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

Mark Der ie t , CFA, CMT (416) 943-6738 [email protected]

MORNING MEETING NOTES OCTOBER 24, 2014

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

TSX/S&P 100 Relative Strength Cylicals vs. Defense oversold & stabilizing. Cyclical Buys: VET BB VRX HON MMM V.

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 short-term daily chart patterns and signals. The risk of looking short-term is the greater potential for whipsawand at times may be the opposite of our long-term quant/technical models. We focus on relative strength as it has leading tendencies for absoluteprice trends. Moreover, in bull markets we want tohighlight stocks going up the most and in bearmarkets stocks going down the least.

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

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

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 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%.



Our disclosure statements are located at the end of this report 2

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

.

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

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




TSX100 “Sunshine / Rain” Upper right quadrant = strength with tendency to rotate clockwise.

TSX100

BNS↑

CM

NA

RY↑↑↑

TD

CTC.a↑↑↑

GIL↑↑↑↑

MG↓↓↓↓↓

ARX↓↓

TOU

BTE

CCO↓↓↓↓↓

CNQ↓↓↓↓↓

COS↓↓↓↓↓

CPG↓

ENB↓

ERF↓↓↓↓↓

HSE↓

IMO↓↓↓↓

IPL

MEG↓↓↓↓↓

GEI

ALA↓

IAG↑↑

PPL↓↓

TLM

TRP↑

VET↑

CIX

FFH↓↓

GWO↑↑↑↑↑

SLF↑↑

MX↓↓

AEM↓↓↓↓↓

ELD↑

G↓↓↓↓

CAE

WFT

K

YRI↓↓

PEY↓↓↓↓↓

CNR↑↑↑

CP↑↑↑↑↑

GIB.a

BB↑↑↑

AGU↓

VSN↑↑

FM↓

PD↓↓↓↓↓

WCP↓↓↓

ACO.x↓↓↓↓↓

SLW

TCK.b

KEY↓

ATD.B

L↑↑

MRU↑↑↑↑↑

SAP

CSU

WN↑↑↑↑

BCERCI.b↑↑↑↑↑

CU↓↓

BMO↑↑↑

SJR.b↑↑↑

HCG

TRI↑↑↑↑↑

CCT↓↓

CVE↓↓

ECA↓↓↓↓↓

PRE↓↓↓↓

HR.un↓

PWT↓↓↓↓

SU↓

OCX↑

BAM.a↑BPY.UN↑

DOL↑↑

IFC↑↑↑↑

IGM↓↓

MFC↑POW↑↑↑

PWF↑↑↑

REI.un↑

ABX↓↓↓↓↓

EMP/A↑↑↑↑↑

VRX↑↑↑↑

BBD.b↑↑

FTT↓↓↓↓

SNC

FNV↓

STN

POT

OTC

EFN↑↑↑↑↑

PGF↓↓

T↑

EMAFTS↑↑↑↑↑

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-Term

Sh

ort

-Ter

m

IMPROVING STRONG

WEAKWEAKENING

No

No

No

MATERIALS INDUSTRIALS TECHNOLOGY DISCRETIONARY STAPLESGOLD HEALTH CARE FINANCIALS TELECOMBANKSENERGY 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.




S&P100 “Sunshine / Rain” Upper right quadrant = strength with tendency to rotate clockwise.

S&P100

AMZN↓↓

CMCSA↓

F↓

HD

LOW

TGT

TWX↓

DIS↓

SPG↑

CL↑↑

COST

CVS

PM↑↑↑

PG

WMT↑↑

WAG↑

FOXA

CVX

XOM

NOV↓↓↓↓

OXY

WMB↓

ALL

AXP

BAC

BK↓↓↓

COF

MS

USB

WFC

ABBV

ABT

BMY

GILD

JNJ

MDT

MRK↓↓

PFE

UNH

BA↑

CAT

GD

GE

HON↓

LMT

NSC

UNP

UTX

AAPL

CSCO

ACN

GOOGL↓

HPQ↓↓

INTC↓↓

IBM↓↓

MA

MSFT↓

QCOM↑TXN↓

EBAY

DOW↓↓↓

MON↑

T↑↑

LLY

AEP↑↑↑↑

GM

EXC↑↑↑↑

MCD↑ SBUX

NKE↑↑

MO↑

KO↑

APC↓

MDLZ

PEP↑

APA↓↓↓

COP

DVN

HAL↓

SLB

BRK/B

C↓

GS

JPM

MET↓

AMGN

BAX

MMM

EMR

FDX↑

RTN

UPS↑↑

EMC↓↓

ORCL

V

AIG↓

DD↑↑

FCX

VZ↑

SO↑↑↑↑

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Long-Term

Sh

ort

-Ter

m

IMPROVINGSTRONG

WEAK WEAKENING

No

No

No

MATERIALS INDUSTRIALS TECHNOLOGY DISCRETIONARY STAPLESGOLD HEALTH CARE FINANCIALS TELECOMENERGY 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.




Recent Bulls / Bears In Canada / US

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

VET

MFC

PWF

POW

Large Cap CDN Energy

POW bear vs. TSX

VET bull vs. TSX

PWF bear vs. TSX

MFC bear vs. TSX




TSX 100 Cyclical stocks ex-Energy that are on the cusp of breaking out.





Recent Bulls / Bears In US

US Bulls: HON MMM V Bears: BK COF CMCSA

HON

MMM

V

BK

COF

CMCSA

HON bull vs. S&P

V bull vs. S&P

MMM bull vs. S&P

COF bear vs. S&P CMCSA bear vs. S&P

BK bear vs. S&P




Recent Bulls / Bears In US

US Bears: EMC GOOGL IBM INTC

EMC

GOOGL

IBM

INTC

INTC bear vs. S&P

EMC bear vs. S&P

IBM bear vs. TSX

GOOGL bear vs. S&P




Recent Bulls / Bears Longer-term inflections in Canada / US: Bulls: BB VRX AEP BMY. Bears: SNC AEP

BB

SNC

VRX

AEP

AEP

BMY

BB bull vs. TSX SNC bear vs. TSX

VRX bear vs. TSX AEP bull vs. S&P

AIG bear vs. S&P BMY bull vs. S&P




Recent Bulls / Bears Longer-term inflections in Canada / US: Bulls: PG PM SO SPG. Bears: DOW TXN

DOW

PG

PM

SO

SPG

TXN

DOW bear vs. S&P PG bull vs. S&P

PM bull vs. S&P SO bull vs. S&P

SPG bull vs. S&P TXN bear vs. S&P




Cyclicals vs. Defensives Weekly charts: Canada and Global charts are both weak.

• CDN Cyclicals vs. Defensives

• US Cyclicals vs. Defensives

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

Weekly Momentum < zero and falling

Weekly Momentum < and falling

< 4, 20, & 40-week MA

< 4 and 20 & 40-week MA




Cyclicals vs. Defensives Daily Charts

Short-term: Canada & Global both have 10 < 100-day but now deeply oversold.

• CDN Cyclicals vs. Defensives

• Global Cyclicals vs. Defensives


10 < 100-day

Daily Momentum < zero and falling

Daily Momentum ><zero and falling

10-day < 100




TCK.b vs. L BHP vs. JNJ

Cyclical/defensive proxies still weak long-term. Multi-year lows for both TCK.b vs. L and BHP vs. JNJ.

• TCK.b vs. L

• BHP vs. JNJ


< 20 / 40 / 80 WMA and making new lows

Momentum < 0 & falling

Momentum < 0 and falling

New lows




TCK.b vs. L BHP vs. JNJ

Proxies TCK vs. L & BHP vs. JNJ are both near the lows.

• TCK.b vs. L

• BHP vs. JNJ


Trying to stabilize

Momentum < 0 but rising

Momentum < 0 & falling

10 < 100-day




TSX / S&P100 Sector Weights

CDN Overweight: Health care, Utes, Tech, banks, REITs, Telecom, Staples, Industrials, chemicals

S&P: Utes, Telecom, banks, Staples, Health Care, pharma, Financials, capital markets

TSX Index

Sector ## Bull % Bull Index Bulls vs Index rank

Consumer Discretionary 6 5 83% 4.5 4.7 1.03 11 Consumer Staples 6 6 100% 3.2 4.9 1.52 6 Energy 30 4 13% 24.7 2.9 0.12 16 E&P 20 1 5% 15.6 0.7 0.04 17 pipes/mid-stream 8 3 38% 8.4 2.2 0.26 15 Financials 23 16 70% 37.9 50.2 1.32 10 Insurance 8 4 50% 7.3 5.2 0.71 13 Commercial Banks 6 6 100% 26.0 39.5 1.52 1 reits/real estate 4 4 100% 3.1 4.8 1.52 1 Health Care 2 2 100% 3.6 5.4 1.52 1 Industrials 8 6 75% 8.2 11.2 1.37 8 Information Technology 4 4 100% 1.8 2.8 1.52 1 Materials 14 6 43% 9.6 8.1 0.84 12 gold 8 3 38% 4.9 3.4 0.70 14 base metals 2 - 0% 1.3 - - 18 Chemicals 3 2 67% 3.2 4.3 1.34 9 Telecommunication Services 3 3 100% 5.1 7.8 1.52 6 Utilities 4 4 100% 1.4 2.1 1.52 1

TSX100 bulls sector weights vs. benchmark

(1.0) (0.8) (0.6) (0.4) (0.2) - 0.2 0.4 0.6

Health Care

Utilities

Information Technology

Commercial Banks

reits/real estate

Telecommunication Services

Consumer Staples

Industrials

Chemicals

Financials

Consumer Discretionary

Materials

Insurance

gold

pipes/mid-stream

Energy

E&P

base metals

S&P100

Sector ## Bull % Bull Index Bulls vs Index rank

Consumer Discretionary 13 6 46% 10.1 7.8 0.78 10 Consumer Staples 11 9 82% 12.1 18.7 1.54 4 Energy 11 - 0% 10.1 - - 14 Oil, Gas & Consumable Fuels 8 - 0% 8.2 - - 14 Energy Equipment & Services 3 - 0% 1.8 - - 14 Financials 15 9 60% 15.8 20.9 1.32 7 Insurance 3 1 33% 1.4 0.4 0.29 13 Banks 5 4 80% 7.9 12.3 1.55 3 Capital Markets 3 2 67% 1.7 2.2 1.32 8 Health Care 12 10 83% 12.6 18.2 1.45 5 Pharmaceuticals 6 5 83% 7.9 10.9 1.37 6 Industrials 14 9 64% 9.9 8.6 0.86 9 Information Technology 15 4 27% 23.2 17.8 0.76 11 Materials 4 1 25% 1.9 0.9 0.50 12 Telecommunication Services 2 2 100% 3.3 5.6 1.68 2 Utilities 3 3 100% 0.9 1.5 1.68 1

S&P100 bulls sector weights vs. benchmark

(1.0) (0.8) (0.6) (0.4) (0.2) - 0.2 0.4 0.6 0.8 1.0

Utilities

Telecommunication Services

Banks

Consumer Staples

Health Care

Pharmaceuticals

Financials

Capital Markets

Industrials

Consumer Discretionary

Information Technology

Materials

Insurance

Oil, Gas & Consumable Fuels

Energy

Energy Equipment & Services

Canada Tactical Star Rating: US Tactical Star Rating:





TSX100 Bulls & Bears, Sorted by sector

Recent bulls: VET





TSX100 Bulls & Bears, Sorted by sector

Recent bears: MFC PWF POW





S&P100 Bulls Sorted by sector

Recent bulls: HON MMM V





S&P100 Bears Sorted by sector

Recent bears: BK COF CMCSA MRK EMC GOOGL IBM INTC





TSX100 & S&P100 Strongest / Weakest

Strength begets strength, weakness begets weakness.

Strongest: Top Decile

Weakest: Bottom Decile




TSX/S&P 100 Bottoms / Tops

Bottoms & Tops

Bottoms

Tops




Performance Equal-weighted relative strength bulls vs. bears.

1-week 1-Mon 3-Mon 6-Mon YTD

Incep (12/08) 2013 2012 2011 2010 2009 CAGR

Bulls 0.9% -1.2% 1.1% 3.0% 6.9% 147.0% 12.8% 6.7% 1.2% 53.0% 57.2 16.0%Bears 1.0% -3.7% -6.0% -4.0% -1.8% 5.4% -2.7% -2.3% -9.3% -14.9% 25.4 1.2%Spread -0.1% 2.6% 7.1% 7.0% 8.7% 141.5% 15.6% 9.0% 10.5% 67.9% 31.8% 14.8%Success Rate: 55/69 months

TSX 100 Relative Strength - equal weighted

70

90

110

130

150

170

190

210

230

250

Jan/

09

Mar

/09

May

/09

Jul/0

9

Sep

/09

Nov

/09

Jan/

10

Mar

/10

May

/10

Jul/1

0

Sep

/10

Nov

/10

Jan/

11

Mar

/11

May

/11

Jul/1

1

Sep

/11

Nov

/11

Jan/

12

Mar

/12

May

/12

Jul/1

2

Sep

/12

Nov

/12

Jan/

13

Mar

/13

May

/13

Jul/1

3

Sep

/13

Nov

/13

Jan/

14

Mar

/14

May

/14

Jul/1

4

Sep

/14

Bulls Bears

TSX100 Relative Strength Bulls less Bears

95

115

135

155

175

195

215

Jan/

09

Ma

r/0

9

May

/09

Jul/0

9

Sep

/09

Nov

/09

Jan/

10

Ma

r/1

0

May

/10

Jul/1

0

Sep

/10

Nov

/10

Jan/

11

Ma

r/1

1

May

/11

Jul/1

1

Sep

/11

Nov

/11

Jan/

12

Ma

r/1

2

May

/12

Jul/1

2

Sep

/12

Nov

/12

Jan/

13

Ma

r/1

3

May

/13

Jul/1

3

Sep

/13

Nov

/13

Jan/

14

Ma

r/1

4

May

/14

Jul/1

4

Sep

/14

Bulls less Bears

Long-term Model

Since Incep (Sep.26/14)

Bulls -0.1%

Bears -4.8%

Spread 4.7%

Bulls vs. Bears:

Equal-weighted portfolio of Bulls / Bears. Changes are made only after we publish and the models are also rebalanced when we publish the weekly report. Transaction costs are not considered.



I, Mark Deriet, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject company(ies) and its (their) securities. I also certify that I have not been, and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this report. Due to the nature of quantitative/technical analysis, the securities recommended or discussed in this report are not continuously covered and my opinions may change without notice. Investors should regard this report as providing stand-alone analysis and should not expect continuing analysis relating to the referenced issuers and/or securities. The observations of this quantitative/technical analysis may not be consonant with the views of Cormark Securities Inc.’s fundamental analysts.

A full list of our disclosure statements as well as our research dissemination policies and procedures can be found on

our web-site at: www.cormark.com

RECOMMENDATION TERMINOLOGY

Cormark’s recommendation terminology is as follows: Top Pick our best investment ideas, the greatest potential value appreciation Buy expected to outperform its peer group Market Perform expected to perform with its peer group Reduce expected to underperform its peer group Our ratings may be followed by "(S)" which denotes that the investment is speculative and has a higher degree of risk associated with it.

Additionally, our target prices are set based on a 12-month investment horizon.

For Canadian Residents: This report has been approved by Cormark Securities Inc. (“CSI”), member IIROC and CIPF, which takes responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CSI. For US Residents: Cormark Securities (USA) Limited (“CUSA”), member FINRA and SIPC, accepts responsibility for this report and its dissemination in the United States. This report is intended for distribution in the United States only to certain institutional investors. US clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CUSA. Every province in Canada, state in the US, and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, some of the securities discussed in this report may not be available to every interested investor. This report is not, and under no circumstances, should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared for general circulation to all clients and does not have regard to the particular circumstances or needs of any specific person who may read it. This report is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any securities discussed herein.

The information and any statistical data contained herein have been obtained from sources believed to be reliable as of the date of publication, but the accuracy or completeness of the information is not guaranteed, nor in providing it does CSI or CUSA assume any responsibility or liability. All opinions expressed and data provided herein are subject to change without notice. The inventories of CSI or CUSA, its affiliated companies and the holdings of their respective directors, officers and companies with which they are associated may have a long or short position or deal as principal in the securities discussed herein. A CSI or CUSA company may have acted as underwriter or initial purchaser or placement agent for a private placement of any of the securities of any company mentioned in this report, may from time to time solicit from or perform financial advisory, or other services for such company. The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or the income they produce may fluctuate and/or be adversely affected by exchange rates.

No part of any report may be reproduced in any manner without prior written permission of CSI or CUSA.

Documents

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