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The risk of a “flash crash” in markets is rising, strategists at Bank of America Merrill Lynch said on Friday, after a week in which previously-booming cryptocurrency Bitcoin tumbled, oil sank, and investors piled into stocks perceived as safer.

Rising volatility across a range of asset classes and rapid deleveraging like that seen in oil markets in recent weeks are signs a bear market could have further to go, they said.

Brent crude hit an eight-month low on Tuesday in its steepest one-day fall in more than three years and Bitcoin hit a 13-month low on Thursday, the latest assets to fall sharply.

“Sell rallies,” strategists at the U.S. bank advised clients, saying that despite sharp falls in the stock market, positioning by institutional investors was not pessimistic enough to signal the market could be at rock bottom.

“Ingredients of flash crash rising ... bond, FX, equity volatility all trending up, vicious deleveraging events, dislocation risk via abnormal spreads ... triggers could be violent U.S. dollar move and/or shock macro data forcing abrupt GDP and earnings downgrades,” they wrote.

The bear market has been such that cash has outperformed stocks and bonds this year for the first time since 1992, the strategists said, noting that despite this $122 billion has flowed into equities, $35 billion into money market funds, and $24 billion into bonds.

Read the rest of this story here (for subscribers).

Helen Reid, Reuters

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Stocks to ponder

ATS Automation Tooling Systems Inc. (ATA-T). It is currently at oversold levels with an Relative Strength Index (RSI) below 30. RSI has worked well in uncovering profitable entry points for ATS stock in the past two years, but there are caveats. It’s only been oversold twice, and, unlike now, the price has not previously dropped significantly below the 200-day moving average trend line. The history of RSI buy signals with ATS is promising, but it’s a bit concerning that the price has fallen so far through the 200-day moving average. This is an interesting chart to keep an eye on in the coming days, but maybe not act on yet. Scott Barlow takes a look at this stock as he looks at the most oversold and overbought stocks on the TSX (for subscribers).

The Rundown

Short sales on the TSX: What bearish investors are betting against

Bearish sentiment appears to be on the rise for Canadian stocks, judging from the upward trend in short interest for an exchange-traded fund (ETF) that tracks the Toronto stock market. The number of shares sold short in the iShares S&P/TSX 60 ETF (XIU-T) has climbed from 40 million to 75.2 million over the six months to Oct.30. Larry MacDonald reports (for subscribers).

When it comes to investment forecasting, trust those who stick to the data

Forecasting is difficult even with the best available data. How some experts manage to be more credible than others was the subject of a 2005 study by University of Pennsylvania professor Philip Tetlock. He discovered the so-called experts could explain only 20 per cent of the variability in the outcomes of their predictions. Indeed, the more famous the expert, the less accurate he or she tended to be. This was regardless of educational background, experience and access to information. What some forecasters fail to factor into their analysis are the factors they don’t know – unknown unknowns. It’s impossible to predict every possible deviation in the market or to understand what you don’t even know. The best solution for investors, then is to stick to data and fundamental analysis, the things you know and can discover. John Reese examines this issue and gives three stock picks.

Why it’s important for clients to understand your compensation model

When it comes to investment adviser fees, investors are understandably confused. Not only are there different compensation models to decipher but also, for years, the fee information was less than transparent. Recent changes to the client relationship model, or CRM2, have added clarity to investment fees and how they’re presented, in dollar terms alongside percentages. However, it’s still up to advisers to help investors understand how they’re being paid for their services and advice. Advisers need to be proactive in explaining to investors their compensation models, says Keith Costello, president of the Canadian Institute of Financial Planning. Brenda Bouw reports.

Is there proof that ETFs produce better returns than most mutual funds?

The impressive and deserved success of ETFs is based in large part on the idea that they’re better than mutual funds. A reader recently asked for some validation of the claims made for exchange-traded funds. “I often hear that ETFs produce better returns than most mutual funds,” he wrote. “Do you have any charts/graphs that prove this point?” Rob Carrick answers (for subscribers).

Fund managers tout ‘value’ stocks, cash as market outlook darkens

Fund managers are touting investments in “value” stocks, U.S. bonds and cash dollars in 2019 to weather an expected slowdown in global growth led by the United States and a possible pause in interest rate hikes. As the impact of fiscal stimulus fades and trade tensions bite, concerns about the trajectory of economic growth have caused wobbles in financial markets and particularly technology stocks, which will see earnings hit next year, investors said. (For subscribers).

Others (for subscribers)

The stock of the ‘smartest company in the world’ gets bludgeoned

TSX Composite earnings scorecard: How third-quarter results have fared

Prominent managers loaded up on Apple before recent tumble

Friday’s analyst upgrades and downgrades

Friday’s Insider Report: CEO invests over $250,000 in this stock yielding 6.6%

U.S. investors eye holiday sales for market salve

The superhero approach to dividend investing

Others (for everyone)

How much money do you need to get the attention of a financial advisor?

Ask Globe Investor

Question: My wife and I each have a TFSA with about $25,000 in unused contribution limits. Can I transfer holdings from my non-registered brokerage account to the TFSA? If I do will it trigger taxable capital gains? Conversely, if I move a security that is down in value from its acquisition cost, will the transfer trigger a capital loss for tax purposes?

Answer: It would be wonderful if you could contribute a winning stock to your TFSA and avoid capital gains tax, but it doesn’t work that way. When you make such an “in-kind” contribution, it’s considered a sale in the eyes of the Canada Revenue Agency, and you must report the capital again. Just to prove that life is unfair, if you make an in-kind contribution of a stock that has fallen in value since you bought it, you are not permitted to claim the loss for tax purposes. One way around this problem is to sell the security, and then contribute the cash to your TFSA. To qualify as a capital loss – and avoid the “superficial loss” rule – you would have to wait at least 30 days to repurchase the same security. Alternatively, you could purchase a similar, but not identical, security in your TFSA immediately and still get to claim the loss.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Indigo shares are trading near 52-week lows. So with the holiday season getting underway, is this the right time to place a bet on a rebound? We’ll examine the question Monday.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Gillian Livingston

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