Market Health Remains Suspect

Click here for the pdf version


“People say Nothing is Impossible, but I do Nothing all the time!” – Winnie-the-Pooh


Bottom Line: Not much has changed this week in the world of stocks and bonds. To dig up an old analogy, Mr. Market’s health remains suspect. He looks healthy enough as he seems to have taken the last month off to relax in the sunshine. However, he continues to face major challenges as his blood pressure is rather high and his cholesterol is off the charts. Doctor Federal Reserve has prescribed an old medication but in the most aggressive dose ever seen before on any patient. The battle continues and we have to wait and see if the medication will help Mr. Market or if it fails and our portfolios will need radical surgery.


For the first time since our move, our team is feeling like we are getting back into the groove of getting to the business of servicing you, the client. Janice is booking review meetings (either GotoMeeting or on the phone for now) and we are looking forward to reviewing with you how we can deliver on your financial plan, what opportunities we see and how to deal with financial markets in what appears to be a somewhat new world.

In the email that delivers this note we’ve added an update from our Financial Planning team regarding Income Splitting opportunities, something my wife and I may look at taking advantage of ourselves. Obviously If you have any questions about that, give us a call and we can guide you or set up a meeting with our team of Certified Financial Planners.



In the Markets
So how is the primary trend of the stock market looking after this week has passed? For perspective let’s have a quick look at the S&P500 in 2009. Below you can see the S&P500 in the top pane. After the bottom in March, the market rallied back quickly into May and then went sideways for about six weeks. Importantly, during that time you can see in the bottom panes the number of stocks above their 200, then 20- and 50-day average prices. This is key. Note that when the S&P500 broke higher in July the number of stocks above their 20- and 50-day average price broke above 80% and the percent above their 200day average price broke above 60%. These are things we need to see in order for the market to be healthy, and for the probabilities to suggest that risk has declined.



Where are we today? You can see below that, much like after the March 2009 low the S&P500 has rallied back over 30%. The difference is that, since the market peak in April the number of stocks above their 20- and 50-day average price has actually been in decline. The number of stocks above their 200-day average price can’t get above 40! That is anemic and certainly not what you would see if this market was healthy. It’s mathematically impossible.



No it’s not impossible for that to change. The Fed’s aggressive remedy may actually kick in, but until such time as more stocks are in rising trends, the proper, prudent thing to do is to remain underinvested.

That is what we are doing with our own retirement savings and the only defensible position in our view.


In Our Portfolios
We continue to carry a high cash level in the 25-30% range along with our gold holdings. Until such time as more stocks join the party, that is how we will stay.

Someone who I can’t remember once said “Many people confuse possibility with probability and the two are almost exact opposites.” The possibilities are always almost endless. The probabilities however suggest this market is not fully healthy.


Continuing with the quote theme today, famed poker player Annie Duke said in the book Thinking in Bets: “What makes a decision great is not that it has a great outcome. A great decision is the result of a good process, and that process must include an attempt to accurately represent our own state of knowledge. That state of knowledge, in turn, is some variation of ‘I’m not sure.’”

I hesitated to use a quote from a gambler, but the reality is that we gamble every time we step out of our door or cross the street. Today perhaps that may resonate more than usual.

We remain completely open to any eventuality that the markets bring. Our strategies, tactics and tools will help us to successfully navigate whatever happens as we focus on monitoring supply and demand signals that the market provides us.

Have a very good weekend and we’ll be in touch with you soon.


Peter Schenk, CMT, CIM | Portfolio Manager
P: (778) 400-2810  E:



Words we operate by:

“Deliver to the world what you would buy if you were on the other end. There is huge pleasure in life to be obtained from getting deserved trust. The way to get it is to deliver what you would want to see if you were on the other end.”
-Charlie Munger

 “Strive not to be a success, but rather to be of value.”
– Albert Einstein


Share on linkedin
Share on facebook
Share on twitter
Share on print
Share on email

Recent Posts

The opinions contained herein are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Wellington-Altus Private Wealth. Assumptions, opinions and information constitute the author’s judgement as of the date this material and subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance. All third party products and services referred to or advertised in this presentation are sold by the company or organization named. While these products or services may serve as valuable aids to the independent investor, WAPW does not specifically endorse any of these products or services. The third party products and services referred to, or advertised in this presentation, are available as a convenience to its customers only, and WAPW is not liable for any claims, losses or damages however arising out of any purchase or use of third party products or services. All insurance products and services are offered by life licensed advisors of Wellington-Altus. Wellington-Altus Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. All trademarks are the property of their respective owners.