Jason Castelli, CFA May 11, 2018

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1 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Weekly Trends Jason Castelli, CFA May 11, 2018 Spring Showers Bring Energy Flowers Beaten Down, But Not Out was our March 23 Weekly Trends title. We made the case for owning the beat down energy sector given it had failed to participate in the commodity rally. Well, since then, the sector has shown that it was not down for the count gaining 13%, but it is still -1.2% year-to-date. However, this year s performance masks what we believe to be a very significant shift. This significance can be seen by diving into the energy sub-sectors performances which reveals the more commodity sensitive areas of the sector have finally caught a bid. Oil & gas E&Ps, services, and drillers are leading the charge pulling the broader index higher, while the more defensive storage and transportation sub-sector has lagged. Following a retest of the summer 2017 low in February, the energy sector has price action has been very encouraging. Today, the percentage of energy stocks trading above their 50-day and 200-day moving averages is 82% and 60%, respectively. The fundamental case for the commodity remains intact as inventory levels have contracted from elevated levels, geopolitical events have increased the oil risk premium, global demand is supportive, OPEC compliance has been strong and the technicals are pointing to further upside in the commodity. Equity Market YTD Returns (%) Russell S&P MSCI World 1.0 MSCI Europe 0.6 MSCI EM -0.2 MSCI EAFE -0.3 S&P/TSX Comp -1.3 S&P/TSX Small Cap Canadian Sectors Weight Recommendation Consumer Discretionary 5.5 Market weight Consumer Staples 3.4 Underweight Energy 19.7 Overweight Financials 34.1 Market weight Health Care 1.2 Market weight Industrials 9.9 Overweight Technology 3.9 Market weight Materials 11.7 Overweight Communications 4.4 Market weight Utilities 3.5 Underweight Real Estate 2.8 Market weight Technical Considerations Level Target S&P/TSX Composite 15,993 17,650 S&P/TSX Top 5 Gainers/Laggards* S&P/TSX Market Internals Weekly Advance % Weekly Decline % Advance-Decline 29 17,000 16,000 15,000 S&P/TSX Comp 50-Day MA 200-Day MA New 52 wk high 18 7% New 52 wk low 5 2% No. Stocks Above 50-d % No. Stocks Above 200-d % 14,000 13,000 12,000 Source: Bloomberg, Raymond James Ltd; * 5-day price return Arms Weekly Index 0.81 Neutral RSI (14-day) 72.9 Overbought 50-DMA 15,488 Uptrend 200-DMA 15,652 Uptrend 11,000 Source: Bloomberg, Raymond James Ltd. Sectors are based on Bloomberg classifications Please read domestic and foreign disclosure/risk information beginning on page 5 Raymond James Ltd King St W. Toronto ON Canada M5H 3Y West Georgia Street Vancouver BC Canada V6C 3L2.

2 Weekly Trends May 11, 2018 Page 2 of 5 Showing Signs of Life Beaten Down, But Not Out was our March 23 Weekly Trends title. We made the case for owning the beat down energy sector given it had failed to participate in the commodity rally. Well, since then, the sector has shown that it was not down for the count gaining 13%, but it is still -1.2% year-to-date. However, this year s performance masks what we believe to be a very significant shift. This significance can be seen by diving into the energy sub-sectors performances which reveals the more commodity sensitive areas of the sector have finally caught a bid. Oil & gas E&Ps, services, and drillers are leading the charge pulling the broader index higher, while the more defensive storage and transportation sub-sector has lagged. The number of energy stocks now trading above their 50-day and 200-day moving averages is also indicative of the underlying shift in investor sentiment. Following a retest of the summer 2017 low in February, the energy sector has price action has been very encouraging. Today, the percentage of energy stocks trading above their 50-day and 200-day moving averages is 82% and 54%, respectively. This was not the case in Q1/18, so clearly something has changed in Q2/18 and we see this as a signal that the darkest days for energy equities are behind us. The information technology sector is the only other sector to have a higher percentage of stocks above both moving averages, but the sector is narrower than energy, having only 11 members. For all stocks in the S&P/TSX, the percentages are 67% and 52%, respectively. Energy Equities Spring to Life in Q2 Above 50-day MA Above 200-day MA Sector Total No. of Members Count % Count % Consumer Discretionary % 10 45% Consumer Staples % 5 45% Energy % 27 54% Financials % 11 41% Health Care % 4 44% Industrials % 19 70% Information Technology % 10 91% Materials % 28 53% Real Estate % 11 52% Telecommunication Services % 0 0% Utilities % 4 27% S&P/TSX Index % % Supportive Backdrop The fundamental case for the commodity remains intact as inventory levels have contracted from elevated levels, geopolitical events have increased the oil risk premium, global demand is supportive, OPEC compliance has been strong and the technicals are pointing to further upside in the commodity:

3 Weekly Trends May 11, 2018 Page 3 of 5 US DOE total inventories are sitting near the five-year average. All components of the total petroleum complex have contributed to the reduction of inventories. US Inventories Near 5-Yr Average Source: Bloomberg, Raymond James Ltd. Middle East tensions have increased the risk premium due to potential supply disruptions. However, as we discuss in our Guided Portfolio Weekly Update, the US walking away from the Iran deal is unlikely to impact the supply side by the same magnitude as the last round of sanctions; Prior to the implementation of JCPOA in 2015, international sanctions reduced Iranian oil exports by over 1.0 million bbls/d between 2012 and Within that period (Q Q3 2014), the price of WTI crude rose close to 40% from $80.00 to $110.00/bbl (before the price crashed in late 2014 after Saudi Arabia signaled that OPEC would no longer adhere to quotas). This time around, consensus is that Iranian export reductions could be less than a third of the period due to the fact that the US is going forward without its European allies. OPEC is dead set on US$80/bbl! OPEC has clearly indicated its desire for crude to rise to US$80/bbl or even US$100/bbl. Based on OPEC s compliance this may become a reality. According to Bloomberg, for the fifth straight month, OPEC in March set a fresh record for complying with its agreed oil-production cuts, with the goal of re-balancing the market finally in sight. A parallel effort from 10 non-opec nations also improved even as the group s biggest producer, Russia, boosted crude output slightly. See here Technicals point to higher WTI prices. Crude oil is clearly in an upward sloping channel having found support along its 50-day moving average. The path of least resistance is higher and we don t see any potential price resistance until we approach US$90/bbl.

4 Weekly Trends May 11, 2018 Page 4 of 5 WTI Next Level of Resistance ~US$90/bbl When is it too Much With the price of crude up 17% this year and now trading at the highest since 2014, net exporters of the oil will begin to enjoy the benefits while consuming nations will start to feel the pinch. As Canada s largest export is oil, higher crude prices is certainly a nice tailwind for our country but Canadian crude trades at a discount which in effect transfers billions in lost revenue to our largest customers. Nonetheless, higher crude prices are a net positive and crude differential has narrowed significantly over the past few weeks. When is too much of a good thing, too much of a good thing? If crude jumps to US$90/bbl in a matter of months without allowing consumers time to adjust, it can have a negative impact on the economy and demand. Oil shocks generally do not end well for anybody. However, there is one interesting dynamic that changed the potential impact of higher oil prices on the US consumer. In the past, the US was a net importer of oil, but today the US is nearing a tipping point between oil imports and exports. The old rule of thumb was that a US$10/bbl change in oil prices would cause +/-0.3% change in US GDP growth. However, now that the US can easily ramp up shale oil production in response to higher prices there is less risk of a upward price shock and less risk of a slowdown in economic activity. As prices continue to move higher, we think this is an important point to remember as US production can allow for a more stable price environment which is an important assumption in a rising market in order to sustain the rally in the energy sector. WCS Closing the Gap

5 Weekly Trends May 11, 2018 Page 5 of 5 Important Investor Disclosures Complete disclosures for companies covered by Raymond James can be viewed at: This newsletter is prepared by the Private Client Services team (PCS) of Raymond James Ltd. (RJL) for distribution to RJL s retail clients. It is not a product of the Research Department of RJL. All opinions and recommendations reflect the judgement of the author at this date and are subject to change. The author s recommendations may be based on technical analysis and may or may not take into account information contained in fundamental research reports published by RJL or its affiliates. Information is from sources believed to be reliable but accuracy cannot be guaranteed. It is for informational purposes only. It is not meant to provide legal or tax advice; as each situation is different, individuals should seek advice based on their circumstances. Nor is it an offer to sell or the solicitation of an offer to buy any securities. It is intended for distribution only in those jurisdictions where RJL is registered. RJL, its officers, directors, agents, employees and families may from time to time hold long or short positions in the securities mentioned herein and may engage in transactions contrary to the conclusions in this newsletter. RJL may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this newsletter. Securities offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Financial planning and insurance offered through Raymond James Financial Planning Ltd., not a Member-Canadian Investor Protection Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The results presented should not and cannot be viewed as an indicator of future performance. Individual results will vary and transaction costs relating to investing in these stocks will affect overall performance. Information regarding High, Medium, and Low risk securities is available from your Financial Advisor. RJL is a member of Canadian Investor Protection Fund Raymond James Ltd.