Smallcap Discoveries: Weekly Update: August 21

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Subject: Smallcap Discoveries: Weekly Update: August 21 - 25

August 21 - 25

Market Commentary

Markets

Major equity indexes were mixed this week with the Dow dropping 0.4%, Nasdaq rising by 2.3% and the TSX finished up barely 0.1%. The recent US Fed speech did little to provide market direction and it appears that for now the Fed is happy to keep rates as is.

Financials

The trend for the US dollar of late continues to be upwards. The DXY poked its head back above the 104 level for the first time in a few months.

Treasury yields continue to stay closer to the highs of recent ranges with 2 year US treasuries back above 5% while the 10 year yield saw a sharp drop on the weaker than expect PPI data on Thursday.

In Canada the closely watched 5 year bond maintained prices above 4% putting continuous pressure on fixed mortgage rates.

Commodities

WTI oil saw its second consecutive weekly price decline with the price for a barrel of oil closing the week at $80.

Checking in on natural gas wee see that warm summer energy demand hasn’t been strong enough to break out of it 7 month trading range.

The continued drop in North American rig activity is mostly driven by the weak natural gas prices. This week we saw another sizable drop in rig activity with the US active rigs dropping by 10 and Canada adding one rig.

Gold gained some ground this week against the flow of the US dollar and treasury yields. Gold closed the week at US$1943 per ounce.

Stocks

With summer nearing an end and little in the way of major economic data to digest market activity seems subdued.

One thing that jumped out at me this past week was the response to the earnings report issued by Nvidia (NVDA), the AI and tech market darling of late. The stock is up over 200% over the past 12 months and has almost singlehandedly carried the tech sector and Nasdaq market higher. This week it announced headline revenue and earnings that smashed the street’s estimates. Analysts were quick to raise their forecasts and price targets on the news. The market rallied strongly in pre-market and early trading but by day’s end the stock had given up its gains. The reaction was quite surprising and potentially bearish for the stock and possibly for the market as well. When you have a market leader drop, or not move higher on obviously good news more times than nots, that’s a bearish indicator.

It will be interesting to see over the next few days how the stock performs. If it starts to break lower you’ll likely see the momentum traders run for the hills.

This past week we had news from Atlas Engineered Products (AEP.V)*. The company announced the acquisition of Leon Chouinard et Fils Co. Ltd./Ltee. (LCF) located in New Brunswick, Canada. LCF is a manufacturer of roof trusses, floor systems and wall panels, and a supplier of engineered wood products (EWP). This is Atlas’ 7^th acquisition and first in eastern Canada. The stock closed Friday at $1.21 up 8% on the week. We will be interviewing the Atlas team this coming Friday so bring your questions to the call.

*Paul Andreola is a director of Atlas Engineered Products.

We saw a small number of stocks in our microcap universe tapping or making new 52 week highs included Medexus Pharmaceuticals (MDP.T), Appulse Corp. (APL.V), Total Telcom (TTZ.V) and Colabor Group (GCL.T).

Market volumes continue to stay low partly due to time of year and partly due to lack of major market directions. We usually see an increase in volumes once kids are back in school and everyone’s minds are back to work after summer holidays.

Other Stuff

Not much here this week. I’ll be getting ready for the last bit of earnings reports for the end of the month. Also planning my schedule for the Planet Microcap conference on September 6^th and 7^th.

Enjoy the last bit of your summer holidays!

This Week I’m Reading: Meditations – Marcus Aurelius – Marcus Aurelius writings have become a key text in the understanding of Roman Stoic philosophy. Because I can use any extra stoicism I can get, lol.

To your wealth,

Paul and Trevor

Buys and Sells This Week