MCS Steel Non-Voting DR MSTUF

CIBC

[retiredcf]

CDN Portfolio Matrix - January 2017

Reflationary Trade Has Durability – Energy & Industrials

What's The Event

Portfolio Rebalancing For The Month Of January 2017:
The monthly oversold/overbought rotation again worked better in December with Reits, Utilities showing better returns (oversold sectors) compared to Industrials, Energy, and Technology that lagged behind the benchmark index (overbought sectors). This style of rotation has continued to hurt our performance in the past year as rapid rotation and RSI mean-reversions proved more dominant than monthly trend continuation. Our portfolio basket for the month of December returned -1.74% (primarily due to a 20% decline in one of our holdings) compared to that of the TSX index that returned +1.36%. It is also becoming more visible that the ratio between SPTSX60 & SPTSXS indices reversed negatively below its 20-mth average in April 2016 with the recent negative RSI reversal confirming this cap-size shift. Tactically, it would be reasonable to suggest that investors should continue to look for better opportunities within the small-cap stocks (our preference lies within the Energy & Industrials sectors).

TSX at 15,000+ is closer to strong critical resistance levels from the Summer 2014 and Spring 2015 lower high points (15,600-15,500) with the recent negative daily RSI divergences hinting at more consolidation. This suggests a potential 3%-5% downside risk from current levels, representing support from the rising 50- & 100-d avgs and the trendline slope from the Sep-Nov 2016 higher-low points. The longer-dated RSI (weekly and monthly) and ROC factors (mth-qtr) are still in good standing, portending up-trend continuation with a cyclical relative-strength theme – Industrials, Energy, and Financials. If our assumptions are correct, the longer-dated momentum and trend factors for the TSX index show additional 7% upside toward the 16,330-16,500 levels, supported by positive trend continuation within the Energy, Industrials, and Financials GICS (reflationary trade has durability). Within the TSX Financials GICS, we highlight that the LifeCos appear more attractive when compared to the Banks.

The following list represents our selection for the month of January 2017: Birchcliff (BIR), Kelt (KEL), Seven Generations (VII), Onex Corp (ONEX), Waste Connections (WCN), CCL Industries (CCL.b), Intertape Polymer (ITP), Ivanhoe Mines (IVN), Milestone (MST.un), and Tricon Capital (TCN).
Seven Generations (VII) is the only carryover from the previous month.