TSX/S&P 100 Relative Strength Cylicals vs. Defense ...

Mark Deriet, CFA, CMT (416) 943-6738 mderiet@

MORNING MEETING NOTES OCTOBER 24, 2014

Unless otherwise denoted, all figures shown in C$

Purpose of report:

Given our expectation for a more trading-oriented market, we are placing more emphasis on shortterm daily chart patterns and signals. The risk of looking short-term is the greater potential for whipsaw and at times may be the opposite of our long-term quant/technical models. We focus on relative strength as it has leading tendencies for absolute price trends. Moreover, in bull markets we want to highlight stocks going up the most and in bear markets stocks going down the least.

We view time as an element of risk. There is no way of knowing for certain how long an established trend will last, but the longer it is in place, the higher the risk of a reversal.

TSX/S&P 100 Relative Strength

Cylicals vs. Defense oversold & stabilizing. Cyclical Buys: VET BB VRX HON MMM V.

Our market call has been lacking of late. Last week Wed. our long-term indicators turned negative intra-day, but quickly revered course. We think this was a head fake given the recent rally. Recently we had 2 80% up days on the NYSE. These typically occur near the lows, not after a rally. Our relative strength model has been defensively positioned for a while. The CDN cyclical vs. defensive chart peaked on July 7 and broke < its 100-day MA on Sep.3, the day the TSX peaked. It is now oversold and starting to stabilize. We are looking for cyclical stocks to migrate one by one back to the bull list. Energy has been hit the hardest ? our model went underweight in July. VET is 1/20 E&P stocks that has definitively hooked back up. WCP IMO ARX PEY are close ? the high quality names. Other cyclical names on our bear list that are close to flipping include: EFN FTT IAG CIX MG MX CCO.

A) Recent Bulls: Canada: VET US: HON MMM V

B) Recent Bears: Canada: MFC PWF POW US: BK COF CMCSA EMC GOOGL IBM INTC

Recent Inflections

1) Canada: Bull: VET Bear: MFC PWF POW

2) S&P100 Bull: HON MMM V Bear: BK COF CMCSA MRK EMC GOOGL IBM INTC

C) Longer-term bull/bear inflections (based on weekly charts): Canada: Bull: BB VRX. Bears: SNC. US: Bull: AEP BMY PG PM SO SPG. Bear: AIG DOW TXN.

D) Sector Rotation: Our cyclical vs. defensive charts remain weak in both Canada and Globally, but are oversold short-term. TCK.b vs. L and BHP vs. JNJ are both making multi-year lows.

Over weights: Canada: Health care, Utes, Tech, banks, REITs, Telecom, Staples, Industrials, chemicals US: Utes, Telecom, banks, Staples, Health Care, pharma, Financials, capital markets

Sector "5-star" ratings: strong (4-5 stars): Canada: Health Care, Tech, Discretionary, Utes, Telecom, Staples, Industrials, Financials. US: Staples, Utes,

Health Care, Brokers, Financials, Tech.

E) Performance: Our bulls are +6.9% YTD vs. the bears -1.8%. Since inception (Dec.31/08), Bulls are +147% (CAGR 16%) vs. Bears +5.4% (CAGR 1.2%). 55/69 (80%) months have a positive spread. Our longer-term bull/bear models (based on weekly charts), since Sep. 16, the Bulls are -0.1% and the bears -4.8%.

During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities and/or

provided financial advice regarding the stock market insight and financial analysis regarding potential transactions for these companies

Our disclosure statements are located at the end of this report

Mark Deriet, CFA, CMT (416) 943-6738 mderiet@

MORNING MEETING NOTES OCTOBER 24, 2014

Cyclicals vs. Defensives

Cyclicals vs. Defensives peaked in July & broke down in early Sept., ahead of the TSX Index. Now starting to stabilize.

.

CDN Cyclicals vs. Defensives (shaded) peaked Jul. 7. Broke < 100-day MA. Sep.3

Bar chart = TSX. Peak Sep.3

CDN Cyclicals vs. Defensives (shaded) now stabilizing but downtrend has not reversed

Decile Rankings: 1= best, 10 = worst; Source: CPMS and Bloomberg

Our disclosure statements are located at the end of this report

2

TSX100 "Sunshine / Rain"

Mark Deriet, CFA, CMT (416) 943-6738 mderiet@

MORNING MEETING NOTES OCTOBER 24, 2014

Upper right quadrant = strength with tendency to rotate clockwise.

Short-Term

100%

TSX100

VRX

DOL BPY.UN

.

MRU CTC.a BAM.a

CSU

ATD.B CP

90% 80% 70% 60%

RCI.b

EMP/A TRI

WN FTS

EMA WFT

STN

NA BMO

IMPROVING

T

CAE SJR.b

CU

GWO BCE

GIB.a

No

AGU

REI.un

POT

IFC

STRONG

FFH CM

RY

MNXo

SLF

ENB

GIL TRP

L HCG

CNR OTC

KEY BB

IPL

PPL

BBD.b

OCX

TD

50%

40%

PWF

HR.un POW CCT

MFC

ECA BNS

30% 20%

EFN

CIX

IAG

ACO.x ARX

IGM

HSE CCO

PRE CPG

VET

PEY

WEAK G

SU

No

TOU

CVE

10% K

BTE

ABX

COS

PWT TLM

TCK.b

SLW MEG

PD ERF

IMO

WEAKENING

SNC

CNQ FM

AEM

ALA

SAP

GEI ELD FNV

VSN

WCP

FTT MG

0% 0%

YRI PGF

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Long-Term

ENERGY MATERIALS GOLD INDUSTRIALS TECHNOLOGY DISCRETIONARY STAPLES HEALTH CARE FINANCIALS BANKS TELECOM UTILITIES

Guide: Investors should be hunting for new long ideas in the upper left improving quadrant and reducing exposure/shorting in the

lower right weakening quadrant. One should also generally overweight stocks in the strong upper right quadrant and underweight stocks in the weak lower left quadrant. It is also important to note where stocks have come from. When a stock starts to migrate down the short-term y-axis away from the sunshine or up the y-axis away from the rain cloud an inflection may be at hand. Arrows

identify recent shifts - each arrow represents a 10% change in the short-term y-axis over the past month.

Decile Rankings: 1= best, 10 = worst; Source: CPMS and Bloomberg

Our disclosure statements are located at the end of this report

3

S&P100 "Sunshine / Rain"

Mark Deriet, CFA, CMT (416) 943-6738 mderiet@

MORNING MEETING NOTES OCTOBER 24, 2014

Upper right quadrant = strength with tendency to rotate clockwise.

Short-Term

100%

S&P100

AMGN

MO

NKE

COST

HD

90% 80% 70%

GILD

IMPROVING

KO BMY

BAC

EXC

DD GS

LMT BRK/B

FDX

UNP

LOW CVS

ALL

STRONG

RTN

TGT MS

NSC

PG LLY

ABBV

PEP AEP SO

UNH

AAPL GD

C WMT MSFT

PM

MDT

60% 50% 40%

BA EBAY

PFE

No

NoJPM

JNJ

CL

WFC

UPS

MRKCOF

ABT

VZ

T

BK

ACN V

FOXA

HPQ

EMC

QCOM

INTC CMCSA

TXN

DIS

SPG MMM

30% 20% 10%

MA

TWX

IBM

AMZN

WAG

EMR UTX

MCD ORCL

CSCO

MET

WEAK MON

XOM

BAX

WMB

MDLZ

AXP

OXY DOW

CAT

GM

CVX

FCX

COP

SLB NOV

APC

GE SBUX

USB

AIG

No

HON GOOGL

WEAKENING

HAL

0%

APA

DVN

0%

F

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Long-Term

ENERGY MATERIALS GOLD INDUSTRIALS TECHNOLOGY DISCRETIONARY STAPLES HEALTH CARE FINANCIALS TELECOM UTILITIES

Guide: Investors should be hunting for new long ideas in the upper left improving quadrant and reducing exposure/shorting in the lower right weakening quadrant. One should also generally overweight stocks in the strong upper right quadrant and underweight stocks in the weak lower left quadrant. It is also important to note where stocks have come from. When a stock starts to migrate down the short-term y-axis away from the sunshine or up the y-axis away from the rain cloud an inflection may be at hand. Arrows identify recent shifts - each arrow represents a 10% change in the short-term y-axis over the past month.

Decile Rankings: 1= best, 10 = worst; Source: CPMS and Bloomberg

Our disclosure statements are located at the end of this report

4

Recent Bulls / Bears In Canada / US

VET bull vs. TSX

Mark Deriet, CFA, CMT (416) 943-6738 mderiet@

MORNING MEETING NOTES OCTOBER 24, 2014

Canada Bulls: VET (large cap CDN energy screen) Bears: MFC PWF POR

VET

MFC bear vs. TSX

MFC

PWF bear vs. TSX

POW bear vs. TSX

PWF POW

Large Cap CDN Energy

Our disclosure statements are located at the end of this report

5

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