Larbi Moumni, CFA November 30, 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 Jul-18 Weekly Trends Larbi Moumni, CFA November 30, 2018 Chart Pack This week we look at a series of charts to help us take the pulse of the market and see what has/has not been working: The S&P/TSX broke below 14,800 end of October, a level that acted as support in February and resistance during Q3/17. The Canadian benchmark tried to rally early this month, but gains were pared on the back of our energy sector, which continues to face pressure from declining Canadian oil prices. While we note that tax-loss selling could have weighed on the index, we continue to watch for developments on a few fronts including global growth, the energy sector, corporate earnings, leading indicators and the US high yield market. Positive developments here and a much-awaited Santa Claus Rally could drive the index higher; if not, we peg the next leg of support at 14,500. The trend still hasn t turned around yet relative to our neighbour down south. While the market continues to watch for developments in the Canadian oil patch with the NEB s Trans Mountain review process concluding in Q1/19, the latest Fall budget update offered incentives to help support economic growth and address the divide between Canada and the US corporate tax structure. We continue to highlight Canada s discount to the US with the S&P/TSX trading at 14.4x estimated earnings compared to the S&P 500 currently trading at 16.7x. Defensive sectors have been performing very well so far this month. Consumer staples, communication services and utilities are all outperforming the market while real estate continues trending positively. S&P/TSX Top 5 Gainers/Laggards* SHOPIFY INC - A CASCADES INC HUDSON'S BAY CO AIR CANADA BOYD GROUP INCOM ADVANTAGE OIL & ARC RESOURCES LT MARTINREA INTERN ALTAGAS LTD LABRADOR IRON OR -11% -11% -11% -12% -13% Source: Bloomberg, Raymond James Ltd; * 5-day price return 8% 9% 11% 10% 10% -20% -10% 0% 10% 20% S&P/TSX Market Internals S&P/TSX Market Breadth Weekly Advance 85 34% Weekly Decline % Advance-Decline -73 New 52 wk high 3 1% New 52 wk low 10 4% No. Stocks Above 50-d 85 34% No. Stocks Above 200-d 70 28% Arms Weekly Index 1.05 Neutral RSI (14-day) 50.4 Neutral 50-DMA 15,419 Downtrend 200-DMA 15,822 Downtrend Equity Market YTD Returns (%) S&P 500 Russell 2000 MSCI World S&P/TSX Comp MSCI Europe MSCI EAFE S&P/TSX Small Cap-17.1 MSCI EM Canadian Sectors Weight Recommendation Consumer Discretionary 4.4 Underweight Consumer Staples 3.8 Market weight Energy 17.9 Market weight Financials 34.3 Market weight Health Care 1.6 Underweight Industrials 10.7 Market weight Technology 4.1 Market weight Materials 10.2 Market weight Communications 5.9 Market weight Utilities 4.0 Market weight Real Estate 3.2 Overweight Technical Considerations Level Target S&P/TSX Composite 15,194 17,650 17,000 16,000 15,000 14,000 13,000 12,000 11,000 Source: Bloomberg, Raymond James Ltd. Sectors are based on Bloomberg classifications S&P/TSX Comp 50-Day MA 200-Day MA Please read domestic and foreign disclosure/risk information beginning on page 16 Raymond James Ltd King St W. Toronto ON Canada M5H 3Y West Georgia Street Vancouver BC Canada V6C 3L2.

2 Weekly Trends Larbi Moumni, CFA November 30, 2018 Page 2 of 16 S&P/TSX Still Has Not Rallied, Yet The S&P/TSX broke below 14,800 end of October, a level that acted as support in February and resistance during Q3/17. The Canadian benchmark tried to rally early this month, but gains were pared on the back of our energy sector, which continues to face pressure from declining Canadian oil prices. While we note that tax-loss selling could have weighed on the index, we continue to watch for developments on a few fronts including global growth, the energy sector, corporate earnings, leading indicators and the US high yield market. Positive developments here and a much-awaited Santa Claus Rally could drive the index higher; if not, we peg the next leg of support at 14,500. TSX Testing Support

3 Weekly Trends November 30, 2018 Page 3 of 16 The S&P/TSX Flat Lining Relative to S&P 500 The trend still hasn t turned around yet relative to our neighbour down south. While the market continues to watch for developments in the Canadian oil patch with the NEB s Trans Mountain review process concluding in Q1/19, the latest Fall budget update offered incentives to help support economic growth and address the divide between Canada and the US corporate tax structure. We continue to highlight Canada s discount to the US with the S&P/TSX trading at 14.4x estimated earnings compared to the S&P 500 currently trading at 16.7x. Canada is Flat Relative to the US for far in Q4/18

4 Weekly Trends November 30, 2018 Page 4 of 16 US Small Caps at Relative Support US small caps continue testing relative support to the S&P 500. After testing support, small caps tend to bounce back relative to large caps. Russell 2000 Small Cap Index vs the S&P 500

5 Weekly Trends November 30, 2018 Page 5 of 16 Canadian Sectors in Favour Information technology, industrials, health care, real estate, consumer staples and communication services are all positive so far in 2018 both on an absolute and market-relative basis. While not positive on an absolute basis, financials are still outperforming the S&P/TSX year-to-date. However, the defensive sectors have taken the lead so far in November with the consumer staples, communication services and utilities being the top three performing sectors both on an absolute and marketrelative basis. The defensives were followed by information technology, consumer discretionary and financials also performing positively both on an absolute and market-relative basis. Communication Services And Consumer Staples have a Solid November

6 Weekly Trends November 30, 2018 Page 6 of 16 Canadian Sectors Out of Favour Energy, materials, consumer discretionary and utilities continue to be the worst performing sectors so far this year both on an absolute and market-relative basis. In November alone, energy and materials have also posted absolute losses joined by health care and real estate. The consumer discretionary sector reversed from its June peak, but bounced off of its market-relative support in October with improving momentum. The materials sector continues to trade below the lower end of its trading range, but has broken above its market-relative 50-day moving average. Consumer Discretionary Still Under Pressure Materials Below Trading Range

7 Weekly Trends November 30, 2018 Page 7 of 16 Where to Be in Canadian Defensive Sectors Defensive sectors have been performing very well so far this month. Consumer staples, communication services and utilities are all outperforming the market while real estate continues trending positively. Canadian Defensive Sectors Relative to S&P/TSX Real Estate is the Best Performing Defensive Year-To-Date

8 Weekly Trends November 30, 2018 Page 8 of 16 Commodities Corner: Oil Oil prices broke below their support at the 200-day moving average end of October and broke below the previous resistance level at ~$55. We note the commodity is deeply oversold so we could see a bounce from here. WTI Oil: Falling Off a Cliff

9 Weekly Trends November 30, 2018 Page 9 of 16 Commodities Corner: Copper Copper is experiencing a reverse in polarity where previous resistance has now turned into support. Since China is the world s largest copper importer, we will be watching for the conclusion of China s Annual Economic Work Conference held on December 18 to see if the government offers stimulus to support its economy, which we expect to offer direction for the commodity. Copper Trading at Support

10 Weekly Trends November 30, 2018 Page 10 of 16 Commodities Corner: Everything Else The Thomson Reuters/Jefferies Commodity (CRB) Index, comprised of 19 commodities, has reversed its uptrend in October on the back of a strengthening US dollar. CRB Strengthens on Weak USD

11 Weekly Trends November 30, 2018 Page 11 of 16 Fixed Income: High Yield High yield breaks short term relative uptrend to investment grade corporate bonds. High Yield vs Corporate Bonds

12 Weekly Trends November 30, 2018 Page 12 of 16 Around the World in 30 Seconds Chinese mainland shares are down ~30% from their January highs, making it the worst performing index around the world this year. The index continues to face resistance relative to the 50-day moving average and RSI has not sustained a break above the 50-level, indicating momentum has not turned around yet. The decline has been driven by trade tensions with the US and a slowing Chinese economy. Investors will be looking to the Annual Economic Work Conference held on December 18 where policy makers are expected to react to the slowing economy by announcing additional measures. China Path Remains Lower

13 Weekly Trends November 30, 2018 Page 13 of 16 Around the World in 30 Seconds - Japan Japanese equities break above their relative resistance level to the MSCI World Index in August and tested support at the 50-day moving average in October and November. Japanese Nikkei Breakout!

14 Weekly Trends November 30, 2018 Page 14 of 16 Around the World in 30 Seconds - Europe Europe continues to face resistance relative to the World and may experience a reverse in polarity where past support turns into resistance. We are watching for a break out of resistance, which we believe could happen following a Brexit deal. Europe Relative to the World

15 Weekly Trends November 30, 2018 Page 15 of 16 Around the World in 30 Seconds Emerging Markets Emerging markets relative to the MSCI World index bounced off of their relative bottom in October. Emerging Markets: EM vs the World

16 Weekly Trends Larbi Moumni, CFA 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.