Market Maps Bob Dickey, Technical Strategist, Portfolio Advisory Group RBC Capital Markets, LLC / Portfolio Advisory Group All values in U.S. dollars and priced as of market close, December 1, 2017, unless otherwise noted For Disclosures, see slide 14
DJIA with 4-month and 13-month moving averages Bullish trend indicated when 4 mo. crosses above 13 mo. Bearish trend indicated when 4 mo. crosses below 13 mo. 4-month moving average 13-month moving average Feb 08 Feb 01 Mar 16 Apr 03 Oct 09 The upside momentum of the market is about as strong as it ever gets, according to the 4X13-month moving average indicator, with both averages trending higher at a steep rate, and the Dow Industrials above both averages. This suggests to us that the market could be headed for a shortterm peak and a move back into a more level advance over the next several months. 2
Long-term market cycles 1925 2017 The long-term trend of the market cycles between periods of growth and stagnation that each last about 16 18 years in a pattern that has persisted for the past 90 years and more. A combination of demographic cycles, and periods of economic expansion and contraction are likely catalysts to the pattern, along with the changes in consumer and investment sentiment that occur as the cycles play out. The current market trend appears to be in the first half of a growth phase, which, if it continues as in past expansions, could have some meaningful upside potential for years to come, in our view. However, as can be seen on the chart, even the growth periods are not without pullbacks along the way that can be timely investment opportunities within the overall trend. 16- to 18-year secular bear market 16- to 18-year secular bear market Long-term growth rate of about 8% (plus dividends) 16- to 18-year secular bear market ; past performance does not guarantee future results 3
Short-term market: S&P 500 Nine years The S&P is near the high end of the nine-year rising channel where it encounters some resistance that could slow the near-term progress. The market has been to both ends of the channel several times during the bull market, and the range itself is some 20% wide, which can allow for much movement within the overall trend. Estimated trend 4
Investor sentiment 30 years The American Association of Individual Investors is an organization that polls its members weekly on whether they believe the market will be up, down, or unchanged, six months in the future. This is a graph of the percentage of the members that gave a bullish response, measured with a 50-week moving average in red plotted against the S&P 500 in black. These surveys began in 1988. Percentage of bullish investors (Right scale) S&P 500 (Left scale) The longer-term bullish sentiment has shown some improvement over the past year, but still remains well below the long-term average and is well below the kind of reading that would indicate an excessive amount of optimism that often comes at long-term market tops. This is especially interesting considering that the bull market has been in place for nearly nine years, and may be indicating that the long-term market trend still has much upside potential ahead. 5
TSX Composite 20 years The TSX is up to a resistance area around 16,000, where it has stalled for the past three months, and would need to clearly break out in order to signal the start of another uptrend. The near-term support area on the downside is 15,000. TSX relative performance to the S&P 500 6
Currencies 15-year trends The U.S. dollar continues to trade in its wider range of 90 105, and remains neutral for the longer term as long as the 90 support level holds. The Canadian dollar is working modestly higher in an improving but still bottoming trend that has good support in the 0.75 area and resistance around 0.83 that we believe will likely be tested again over the next several months. 7
S&P sectors & market indices cycle positions Relative positioning of major sectors within their individual cycles Our preference for finding new ideas is to focus on those areas of the market emerging from bottoming trends, and we are now seeing more areas of the market that are in improving trends than we have seen in several years. This boosts our confidence that the overall market could perform well for the intermediate term, but also will likely continue to be rotational between different areas of the market that support the bullish trend. Consumer Cyclicals Industrials, S&P, DJIA Financials Transports Materials Small cap Technology Utilities Emerging markets World markets ex-u.s. Midcap Consumer Staples Health Care Interest rates Crude oil Energy stocks Canadian $ = Position change from last month Source - RBC Wealth Management Late bear trends Early bull trends Late bull trends Early bear trends Wait Buy Hold Sell 8
Select groups cycle positions Our relative positioning of groups of interest within their individual bull and bear cycles Silver Retailers Source - RBC Wealth Management Oil Service Home Builders, Brokers Insurance Railroads, Copper Miners Chemicals, Aerospace/Defense REITs Canadian Banks, Software Social Media, Internet Gaming Medical Devices, Copper Autos China Forest Products Int l Oil Shipping Biotech Elec. Utilities Drugs Gold Solar Nat Gas stocks Ag Commodities Semiconductors Big U.S. Banks, Airlines Foods, Coal Telecom Steel Restaurants Regional Banks MLPs = Position change from last month Late Bear Trends Early Bull Trends Late Bull Trends Early Bear Trends Wait Buy Hold Sell 9
Gold Nine years Gold continues to trade in what appears to be a bottoming range, and is working toward a possible breakout through the resistance at 1380 that would be enough of a signal to turn the trend from neutral to bullish, in our view. On the lower end, the support around 1200 is now a very important level that will likely hold on any further dips. 10
Oil Eight years Estimated trend The trend on oil has broken out from a previous range of mostly 40 55 that held it for more than a year. The move above 55 gives it an equal measure to around the 70 mark on the current rally. The previous resistance area around 55 is now support, and this must also hold on any dips in order to keep the bullish trend intact. 11
Stocks vs. commodities 60 years Stock prices rising Commodity prices rising The CRB Index is a basket of commodities consisting of about 40% energy, 30% agricultural, and 30% metals in its composition, and over long periods tends to move in the opposite direction of stocks, as this chart illustrates. If the trend in stocks is truly a long-term secular bull market that lasts years, we would expect to see commodity prices remain low as they have during previous cycles. Currently, the CRB Index is lower than it has been for 45 years, which we think suggests inflation could remain low for quite some time, which may also slow the economic growth, but could still benefit the stock market as it has done for the past nine years. 12
10-year Treasury bond yield for 140 years The yield on the 10-year Treasury bond has been trending lower for the past 30-plus years, and will likely remain in a long-term downtrend as long as it stays below the high end of the channel on the chart, which is around the 3.0% level. On a shorter-term basis, we see the 10-year yield as being more neutral in about a 2.0% 2.5% range for the next several months. The last 10 years Decades-long bottoming periods are possible. Chart courtesy of MultPL.com and RBC Wealth Management 13
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