The Toronto MoneyShow October 30, 2015:

Join me and Kevin Prins, Director of National Sales - BMO ETFs - at the Toronto World MoneyShow Friday, October 30 at 1:30 pm as we discus ETFs and how they can be selected to use natural sector rotation as a tool to move in and out of global markets

Sector selection takes advantage of natural stock market rotation due to the normal business cycle which is led by the consumer followed by manufacturing and finally the cyclical industries. When executed properly rotation allows you to remain fully invested by over-weighting in the rising sectors and under-weighting in the falling sectors.

If you wish to adopt this strategy the first step is to recognise the 10 unique and distinct stock sectors (or asset classes) as set out by the index people at Standard & Poor's. They are Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Telecommunications Services and Utilities

The best way to understand the rotation order is to picture a 10-car roller coaster with the financial, utility and consumer sectors riding in the front two or three cars. We call this the front end of the market.  The next three or four cars will be occupied by the telecom, technology and industrial sectors. We refer to these as the middle of the market - and finally riding in the last few cars would be the energy and materials group which we refer to as the back end of the market.

Picture now this 10-car train slowly climbing to the crest of the ride (a bull market) and eventually the front end slipping over the crest and now falling. So now we have a condition with occupants in the front end screaming in fear while the middle and back end cars still are enjoying the climb. Eventually the middle cars crest and you know the rest.

The global markets also are also driven by the forces of rotation – our chart displays the lead – lag relationship between the BMO (ZUH) and the BMO (ZEO)

The BNN - Valeant Rant:

According to Donville Kent Asset Management chief executive Jason Donville – the “Capital markets are at risk” after the Valeant attack by “some unregulated guy in Nevada”. It seems Donville and his clients along with “some poor guy in Saskatoon” were caught in last week’s Valeant torpedo-like collapse. You san see the BNN Donville - Valeant clip at http://www.bnn.ca/News/2015/10/23/Canadas-capital-markets-at-risk-after-attack-on-Valeant-warns-portfolio-manager.aspx

In the BNN clip Donville was making a valid point about some short sellers being “unregulated” and “accountable to no one” until Donville quoted “Ken of Costco” who thinks the accounting at Valeant is OK. In reality the “Ken of Costco” is Kenneth Gerard Langone Sr., an American businessman and investor best known for co-founding The Home Depot. He has an estimated net worth of $2.5 billion according to Forbes. I saw the interview on CNBC where “Ken” along with former Medtronic CEO Bill George, discusses the controversy surrounding allegation of improper accounting at Valeant Pharmaceuticals - there's a 'lot of smoke': Bill George Thursday, 22 Oct 2015 | 8:17 AM ET http://video.cnbc.com/gallery/?video=3000436853

Yes – Langone (who is likely unregulated) does say he thinks the Valeant accounting is OK – but then also says he would not invest because he does like the roll-up business model which requires bigger and bigger acquisitions to keep up the growth rate.

On the technical side – Valeant on the week of Sept 25, 2015 broke down below the 40-week (200-day) for only the third time since 2009. The price MOM peaked in April 2015 with the money flow numbers turning down in late August 2015. The current torpedo was a surprise – but then again so was the Sino-Forest fiasco.

A look at secular bears:

The outlook looks bad for Suncor Energy Inc. (SU) with crude prices at or near 10 year lows and now a Liberal majority in Ottawa. But in reality Suncor has been a terrible investment ever since the 2009 dead cat rebound from the 2008 lows.

So much for the fundamentals

On the technical side – Suncor is beginning to print a bullish price structure. Our chart is a very long term plot – monthly bars of Suncor spanning almost ten years which happens to display Suncor’s 2008 – 2015 secular bear.

Now a bull & bear cycle count for a secular bull is about 5 cycles but sometimes extending to 7 cycles in total – or about 15 to 20+ years. Secular bears are shorter with about 3 cycles or about 8 to 12 years. On the Suncor chart we see a flat 3-cycle secular bear and rising money flow numbers from the trough of the 2^nd bear to the current 3^rd and final bear which should introduce a new secular bull for Suncor

The Canadian dollar effect:

Two stock charts of interest using basic technical tools – a weekly of Canadian Tire (CTC.a) with a simple 40-week moving average and money flow – a variation of on-balance-volume. The other is a monthly of Cascades (CAS) using a long term trend line and the same money flow study

On the CTC.a chart we see a broken 40-week and money flow numbers declining since October 2014 and on the CAS chart we see a mid 2013 break up above a long term trend line and rising money flow numbers. I suspect the weak Canadian dollar is the prime driver of these two bull and bear studies.