Money Management Presentation for the Canadian Association of Technical Analysts

Q: So how do you define a bull market?

A: Okay, well, of course on the beginning of every answer, I’m going to say take the course. Cause I define all that stuff because there are hard and fast rules. I’ve got 33 years of doing this, and I’m going to tell you it comes back to that sentence. A system will save you from yourself. If you can get that into your cranial vault, have a flipping system. I didn’t use the F word. Have a system, because if you don’t have a system, you’re spitting in the wind. So how do I define a bull market? I mean, really honestly, take the course, but in my second book, Sideways, I describe the basic system. It’s the trend system. The course outlines the risk system and everything. But let’s just do the basics. On a weekly chart, higher peaks, and higher troughs.

Two in a row is a minimum. That’s an uptrend. A non-trending market, which doesn’t mean a down market is no more rising peaks and troughs. It doesn’t mean they’re going down, it just means that we either didn’t make a new higher low or a new higher high. It could be one but not the other. But again, if you read my second book, you can see this stuff. We now have some rules based on the weekly chart. Peaks and troughs have got to be higher. Soon as they stop getting higher, then you have at least a consolidating market. And if you start seeing a concession of two lower highs and lower lows then you’ve got a downtrend.

By the way, the other part of my rules is a success of lower high, lower low and, this is the important part, a break of the moving average. A break of the 200-day moving average. Now that’s because that’s my timeframe, a midterm trader, usually around six months or so. I want to hold a stock for at least six months. So that with stocks, but even on the market, if you go back to my work early in 2022, you can follow. You know, you can’t BS when you’ve got a blog because it’s on the record. So you’ll see the beginning of the year I was calling for a bear, and then when it broke in April and I got the risk signal and it already made a lower high and a lower low, I said, okay guys, here’s why I’m bearish. Go to my April 3rd blog and you’ll see. So it was just all rule-based. That is my rule of how I define a bull market or a bear market is rising peaks and troughs and a move above or again, below the moving average. So, hope that helps.

Q: Would you consider a six-month duration corporate bond ETF about equivalent to a cash position?

A: Equivalent? Probably not, but a reasonable facsimile. I mean, cash is cash. So the only cash I consider cash is like, at best, a 30-day money market. To me it’s got to be wholly liquid, absolutely incapable of fluctuating. So high-interest savings accounts and cash are cash to me. But a 30-day T-bill is pretty much absolute. The further out in duration, the more potential for fluctuation but it’s not that much fluctuation because it’s only six months. So, no, it’s not cash. It’s not the equivalent but it’s not bad. It’s not a bad idea.

Q: On your position sizing and rebalancing, when do you do it and how often do you do it to adjust the position size?

A: Okay. Take the course. Because our rules are hard and fast, I go over my stocks like minimum of once a week. For example, on position sizing, so I gave you an example, oil exploded to the positive, unlike the pipeline recently. Oil exploded to the upside in our portfolio and so we had these like way overweight positions, so we were peeling them back and we just like, literally, okay, we’re over seven, and I’m looking at it at least once a week so we just made the decision and we started peeling out. So how often? It’s really based on the movement. Now, having said that we run this asset allocation model, which is in the course.

The allocation model is only one of our ways of buying and selling stocks. So it’s not the whole system but it’s one of our important things because we’re believers in sector rotation. So if we start to see that there’s a movement out of sector A and instead of holding all the commodities, we started selling in early 2022. We had made a bloody fortune on them. Think of when we bought in late 2020, and then we were like up a lot by the end of 2021, and then we started seeing rotation out of them. So we started rotating out of them and by basically the first quarter or so of 22, we had a lot fewer commodities. I think, we were like, at one point, 60-70%, it was huge. But we eventually got down to like 30 and then 20 and I think we ended up like 15% for most of the year. We’re still believers in commodities, but we drastically reduced our positions. Okay, so how did we do it? We’re always running our sector rotation model.

It’s not an absolute, but we run it as we start to see weakness in sectors. We go, oh, I better run the model. So it’s kind of like once a month, but it’s not on the clock. The one thing I do on the clock is my risk. It’s on the blog, by the way. I call it the Bear-o-Meter and I do that absolutely the same time every month. The first or second business day of every month and I report it on the blog, by the way. So I give you a risk reading and it’s for me too. I don’t do it for you guys, you’re not even paying me.

But I do it for us, and then I report it on the blog. Just recently the trend has remained bearish. We’re below the 200-day. We’ve not made a new high. We have to take out 3,400 on the S&P 500 before we take out that last peak. So at best, we’re in a consolidation right now, and we’re still below the 200-days. So we are, as far as we’re concerned, is still in a bearish predicament. With that in mind, we then got a move up in the risk thing on December 3rd, but only up from zero, which is like run for the hills to two, which is still high risk. It doesn’t enter into neutral until it gets hits three.

So we’re still in high risk. So you say, yeah, but it was zero and now it’s two so maybe we go from 36% cash, which we were December 3rd, and we then moved into 30% cash, which, in hindsight went up and then went down. I don’t know, we’re probably no better for it. but that was our rule is that if the Bear-O-Meter says it’s a two and the trend is down that we shouldn’t hold more than 30. So we went back to 30. Right or wrong, that’s what we did and what we have.

Q:  How often do you change your rules?

A: Change? The answer always is no, I don’t, but that’s not actually true because the rules have evolved. I actually patented the name ValueTrend when I was working for Wood Gundy. I was a stockbroker. I was one of the first guys in the company to get a portfolio manager’s license and I set this thing up. I wasn’t with the OSC. They were IROC, Investment Regulatory Organization. And I became an IROC portfolio manager. I later became an Ontario Securities Commission in my own firm. So I had some rules and my claim to fame back then, by the way, was 2008. I followed these basic trend following rules that I just mentioned, like break of the 200-day, break of the lower, and I got out and the market fell 53%.

If you look at peak to trough in the S&P 500, and the TSX was pretty much the same, mostly because of Nortel, and I fell 26 point something. I recovered a hundred percent of the capital by the first month of 2010 and the market didn’t recover till 2013. So that was my first iteration, I guess you could say of my rules because it was strictly trend following rules. The Bear-O-Meter didn’t exist at that time, although I was doing technical work. I told you, I wrote my thesis many, many years ago, 1999 I think it was, for the CMT on sentiment. But my Bear-O-Meter there was simply two things. It was put-to-call ratio combined with an RSI and it was the early stages of what is now the Bear-O-Meter.

I would look at that, but it wasn’t as integrated into my rules as it is now. Like we literally have, oh, okay, the trends down. Well here’s how much cash we have to have. Oh, okay, the Bear-o-Meter is also saying scary so we better have even more cash. We have this little chart. So how often do I change my rules? Well, you’re always learning, aren’t you? I mean, we’re all learning. And so one of the things that I’ve changed in recent years and it really came about after observing what happened after 2010 with the Fed. And I mean, the saying don’t fight the Fed has been around forever, but really the Fed became far more involved and let’s face it, purposely manipulating the stock market because they know that’s part of liquidity. They know it.

So they create the wealth effect or the non-wealth effect through their doings. Because the market became way more sensitive towards Federal Reserve policy, and I guess to a smaller extent, BOC policy Bank of Canada, but the Fed, has taken a bigger role on the influencer markets than in the past. So we have had that influence our decisions. Craig does the fundamentals, but we discuss it and we say, if the Bear-O-Meter says this and the trend says this, but the Fed is also right now going raise, raise, raise rates, that’s another reason to get a little bit more cash. Now we haven’t established a firm rule cause we’re not sure how to quantify it. Is 25 basis points the trigger or is it 50?

We don’t have a rule. I’m sorry for that, but I will tell you that that’s changed in the past few years because we know it’s affecting the markets. So we don’t want to fight the Fed. That is the qualitative side of our business. We discuss, so what do the minutes say, Craig? I’m like, how do you interpret them? I know what those other guys are saying, but how are you interpreting them? What should we do? Should we go from 36 to 40 cash? Like what are you thinking Craig? And he’ll give me his input and then we’ll butt heads a couple of times and then we come to a decision. There’s a new change to our rules is we’ve got a qualitative side.

Q: When investing in gold to hedge the US dollar, do you prefer to buy the miners or bullion?

A: Okay.  When I was on BNN, one of my top picks was Barrick. So do I prefer minors or bullion? Actually, I got that very question on BNN and the answer was all of the above. You know that’s the answer to that. You always circle all the above and you’re more likely be right. We have a gold bullion ETF and we have one gold stock, which is ABX and we have one diversified precious metal stock, which happens to be Wheaton. So Wheaton’s been outperforming because they’re a bit heavier in silver. Silver is on fire right now.

Gold has been just starting to recover and so Barrick will likely pick up. Whenever you’re on BNN you want to put your best foot forward, so you pick the one that you think between now and my next show, what’s going to go up, because you want to look like a rockstar and you have only got three chances to be that rockstar so you always try to pick your best. At least I do. So cash, I know, because I’m pretty convinced the market’s got another leg down and I really can’t go wrong with holding it. But the other two were picks that I felt had some upside. The ABX. The host did call me out in this. The ABX is in a bit of a crappy trend. Agreed. If you go back to my show, you’ll see the gold bullying itself has got this gorgeous long-term cup and handle and it’s just in the handle right now. I’m going to tell you, I’ve seen these suckers before and when they break out, it’s to Infinity and Beyond. Like Buzz Lightyear. So, it’s like two infinity and beyond.

If gold breaks out of this handle, which is like a $2,000 lid, this is a big-picture thing, but it could very easily get to 2000. But if it breaks 2000, I mean by itself, a move to 2000 isn’t a bad trade so I don’t mind that. But if this sucker breaks 2000, I’m telling you two infinity and beyond, and that means Barrick and everybody else is just going to go bananas playing catch up because the producers are not as pretty looking as the as the bullion. So I like Barrick for that and yeah, we’re at about 11 or 12% gold right now. Yeah, I think it’s about 11 or 12% and I can probably tell you we will be another 3 or 4% before you can say Bob’s your uncle.

We’re buying it in steps. We buy everything in steps. That’s another thing I teach you in the course. You don’t just go, I want gold, give me 20%. You have to have a system for legging in, which I present in the course, a very defined system on how you leg in. When this happens, you can buy another 2%. When this happens, you can buy another 2%, but you have to have rules because if the trade goes sour, you haven’t put your entire position in, you’ve legged it. And it’s okay to buy higher. As I try to explain the psychology to people, buying higher is okay. Somebody asked me, will I increase my percentage over a 11%? Yes, I will. I’m going to, yeah. Probably going to 15.

That’s what I expect. Do I have physical gold? No, no, no. We just use ETFs, we’re traders. I get it. You can buy the Sprott thing. It’s the closest thing to a tradable physical gold, I guess. I think that’s Sprott. I can disclose who we bought. We got the Horizons gold. What is it? HUG, I think it is. Why? Because it’s Canadian and it’s listed on TSX so it’s easy to get rid of. I mean, I could have bought the one on the US but to me, it was just whatever. I’m supporting a Canadian company and it’s all the same. They’re all trading in the same futures. So they’re liquid. They have a good market maker.

I mean, for our size, cause we are trading. We’ve got a couple hundred million dollars at least in our equity platform and when you take a 5% position, now you do the math, you got 10 million bucks. I have to have the liquidity and I can go to the market maker and get no issues whatsoever on that. I am a trader. I’m not married to gold. Do you have gold bugs? I’m not a gold bug. I’m a nothing bug.

Q: When investing in gold to hedge in US dollars, do you prefer to buy the miners?

A: If you’re going to hedge the US dollar, buy the actual bullion because it’s the absolutely negatively correlated asset. The pioneers, they can lag for better or for worse because they can also outperform. One of the comments I made on the show, by the way, and this comes from Craig, I pretended to know fundamentals. I don’t know anything about fundamentals.

I said to Craig, give me some fundamentals in case the host asks me something about Barrick. So I always do this because I’m just looking at charts. I’m a pure charty. But he’s Craig. He’s the smart guy. Craig, tell me about ABX because he might ask me something beyond what the chart looks like. We do this all the time. I ask, really why is Barrick lagging? I’m buying because I think it’s moving up after a bottom of a trend. So he said well, they need to have an $1800 price on gold so they start becoming profitable at $1800.

I say, well by Jiminy, that’s where gold is right now. And he says, yeah, so if you’re right Keith and gold goes to $2000 at least at the top of that handle, then Barrick is quite leveraged to that so they’ll actually have outperformance. Everybody hates them because gold isn’t $1800. Well, it is now. When you want to own a producer as they move off somewhere around $1800 as gold moves off of $1800.

Q: Any comment on earth?

A: Yes, earth minerals, lithium, watch my video. I can’t say take my course, but watch my video that I just produced with Jamie Purvis today, it be out in two weeks, because we talked about that. We do have positions in uranium right now, like physical and in a stock.

We think these rare earth materials are going to be a place that we’re going buy more and more of. In our aggressive platform, we have, I think it’s platinum. I just look at the tickers and the chart. I don’t even know what they do half the time. I think we have some lithium. We have some plutonium or platinum, one or the other. But we’re getting into all these kinds of rare things a little at a time. Not so much in the conservative platform, but we do have some uranium on the conservative platform. Is there another leg down on copper or a comment on copper? It’s early stage. We made a fortune on the metals.

We really did. I mean, I’m bragging, but we did. We sold at a really good time at the beginning of this year. And, just FYI, we’re starting to buy again. But remember, if I want 15% of metals, it doesn’t mean I bought 15% today. It means I bought 2% today and then I bought 2% maybe a month from now. Depending on what the market’s doing. We just bought a couple of metal positions so I think we’re 4% right now like spread between two different positions. I think one’s an ETF and one’s a stock. Craig and I will assess what’s the downside, what’s the upside technically? So I said, you know, like if it goes here and it stays there, then I would actually add some more. If it breaks through this, I’ll add some more. Again, take the course to get into all that stuff. But we’re stepping in because we can see that there is a little bit of money flow coming into the metals right now.

Q:  One of my favorites is the Commitment of Traders. Do you reference it as well?

A: Commitment of Traders? I haven’t used it. Commitment of Traders is almost like just another momentum indicator. I remember it’s similar. Sorry, I haven’t brushed up on Commitment of Traders, although I think I actually talked about it in my course. It’s been a while. I’m sorry, I don’t even remember what the components of that indicator are. It was a money flow indicator.

So it might be very similar to a sentiment thing and I’ve looked at it off and on for years, what I’m going to do investing things related to the commodities. I find it helpful, but I find it also, it’s early. So sometimes I just don’t have the patience. I see the thing move and I’m trying to get in and like you say, don’t have a system, so I get in my own way,

The other thing is there are like billions of indicators out there. And the problem is that I’ve learned a few and how to use them, and I’m pretty, pretty adept at using the few that I use. The sentiment indicators too. There are so many include. If you read my book, it’s called Smart Money, Dumb Money, and I talk about the new stuff. There is a new kind of alternate data. They count the number of cars in all the Walmart shopping centers at 12 noon versus 12 noon on December 22nd, 2022 versus 21 versus 20 and they’ve developed a pattern. The cash registers, how many people are buying Black and Decker screwdrivers today versus the normal. It is just insane the stuff they’re doing for alternative data.

I talk about all that. You can buy it, you can buy this data. I can. It’s expensive, but I will buy it if I think it’s worth it. But I’m not going to buy it and, and say, buy a $20,000 research package on alternative data until I really feel comfortable that I can actually use it to my advantage. So you talk about Commitment of Traders. I’ve run across it, and yes, I remember it was money flow of some sort, but I haven’t studied it enough to say this I’m incorporating in my system, doesn’t mean I shouldn’t. That’s keep it simple, stupid as they say. So whatever works for you, if it ain’t broke, don’t fix it. You know, there’s all those little ditties. I’m going to say that I’m always open to new ideas. One day one of the other technical guys that you probably know, he said, oh, I use the, what do they call them? The Japanese clouds, the Ichimoku Clouds. So I started studying them.

It has to be working for you. So if you figure out how to work with it stick with it. So you can never say that indicator doesn’t work because if somebody’s figured out how to use it, they’ve figured out how to use it.

For example, I love candlesticks for my short term stuff. I know how to use them, but some people get so carried away, they learn every single candlestick. There are like five candlesticks, and I talk about it in my course. There are five or six of them that actually work almost all the time. So I’m not going to worry about the other ones that maybe sometimes almost kind of work. I just want to know which ones really work all the time or most of the time and then I’ll use them. It’s pragmatic.

Q:  What do you see about oil on your charts?

A: Okay, so oil’s been kind of consolidating at around 80. It had that nice little peak and it’s just backed off. We just bought some gas, natural gas, but I’m talking 2%. We have one oil stock left after selling like reams of them less than a year ago. We kept one and it’s done okay. But oil itself, I am very bullish on oil. I only have, so far, about 4% exposure, I guess you could say and then 2% exposure to gas. So if you’re saying you’re bullish, it’s because I haven’t seen the breakouts and stuff that I want to see, but the setup is there. If you go to my blog and there’s a search and you type in oil, you’ll see me talk about oil a lot.

One of the reasons, I’m going to use the “F” word, fundamental. One of the fundamental reasons why we like oil is because there are a few factors coming in. Number one is the restocking of the strategic petroleum reserves. They have to do it. There’s no if’s, and’s, or but’s. There’s seasonality. Oil tends to be kind of crappy until February and then tends to take off. And there’s a reason for that because everybody goes driving on vacations and the oil produces stock up. So this is definitely going to happen this year. Recession or not, people are still driving. Number three, Saudi Arabia. This is some intel that I get. I subscribe to some research, AG analytics, and they are expensive. I don’t recommend retail people buy it, but they’re political intel.

And, I’m a little political sometimes on my rants, but this is not political. I hate Trudeau. This is more political as in here’s some political insights that you can use to invest with. And they were one of the people that helped me identify the opportunity in oil in late 2020, I might add. But they’re saying, and they’re just using their intel and they look at literally like which diplomat is flying where and they’re like really sophisticated actually, their algorithms. They were saying that there is an above average chance, like they go on statistics because they don’t actually know, there’s an above average chance that Russia will launch some sort of an aggressive action in February. They actually chose February. How do they come? I don’t know, but they’ve been right a lot, these guys and they say so therefore maybe you have to be looking at oil and whatnot.

It all lines up with the seasonality. It lines up with OPEC not wanting to sell oil for much less than 80 bucks a barrel because they’re not all that profitable. It lines up with restocking the strategic reserves and the charts is as sideways as can be. You guys know stagnation doesn’t happen much on markets. Eventually things happen either up or down. So I’m going to say we’re not entering aggressively in, but I’m waiting. I’m convinced that something’s going to happen. But again, the system saves me from myself. So I am just like, okay, we’re going to wait, I’m going to be patient. There’s a little bit of a bullishness look after the selloff on gas recently. So I kind of took a small step there, but just a two percenter and bottom line is that, so I’m ranting on about oil, but I think there’s a case that can be made fundamentally now, and I won’t move until the technicals agree, but I think they’re going to come together in the next couple of three months.

If they do, it’ll be just as explosive. Maybe not quite as explosive from 40 to 100, but I think it’s going to have a good move and there’s good reason for a good move, recession or not. Everybody goes, what about the recession? Well, yeah, but you didn’t have a government restocking reserves that they drained. You didn’t have OPEX saying, I’m not going to take anything less than 80 bucks and you didn’t have Russia invading Ukraine. That might happen in the winter aggressively. So, there are all these factors that are different than a normal year when yeah, recession comes along and nobody drives their car anymore. Well, there are other factors at play here. So anyways, that’s a heads up. That’s not a trade recommendation right now at all. It’s just, be aware. There you go. I’ll send you a $20,000 bill because that’s what I pay for these guys. So, I just give some intel, and again, they’re not a hundred percent accurate, it’s just some intel. So, keep it, take it for what you want.

Q:  On uranium, are you buying stocks like chemical or physical?

A: All of the above.

All of the above. Again. Yep. Spread the risk and have access to it both. Alright, well, Keith, that was fantastic. I’ve got the two books. I’ll have to look for your third on the sentiment. That would be an interesting read, I’m sure. And on behalf of CATA, we’d like to say thank you very much for taking the time to spend with us. I’m assuming you’ve got all your Christmas shopping done, and if not, you’ll be out there in the snowbanks tomorrow trying to get it finished out.

Well, I’m an Amazon fan. I mean, not the stock.

That has been helpful. Yes. We certainly appreciate you for spending time with us tonight and we love the comments that some of the members have on the course. So just a reminder, you can reach out to Keith directly to get that coupon. And with that again, thank you very much for being with us. Have a Merry Christmas, Happy Holidays and we will, I’m sure, be tasking you to come present to us again.

Okay. Well, thanks guys for having me, and we’ll speak again.

All right, thanks again, Keith. All right, have a good night.