take it away, Craig.


So, Tamara asks about commercial real estate and ‘Is it time for commercial real estate?’ I just want to start to say that all commercial real estate isn’t the same. No. We would put a multi-family building, in a different asset class kind of, than an office building, or an industrial building, or a medical building. So, it really depends on what type of commercial real estate you’re referring to. Now, certainly, the pressure on cap rates is having an impact on commercial real estate as a group. That is making them, putting pressure on the value of those properties. It’s costing more to finance them. To look at the group as a whole, the office properties are the ones that in an urban area, are they are under pressure. But the multi-family apartments, they’re doing okay because we know that the rental rates have not come under pressure. If anything, inflation readings are telling us those are the areas that are actually increasing. So, if you’re going to look for an area, that’s the area that is doing okay. Is there a time when office will turn around? I’d rather see it firm up before you’d guess. It’s kind of a falling knife maybe situation at this point. There’s a lot of variables that we don’t know yet, including the rates that you’re going to have to finance the amount.


Now, speaking of rates, that goes into the next part of Tamara’s question, and I think others have asked on this as well, ‘For the US bonds and the treasuries, whether it’s their appropriate recession protection?” The timing is what it comes down to. Do they? Yes, these longer-term bonds should, when rates stop going up, there’s a strong sense that rates pausing going down will be positive for the long-term bonds. But, as we’ve seen, that could take a while. And so is it a prediction of the recession? Well, we’re in an environment where rates have risen faster than they’ve ever risen in history. So, the result is we don’t know how long that is going to take to play out, and the full impact of what those higher rates mean. And I think it’s more a question of when the central bankers will have to ease off on their hawkish sentiment and lean into lower rates. I’ll leave it there for now.


And actually, the next one’s for you as well, Craig, it’s from Michael,


Right. And, this is another where the question is asking on ‘the position size that we have, and how we adjust the portfolio with different size positions.’ We suggest that if we really like a position, it’s going to be a 7% waiting. Well, doing the math 7% waiting across the board, you’d get 14 or so names. Well, the way we’re allocating is that we really have to like the name and it’s not often that we are convinced across the board to have a 7% waiting in all positions. So, the way we allocate is often with varying sizes of positions, depending on the characteristics, and depending on so many factors. Whether we like the sector, whether we’re comfortable with that position, whether we want to add to that position at some point. It’s really about asset allocation and we tend to have on average 25 positions in the portfolio. But that’s an average as you know, some days it’s less and some quarters it’s more. So, but suffice to say, it’s not often that we have ever convinced to be full weight in 14 positions. It doesn’t happen.


And Craig, this one I asked you to answer because Craig was a Trader in his former life as well. So this I felt was more up Craig’s alley than my own. Martin’s question.


Martin asked about ‘Gold and the trading of Gold on the CME, which it looks for a quote on stock charts versus something you would find on Kitco.’ The difference being the stock chart is the futures, and that’s CME. That’s not backed by physical gold, it’s futures contracts, and you know trading millions of contracts a day. The other side, Kitco is an actual intermediary where you get a spot price for immediate delivery. So, it’s a pricing that has to do with the actual physical, whereas the CME does not, to the same degree.


There we go! I just learned something new. Okay, well that’s good. Thanks Craig. So, the next question is Paula. Paula’s actually a very regular reader. Well, a lot of these people that I’m reading from, they’re long-time readers. Paula’s fairly active on the site, so she’s got two questions, and Craig’s going to cover the first one, which we actually just pulled up NTR, so I don’t need to talk about the chart, but it’s to do with commodities in the Russia/Ukraine thing. So Craig, why don’t you take that one away and then I’ll answer part two of her question.


So, Paula asks ‘about the pressure or the influence that commodities had by the conflict in Russia/Ukraine’. Certainly part of that you could see on the chart of the NTR we’re looking at, and the others in the agricultural space are very similar, that at the beginning of ’22 when the conflict really came to your media outlets, the price went straight up parabolic. It’s come back. And, going forward, anytime there’s conflict, there’s going to be constrain on the supply of those commodities. Specifically, you look at uranium. Uranium is very concentrated in this area of the world. So when it’s locked in, it’s going to put pressure on the commodity itself. So yes, besides the fact that we think that the commodity is for other reasons as well, an area that you want to be, you want to have some allocation of capital to; the conflict in Russia/ Ukraine continues to put pressure on the commodity index, and the commodities themselves. We see it in energy, we see it in uranium as I mentioned. And yes, we see it in agriculture as well. So there is likely to continue to be a place for commodities in your portfolio with this as being one of the elements that you are protecting yourself against.


Okay, so I can just very quickly answer the second part of Paula’s question. She’s asking about the ‘difference between weekly and daily charts and where I would use them’. So, she recognizes that obviously weekly will give you a different timeframe. I mean you can squish daily data into it just as long a timeframe, but you’re really – the indicators such as, price momentum indicators, and even MFI. I was just talking about money flow type of momentum indicators and all those different views on a chart drastically change when it comes to daily versus weekly. So, what I tend to do is, I use the daily, like you said Paula – you even sort of answered that – to establish the trend. I want to know support, resistance and trend and all that kind of thing because it’s a big-picture question. But if we were to look at a daily chart, then we can get a closer look at those indicators and maybe I will pull up an example. If I pulled up, well, I’m going to go back to Nutrien, she was asking about that.


So, this is the Nutrien chart and I’m going to go back to the weekly and you can see the trend, bit of a base building. You can see stochastics looks overbought and rounding over, but you can see MACD is moving up. Okay, so RSI is neutral. Alright, so if we go to the daily chart, then we have a different picture. We have stochastics is actually oversold. Like, in other words, it looks like Nutrien may start moving up in the very near term.


RSI is, if anything a little bit bearish and MACD is a little bit bearish on the daily chart but not on the weekly charts. Remember, on the weekly charts it was bullish. So what this is telling us is that in the near-term, because on the daily chart the most important indicator is the near-term indicator, it’s stochastics. So that little trend line, there’s a good chance that Nutrien might bounce off of it sooner or later. Like within the next week or two weeks or so. But if we go to the, to the weekly chart, then it’s not necessarily saying that. Stochastics is showing near-term upside, but the other two indicators on the long-term aren’t. So that’s one way I look at it is I’m looking at big – sort of the big picture with the weekly chart for both the trend and the indicators. But the other thing I’m going to just quickly bring up while we’re on the subject, is candlesticks. You can get a better picture of the turning points when you use candlesticks on a daily chart because it gives you that inter-day stuff. So, you had just one example here you can see an inverted hammer, and that told us that the market was likely nearing a top and it was in fact. It’s just a daily chart top, so it was a short-term move down. Okay? So I like them for different reasons, but really what it comes down to is near-term view versus longer-term view. Alright, so that answers Paula’s questions.


The next question either one of us can answer, but I’ll get Craig to answer it. It’s on stop-loss orders. So Craig, why don’t you address that?


Sure. So, the stop-loss order is, just to refresh, you want to sell at that level. When a trade occurs, that becomes a market order. So you put your order in to sell at a certain level. When that level gets hit, your order becomes a market order to sell. But what the order book looks like at that time, you don’t know ahead of time. So, before your order becomes a market order, there are already market orders in there at the time. So, the question that Sheldon asked is ‘Why doesn’t it happen immediately?’ Well, it doesn’t happen immediately because there’s other orders in there prior to your order becoming a market order. Okay? I think it’s that straightforward.


Okay, and I will just add that we don’t use physical stop orders. And the reason is because, and Craig and I were talking about how we explain this on the video, but basically you know, let’s just artificial dollar amount, you don’t want it to drop below $10. So, you put a stop at $9.99 and then so it goes to $9.99, there was a few bids there. So yeah, you got some fills but you didn’t get your entire order filled and maybe even the stock moves up again right after that and you just got rid of some stocks right at the bottom and off it goes to the top. So, that is why going back to somebody was asking about the three and three rule earlier, we answered that. That’s why I invented the three and three rule, okay? That we wait a minimum of three days because we’re not day traders, so, we’re not interested inter-day moves and we want to see if the move is real.


So, we don’t use stop orders for the reason that we don’t want to get stopped out and then watch us get our heads handed to us on a platter. We give it a minimum of three days if something goes below the support level that we are watching, and we often – depending on the volatility of the stock – we often give it more, we’ll give it up to three weeks. And that applies to breakouts as well. We don’t want to get head faked. You know, a stock breaks out, it fools you, it looks like yay, it’s a new high, it’s just broken through all that resistance. And then lo and behold, the thing drops two days later. So, and I’m sure people watching this video have never had that happen to them. It’s only to us. (Tongue in cheek – because it happens to everybody.) And so, the rules that I created on the technical side have to do with at least improving your odds of not getting whipsawed on some of these trades.


Okay, so the next question is from Marc. Craig, you can take that one.


Okay, Marc asked about the yields on the 10-year and, its predictability of a recession. Or, in recession, how that can protect your portfolio. I think we’ve answered that. He also asked about hedging and, the Canadian versus the US dollar. It, as with the yields, depends on your timeline and your expectation of when you’re going to need that protection. The Canadian/US dollar has been in a pretty tight range over the last year plus. So, Keith, if you want to pull up a chart of the Canada/US dollar?  To say that you want to hedge, you’re hedging against an event that hasn’t shown signs of transpiring yet or coming to fruition. So, it’s protection, yes, against an event that could someday impact you, yes. If you are looking for Canadian dollars, well then invest in the Canadian equivalent perhaps you’d be just as well served. Because the US/ Canada rates themselves, the longer ends are behaving quite similarly at this point. So, to hedge the dollar exposure it might be a moot point.


Okay. So I mean if you want me to comment, technically this is a chart. I assume a lot of the viewers of this video are long-time readers of the blog. I’ve been blogging since 2009 I think in various forms. So it’s been around a little bit of time. And so this is one of those charts that I posted like probably way back in 2009 or 2010. And I just keep adding to it. I just draw my lines. But what’s amazing about this chart is that the very lines, just like this blue line that I drew you know, way back when, it’s held true ever since and when the downtrend started here, it’s held true. And same with these levels, 83 and 73. So these levels offer an awful lot of predictability. And what you’ll notice is that right now you can see there’ve been many – some people will call them down flags or whatever – but there’s been many sort of mini bear markets in the Canadian dollar on a relative basis to the US dollar.


It just means the US dollar may be strengthening. It doesn’t mean the Canadian dollar’s weakening against world currencies because it’s a measurement against the US dollar specifically. But that’s how we tend to look at it, and we’re just in one of those. And the funny thing is though, that when the market gets down around 72, which it recently did, earlier this year, and in fact late-22, you can see it basically hit 72. It spiked a little bit below, but you know, I like to say the word ‘ish’ 72-ish. So it’s been consolidating since then. So, more than likely this downtrend may come to an end soon and that you’ll see the dollar go up, the Canadian dollar that is, go up. Why? Well, one reason could be the fact that you know, oil and other such commodities, which as you know, Craig and I are quite bullish on, are looking pretty good right now.


And yeah, we need oil to break out. It needs to do that. And you saw the resistance, but it’s getting there and there’s a good fundamental reason for oil breaking out because the world isn’t going to switch over to so-called green energy by 2025 no matter what your local politician seems to fantasize about. So there is a need for oil. It’s actually only growing. Kevin O’Leary just put out a video the other day and he’s buying and building a multi-billion-dollar refinery project in the US. Why? Because he sees massive need for oil. Mr. Wonderful himself likes it. So, I don’t know, I’ve got to like it, I think. And the chart tells me that if we see the breakout, it’ll be powerful. So, you know, that’s going to push the Canadian dollar higher because it should be a major export of ours so long as we get a sensible government. Now that’s another question – but anyways.


The final question is my favorite, and it’s a question for me and it’s from Greg. And Greg, I actually left your reply, unlike the rest of these questions where we’re just answering on the video, I left your reply on the Ask Me Anything blog because there are a few points I wanted to cover, but I’ll just briefly cover them now. So, his question is, ‘With fixed income, short-term money, like high-interest savings accounts and T-bills and whatever, paying 5% plus, why bother at the “the old Wall Street casino”?’ Well, I’m going to say that I just finished writing or rewriting my book ‘Sideways’, which was my bestseller. So it needed a rewrite seeing as I published it in ’11 and it was written in 2010. But a part of the book I started off in the introduction arguing for the potential of another era of Sideways Markets.


That’s what the original book was written about is all the sideways markets that the markets have done since the late-1800s. And I think Craig and I wrote a research report a while back on the potential for this happening. That the market could move sideways for five to ten years. And so I guess we’ll see, but so far we’re having trouble getting back to those old highs of 2021. So, so far it kind of looks like the thesis which Craig and I wrote about in 21 is correct. So, if the market is sideways and you can get 5%, then, “Why would you buy stocks?”, is the question. And the answer is, that you can make an awful lot of money in a sideways market. I mean these sideways markets, they swing. Look what’s happened this year, ’22 fell 25%. So far in ’23, it’s been up almost half of that again, like 15% if you look at the S&P 500. Now, it’s retracing some of that now, but it’s a swing trader’s dream. Okay – and guess what? You’re right in one way, Greg.


So, the average investor who buys, goes to their online account or goes to their local bank and buys an index ETF or an index mutual fund or just a regular mutual fund that is a billion-dollar fund that can’t trade. They’re not going to make a lot of money in this market. I mean they’re going to make 20% up one year and 20% down the next, if I’m right. So you’re right, that person ought to buy the 5% bond and forget about it. But, could you make more than that in a swing trading market? Damn straight. You know, you can make a lot of money in a swing trading market. And so, case in point, last year in ’22, even though the market fell, Craig and I actually made about 1% on the equity platform, and that was in a bear market.


Now when we’ve been holding cash to this sell-off, why? Because we think there’s tons of opportunity when the sell-off ends and we can go in. That’s swing trading. Okay, second thing is – things rotate. So, if we look at what’s happening now, a lot of the growth stocks are under pressure. Why? Because rates are high, inflation, and all that stuff. That’s a rotation that we are seeing. And what’s happened to oil lately, what’s even starting to happen in the metals lately, is – we’re seeing rotation into hard assets again. We saw this by the way, after Covid hard assets crashed and then they climbed like crazy after that, and Craig and I played that trade. So, what we’re saying is, that, yeah, okay, a buy-and-hold investor that buys an index ETF in our opinion is not going to have a good time in the next little while, and they should buy a 5% GIC, because they’ll make probably better money.


But for someone with a plan, you get the tax benefits of capital gains, and you can make a lot of money in a swing trading market. You can go into other assets that are not the stock market. You can buy oil, for example. If it breaks out you can buy gold. I’m not saying we should buy these things today, but I am saying is there are tons of alternatives that are not what worked yesterday. You’ve got to think ahead. Craig, do you have any comments on that as well? I’ve just ranted.


No, that’s, that’s, that’s exactly our thesis. That’s exactly where we stand. And we think as an active portfolio manager, you’ve got an advantage and it’s not, it’s not a passive market any longer.


And Greg, to finish up, I noted in the comment, and I do want you to read it on the Ask Me questions, I say, any idiot can make money in a bull market and lots of idiots did. Okay? Look at real estate the past three years. Now the idiots aren’t making so much money in real estate. Same with the market, okay? But I like to think that Craig and I aren’t idiots. We have a strategy and if you follow the work that I presented, and the technical course, you have a strategy. Hopefully, you’re not an idiot. And if you’re not, you can make money in this market because it’s, it’s the people that think that you know, doing as the old saying goes, ‘you try to get different results doing the same old thing. That’s the definition of insanity.’


So absolutely, you have to change your tune, but it doesn’t mean you can’t make money, and it doesn’t mean you can’t make a heck of a lot more than just 5%. That’s by the way, fully taxed, you know, in this kind of market. So, we’ll end with that and we’ll say thank you very much for watching. This was a long video, but we covered all of your questions and we’ll do another one soon.


Never miss another video!

Get Smart Money Dumb Money videos delivered directly to your inbox.

Recent Posts

Keith's on Demand Technical Analysis course is now available

Scroll to Top