Thursday December 3, 2015 RenMac s Strategic Global Blueprint 20 day highs surged for the DAX twice in the past week, reaching 60% on Thursday and 53% again on Monday. Despite the bearish trend and the internally overbought condition, we have to respect the development of momentum. This changes the characterization of the overbought situation from a potential mean-reverting set-up to a momentum confirmation that can be tactically bought given the tailwind of December seasonality. This surge in the DAX was not shared by the CAC-40, however, where momentum is anemic and the DAX is now relatively outperforming. Elsewhere we find China retreating after failing at the 200 DMA and Japan remains in neutral while the JPY trades in a narrow range. We re always testing for the effects of currencies on stocks and sometimes we get curious results. Many times we ve found that a weak currency hurts financials as banks suffer the effects of cross-border exposures. In Canada we found that a weak CAD is actually positively correlated with financials on a relative basis over the past 10 years. Our take is that given the dominance of energy and materials in the market and given that the CAD reflects weakness in those sectors, the flip side is that a weak CAD correlates with strength in other sectors that benefit on a relative basis form the underperformance of the dominant sectors. In short, don t assume a weak CAD means weak financials, there are other larger forces at work. G20 ERP Valuations Pat Nipper Major Market Internals (% Issues above 50 Day MA) Jeffrey degraaf, CMT, CFA Rob Ginsberg Alex Meintel, CMT Patrick Nipper, CMT, CFA Michail Adzhiashvili technical@renmac.com Please Do Not Forward Important disclosure on last page 100 90 80 70 60 50 40 30 20 10 0 US Canada Mexico UK Germany France Italy Japan China Korea Color indicates trend Last Week
European Seasonality Strong in December Average Monthly Performance: Stoxx 600 Since 1987 3.0% 2.5% 2.2% Average Median 2.2% 2.0% 1.5% 1.4% Return 1.0% 0.5% 0.0% 0.9% 0.8% 0.9% 0.1% 0.5% 0.6% -0.5% -1.0% -1.5% -2.0% -0.5% -1.1% -1.5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2
Momentum Surge for DAX 20 Day Highs for the DAX reached 60 and then again 50 in the past week 3
CAC-40 Didn t Get the Same Surge Not there 4
DAX Made a 65 Day High vs CAC 40 5
European BBB Spreads on the Cusp of a Bullish Signal 6
EUR Testing Lows, Rates Portend Further to Go 7
Weak CAD Reflects Weak Energy 8
Weak CAD Good for Financials Relative The weak CAD is a sign of weak economy which in the case of Canada means energy and materials are suffering (Canada acts more like emerging markets in this particular regard). If the dominant sectors in the market are underperforming, by definition other sectors must benefit on a relative basis.. 9
Canadian Financial Buys 10
No Change to JPY Keeping a Lid on Stocks 11
Japanese Chemicals Showing Leadership 12
Japan Chemical Buys 13
Overbought China Failing at Resistance 14
China CDS at Downtrend Resistance 15
Reference Section G-20 Charts by RenMac s Kevin Dempter Conditional Factor Models G-20 Valuations Click Here for Stoxx 600 Rankings Click Here for Nikkei 225 Rankings Click Here for S&P TSX Rankings 16
Breaking out 50 DMA crossing above 200 DMA Struggling with resistance Stay short below 200 DMA Weak Major Topping Pattern Topping Pattern Stay short below 200 DMA Weak Stay short below 200 DMA Weak 17
At resistance now Stay short below 200 DMA Struggling at resistance Stay short below downtrend resistance At downtrend resistance now 50 DMA below 200 DMA Press short on break below support 50 DMA below 200 DMA 18
Struggling with resistance Stay short below downtrend Trying to hold above support Be a seller on a break below support Weak Failing at 200 DMA Stay short below 200 DMA Holding above support Stay long above support 50 DMA crossed below 200 DMA Weak Relative is strong 19
At resistance Stay short below downtrend resistance Be a buyer on a break out above resistance Continues to hold below 200 DMA Be a buyer on a break out above resistance And a seller on a break below support Weak Weak Breaking down Sell rallies into resistance Weak 50 DMA crossed above 200 DMA 20
Topping Pattern Topping Pattern 50 DMA below 200 DMA Failed at resistance Stay short below 200 DMA Very weak Oversold Failing at resistance Stay short below 200 DMA At resistance 50 DMA below 200 DMA 21
Stoxx 600 Conditional Model 6 5.8 5.6 5.4 5.2 Stoxx 600 Model Upper Bound Model Lower Bound 5 02 03 04 05 06 07 08 09 10 11 12 13 14 15 22
Mexico Conditional Model 11 10.5 10 9.5 9 8.5 8 7.5 Model Upper Bound Model Lower Bound Mexico Bolsa Index 7 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 23
Brazil Conditional Model 12 11 10 9 8 Model Upper Bound Model Lower Bound 7 Bovespa Index 6 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 24
Canada Conditional Model 9.8 9.3 8.8 Upper Band 8.3 Lower Band TSX 7.8 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 25
MSCI EM Conditional Model 7.5 7 Upper Band Lower Band MSCI Emerging Markets Index (logged) 6.5 6 5.5 5 4.5 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 26
G20 Valuations Based on RenMac ERP Model 27
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