The Canadian economy is dominated by Financials and has a diverse and abundant exposure to natural resources. Despite the close proximity, the composition of the country's stock market couldn't be more different from that of the US.
They have a much higher relative exposure to areas like Financials, Energy, and Materials... Basically, all the things that are working.
On the other hand, they have significantly lower exposure to areas like Technology, Health Care, and Discretionary... Basically, all the areas that are NOT currently working.
It was John Roque who taught me this so many years ago. At least a decade if I had to guess.
We're NOT in a reversion to the mean business. This is a reversion BEYOND the mean business.
In other words, assets don't just get back to what is "average". They tend to overshoot. And that's the norm, not the exception.
This mean reversion we've seen in energy could be just that, a reversion back to the average. But if I've learned anything over the years, these things tend to overshoot.
We've been very vocal about this Value rotation, of course. But coming into the weekend, the big question I pose to myself, my team, and the market for that matter, is this:
Will Energy run into trouble at this logical level? Or will it not care what JC thinks is a logical level?
There's nothing like a good bubble popping to throw a wrench in everyone's plans.
The passive investor bubble popped. They're getting smoked and I think it only gets exponentially worse for them moving forward.
The U.S. home country bias is a bad one too. That one looks like it popped and about to get a whole lot worse for people who think the United States and The World are the same thing.
Bonds going up for 40 years? That's normal right? It's too early to call a generational turn. We can't make that call until 10s are holding above 3%. But it sure looks like that was it.
Meanwhile, the "Lack of Commodity Exposure" bubble is very apparent. I got in this business back in the day and was taught that there were 3 asset classes: Stocks Bonds & Commodities.
Commodities have done so poorly for so long that people just forgot it was an asset class. Is there a better landscape for a change in trend than after completely being eliminated from asset class status?
From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley
When reviewing our chartbook this week, one major theme that stood out is the relentless bid we continue to see in Crude Oil.
Most risk-on commodities have consolidated or pulled back recently as the dollar has rebounded back to its highest level in over three months.
But, not oil...
Crude has completely ignored this action from the US Dollar and tacked on an additional 12% gain since DXY bottomed about two weeks ago.
Ever since trading at negative prices last spring, Crude has been on an absolute tear.
Price just broke above its key prior highs and closed the week at its highest level since 2018. As long as Crude is above this key former resistance around 65 the bias is higher and we're targeting the 2018 highs just above 75 over the near-term.
This morning I popped on to Yahoo Finance to chat with Jared Blikre about this rotation out of Growth stocks and into Value. It's going to be hard for people to wrap their heads around buying old dirty energy companies and the banks that they hate so much.
You can't save the world through your portfolio. It was fun watching people try.
That's over, but still hilarious when looking back on it.
From the desk of Steve Strazza @Sstrazza and Ian Culley @IanCulley.
The US Dollar is one of the most important pieces of the intermarket puzzle.
It affects all the major asset classes, and a rising dollar could impact the current market environment by creating a headwind for stocks and suppressing commodity-centric and cyclical areas of the market.
This could put pressure on our current market thesis as US Dollar strength has the potential to put a damper on the recent rally in risk assets.
In this post, we'll take a look at what's going on underneath the surface in the US Dollar Index by running through some of it's largest components.
We'll then weigh the evidence in front of us in an effort to determine a directional bias for King Dollar.
If there is one chart that stands out the most this year, it has to be the Growth vs Value relationship. We've been pounding the table about it for a reason.
We know what's happened over the past couple of weeks. But when you zoom out and see just where it's happening, that's the WOW!
I want to elaborate on a big theme of late that's been on my mind. We've written about it, discussed it internally - as well as on Clubhouse, and just this morning JC and Willie were both tweeting about it.
Considering what a mega-trend passive investing has become with the ETF boom over the past decade-plus, this is likely to impact investors far and wide... If they don't reposition themselves appropriately.
The reason for this is nuanced but in my opinion, it boils down to the argument that passive is really just active and there have been significant changes in market structure since the financial crisis that have resulted in the major averages being dominated by just a small handful of stocks.
Every month we get a fresh batch of Monthly Candlesticks. It only happens 12 times a year.
I promise you guys from the bottom of my heart that there is no other part of my entire process that provides as much value and information as my monthly chart review. Premium Members can access the Chartbook here.
In the meantime, my friend Josh Brown and I have been doing these short monthly videos since last summer.
On the latest episode we talk about the historic breakout in Financials, the rotation into Value and out of Growth, what this means for interest rates and how that affects the global intermarket landscape.
This month, I'm going to start presenting these monthly reviews in a different way. I think what would be far more useful to all of you would be a review of all trades we exited in the previous month, as well as updates on any positions approaching expiration in the current month.
While we had a bunch of exits in February, we don't have any positions remaining on the books with March expirations. Let's get to it...
