Thackray Newsletter

Know Your Buy & Sells a Month in Advance

Published the 10th Calendar Day of Every Month
Volume 11, Number 1, January 2017

Written by Brooke Thackray

Thackrays 2017 Investors Guide -

Market Update

NOW AVAILABLE IN BOOKSTORES !

Special 48 Page Report

Trump this: Trump that. It seems that everyone has a

Trump witticism. Mea Culpa.

Best 6 months of the year

Small Cap Strategy

After the U.S. election, I tried to name the rally in the

sectors that beneted from potential Trump policies as
a Trump Jump. Alas, the media seemed to settle on
Trump Bump.

New Strategies

The point is that the market dynamics have been dominated by the potential impact of future Trump pro-business
policies. This is understandable as the U.S. economy has
staggered along for many years with increasing regulations and a dearth of policies that have the potential to
create a favorable business environment. After the U.S.

Carnival Cruise Lines

Ryder
McDonalds
....plus many more

S&P 500 Technical Status

In July of 2016, the S&P 500 had a positive breakout of a double bottom pattern (a bullish development). In September it tested this breakout but was able to recover. In November the test broke below support, but was saved by
the Trump rally. Currently, the S&P 500 is in a consolidation box. Once it breaks out of this box, look for short-term
momentum in the new direction. Financials, which have also been consolidating, often lead the stock market. The
initial release of bank earnings on Friday Jan. 13th should help provide an indication of the stock market direc-

tion in the short-term.

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Horizons Seasonal Rotation ETF (HAC :TSX)

Portfolio Exposure as of December 31st 2016
Symbol
Holdings

% of NAV

Canadian Dollar Exposed Assets

HXT

Equities
Horizons S&P/TSX 60 Index ETF

HUZ

Commodities
Horizons Silver ETF

43.6%
4.0%

United States Dollar Exposed Assets

HXS
HXQ
IWM
XLY
XLF

Equities
Horizons S&P 500 Index ETF
Horizons NASDAQ-100 Index ETF
iShares Russell 2000 ETF
Consumer Discretionary Select Sector SPDR Fund
Financial Select Sector SPDR Fund

15.3%
15.0%
10.4%
5.3%
5.0%

US Dollar Forwards (January 2017) - Currency Hedge **

-1.2%

Cash, Cash Equivalents, Margin & Other

Total ( NAV $200,892,782)

2.8%
100.0%

** Reects gain / loss on currency hedge (Notional exposure equals 73.8% of current NAV)

The objective of HAC is long-term capital appreciation in all market cycles by tactically allocating its exposure
amongst equities, xed income, commodities and currencies during periods that have historically demonstrated seasonal trends. The Thackray Market Letter is for educational purposes and is meant to demonstrate the advantages of
seasonal investing by describing many of the trades and strategies in HAC.
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election, suddenly, investors were presented with a scenario where the White House could potentially introduce
a raft of policies that might stimulate the economy. This
is not a political commentary, but merely an analysis of
the situation.
Trumps policies are a huge gamble. Most pundits would
agree that his policies should help stimulate the economy in the short-term. Like many others, I doubt that the
U.S. will expand by Trumps target of 5% per year. The
problem is that his proposed policies will rack up huge
decits. If the policies do not stimulate the economy by
a large margin, there could be bigger problems down the
road. This situation is not on the near-term horizon and is
a topic of a future missive.
The Trump Eect is not going away anytime soon. The
discussion will shift, but it will still be about Trump.
Trumps inauguration is on January 20th. There is a good
chance that he will come out of the gates by talking about
all of the great things he is going to do, but how many
of them will get done, or watered down or delayed? Given
the polarization of the American people and media, there
is also a good chance that the Trumps eorts will be attacked before the traditional one-hundred day honeymoon
period ends. It is very dicult to predict what is going to
take place on this front, especially given Trumps nature.
Many investors are concerned that they have missed the
Trump rally in the S&P 500 and sectors that have outperformed in the expectation of Trumps pro-business
policies. Although the Trump rally has been sudden and
sharp, in the context of the large structural changes that
are being put forward, the rally is not that large. The S&P
500 has rallied 4.6% from U.S. election day to the end
of the year. After mediocre returns in the S&P 500 for
so quite some time, on a relative basis, the current rally

may seem large, but historically compared to other large

rallies it is nothing out of the ordinary. In fact, since 1950,
the S&P 500 has produced montly returns of 4.6% or
greater, 118 times.
Most sectors of the stock market have beneted from
Trump policies, but some more than others. On a relative
basis, sectors of the stock market that benet from deregulation, policies promoting domestic business operations, scal stimulus and a stronger economy have generally outperformed the S&P 500. The sectors of the stock
market that have benetted from Trumps proposed policies are colloquially called Trump sectors in this report.
The graph above shows the performance of the major sectors of the stock market relative to the S&P 500. The
strongest performing sector has been the nancial sector as it has benetted from the prospect of deregulation
in the industry. The small cap sector has also performed
very well relative to the S&P 500 as it benetted from
Trumps domestic focused agenda. Other sectors, such as
industrials and materials have outperformed, but not by a
huge amount. The defensive sectors: health care, utilities
and consumer staples, all underperformed the S&P 500.
In addition, the technology sector also underperformed
the S&P 500.
Overall, the stock market has performed very well since
the U.S. election, but using the pre-election market valuation as a base for comparison, the S&P 500 has not run
up to an unseasonable nose bleed level. If you believe that
the stock market was substantially overvalued before the
election, this is a dierent situation because the Trump
rally has stretched the stock market valuation even further.

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Using seasonal trend analysis to makes sense of

the current market situation
Stock markets do not correct just because they are overvalued, otherwise they would have corrected a long time
ago. Stock markets can remain overvalued for an extended period of time. In the favorable six month period from
October 28th to May 5th, stock markets tend not to have
as large corrections as the other six months of the year,
from May 6th to October 27th (unfavorable six month period). In my most recent book, Thackrays 2017 Investors
Guide, I included a special extended report analyzing this
phenomenon. The stock market can have a large correction in the favorable period, but historically, large corrections greater than 10% are far fewer and not as large as
in the unfavorable period. Given that it is very dicult to
determine whether Trump will eectively stimulate the
economy and how the stock market will react, it is best
to defer to seasonal tendencies, which are positive at this
time of the year.
It is probably wise for investors not to panic buy the
Trump sectors, but they should not necessarily shy away
from the sectors either. Although the small cap sector has
outperformed the S&P 500 by a fairly large amount, its
outperformance is not out of line historically compared
with other periods of outperformance. If there were one
Trump sector that perhaps has gotten ahead of itself in the
short-term, it would be the nancial sector, but over the
long-term the proposed structural reforms could provide
support to the sector. Once again, given the diculty of
trying to predict the possible implementation of Trumps
proposed policies and investor reaction, it is best to defer
to seasonal tendencies for the Trump sectors, which are
mostly positive at this time of the year.

sectors often take a reprieve in the rst two/thirds of January. The funds were rotated into broad market positions,
mainly the Canadian stock market. Consideration will be
given to entering back into some of the cyclical sectors
that start their seasonal periods later in January.

Seasonal Opportunities
To start the New Year, I am including a larger number of
sectors in the seasonal opportunities section.

Natural Gas - Out - but ready to come back soon

The rst seasonal period for natural gas, from September 6th to December 21st, ended up being positive on the
Henry Hub spot price.
In my last newsletter, I cautioned that the price of natgas
often declines at the end of the year and it is best to exit
on December 21st. Since that date, natgas has declined,
with the majority of the decline happening at the beginning of this year.
The good news is that the next positive seasonal period
for natgas is in March, which means that seasonal investors should be considering going long as early as February. A correction at this point would set up the seasonal
trade in a good position.

What the HAC is going on?

In the month of December, HAC took positions in the nancial sector and the small cap sector. Both sectors started rising right after the U.S. election, which was outside
seasonal window. Since their seasonal periods started, the
sectors have been consolidating.
In mid-December, HAC covered its long position in USD
as the Canadian dollar tends to improve in the last half
of December. At year-end, HAC was approximately fully
currency hedged. Consideration will be given to take on a
long position in the Canadian dollar, later in March. The
Canadian dollar tends to perform well in the month of
April. It has been positive relative to the U.S. dollar in
April for the last eleven years.

My Call: Natgas will probably decline moderately over

the next two months, setting up the next seasonal trade.

Just before December month-end, HAC sold its positions in some of its cyclical sectors, including industrials,
homebuilders, metals and mining and materials. These
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Industrials

The U.S. materials sector has outperformed the S&P 500

moderately since the U.S. election. It is still in its consolidation box relative to the S&P 500. The U.S. materials
sector is setting up well for its next seasonal period from
January 23rd to May 5th. It has just recently broken out
above resistance.
My Call: The U.S. materials sector will probably outperform the S&P 500 and outperform the industrials
sector over the next few months. Look for this sector to
nish its seasonal strong period early.

Metals and Mining

The metals and mining sector has outperformed the S&P
500 since last January. In late December it started to pull
back. The sector has its second seasonal period from January 23rd to May 5th. Technically, it is still in an uptrend.

The industrial sector was in a long consolidation period

before the U.S. election, after which it had a quick run-up
and has since consolidated on an absolute and relative basis compared to the S&P 500. In the big picture, the sectors outperformance is not huge and still leaves a lot of
room for the sector to perform well in its next seasonal
period from January 23rd to May 5th.
My Call: The industrial sector will probably moderately outperform the S&P 500 in its next seasonal period.
Look for the sector to start to underperform late in its
seasonal period, perhaps in April.

U.S. Materials
My Call: The metals and mining sector will probably
outperform the S&P 500 over the next three months,
but on a volatile basis. Look for this sector to nish its
seasonal run in late April.

Homebuilders
The homebuilders sector has been in a long-term consolidation pattern, albeit a volatile one, since 2015. It has
also been underperforming the S&P 500 in a similar time
frame. In December, the sector turned down once again,
as investors feared the consequences of higher interest
rates. The seasonal trade typically nishes in early February, but it looks like it is nishing early this year.

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January 13th. The reports will probably set the sector up

to break out of the box to the upside or downside. A move
in either direction will probably carry the momentum in
the short-term. Not that I am superstitious, but lets hope
that Friday the 13th does not cast a negative pall on the
nancial sector and the stock market.
My Call: The nancial sector will probably outperform
the S&P 500 until mid-April, the end of its seasonal period.

Small Caps

My Call: The homebuilders sector will probably underperform the S&P 500 for the remainder of its seasonal
period.

The small cap sector had been outperforming the S&P

500 since the springtime. It dipped below its relative
outperformance trend line heading into the U.S. election,
but quickly snapped back above the trend line once again
when Trump was elected. After a strong burst of outperformance, the small cap sector has been consolidating.
The sector still has almost two months left in its period of
seasonal outperformance.
NOTE: Thackrays 2017 Investors Guide contains a detailed report on the seasonality of the small cap sector.

Financials
The nancial sector has been the main beneciary of the
Trump Eect. After the 2007-2008 nancial crisis, the industry has been weighed down by extra regulation. A certain amount of regulation is needed to control the banks,
but some of the regulation is weighing on the sector.

My Call: The small cap sector will probably outperform

the S&P 500 for the rest of its seasonal period which
nishes on March 7th.

Over the last month, the sector has been consolidating on

an absolute and relative basis compared to the S&P 500.
The sector is poised to breakout of its consolidation box.
The U.S. banks start to release their earning on Friday
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Consumer Discretionary

Trump sector. The sector also received a lot of negative

comments from Trump. Recently, the sector is back on
track and outperforming the S&P 500. Investors should
not necessarily expect the trend to continue for an extended period of time as the technology sector nishes its seasonal period on January 17th.
My Call: The technology sector will probably start to
fade its relative performance soon and consideration
should be given to exiting the sector before the end of
its seasonal period.

Nasdaq-100
The Nasdaq-100 has performed well in its seasonal period which started mid-December. It has benetted from
its technology and biotech constituents performing well.

The consumer discretionary sector has been underperforming the S&P 500 since early 2016. The sector typically performs well from October 28th to April 23rd. Although the sector is still in a downtrend, recently it has
been showing signs of improving performance.
My Call: The consumer discretionary sector will probably improve its performance and outperform the S&P
500 in the remainder of its seasonal period.

Technology

My Call: The Nasdaq-100 will probably start to underperform immanently, as the technology sector and the
biotech sector will probably turn down.

Retail
The retail sector performed well in its seasonal period
from October 28th to November 29th. Shortly, afterwards
the sector corrected and has been correcting since.
The strongest seasonal period for the retail sector lasts
from January 21st to April 12th. The current correction
could set up a good technical position for the next seasonal period to perform well.
Initially, the technology sector underperformed the S&P
500 after the U.S. election. The sector generates a lot of
its revenues overseas, which does not make it a favorable
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On December 29th I tweeted:

My Call: The retail sector will probably perform well in

its seasonal period, despite the fundamental headwinds
presented by Amazons on-line sales. The seasonal period could start late and nish early.

My Call: Silver bullion will probably outperform the

S&P 500 over the next month. Its outperformance may
not last the full length of the seasonal period which extends to March 31st.

Transportation
Silver

The transportation sector typically performs well from

January 23rd to April 16th. Recently, the sector has been
underperforming the S&P 500, which could be a good
setup to the seasonal period.

In my December newsletter I wrote about the possible opportunity to enter the silver bullion sector in the last few
days of December. The seasonal period for silver started
on seasonal cue.

My Call: The transportation sector will probably outperform in its seasonal period, particularly in March
which is one of the stronger months of the year for the
sector.

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Canadian Banks

as investors have concerns that OPEC members may start

cheating and also on the possibility of increased production from North America energy companies trying to
cover their costs with greater cash ows from higher oil
prices.
The seasonal period for the energy sector starts on February 25th. A correction before hand would set the sector up
to perform well in its seasonal period.
My Call: The energy sector will probably start to outperform the S&P 500 at the beginning of its seasonal
period in February.

Stocks
TJX

The seasonal period for the energy sector starts on February 25th. A correction before hand would set the sector up
to perform well in its seasonal period.
The next seasonal period for the Canadian banking sector
starts January 23rd.
My Call: The Canadian banking sector will probably
outperform in its seasonal period, but nish its seasonal
outperformance in late March.

Energy

TJX is a perennial favorite with readers of my newsletter

as it has performed well in its seasonal period from January 22nd to March 30th on a fairly consistent basis. Recently it has had a breakout on an absolute basis and on a
relative basis compared to the S&P 500.
My Call: TJX will probably once again outperform in
its seasonal period.

McDonalds- NEW STRATEGY in 2017 book

McDonalds performed well in its seasonal period from
October 28th to November 24th.
The energy sector has received a boost from the OPEC
energy deal. Recently, the sector has been pulling back
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On November 18th, I tweeted:

Recently, McDonalds has been consolidating ahead of its

second seasonal period, which lasts from January 30th to
April 8th. Although this seasonal period is not as strong
as the October period, it is still worthy of consideration.

My Call: United Technologies will probably moderately outperform the S&P 500 in its upcoming seasonal
period.

Eastman Chemical

My Call: McDonalds will probably mildly outperform

the S&P 500 in its seasonal period.

United Technologies
United Technologies received a Trump Bump, but then
had a relative pull-back compared to the S&P 500. Relative to the S&P 500, United Technologies is still in a consolidation range. Technically, this is a good setup for its
seasonal period from January 23rd to May 5th.

This is the second year that Eastman Chemical has been

included in my Thackray Investors Guide. It is fast becoming a favorite with investors as the trade has provided
value on the long side from January 28th to May 5th and
on the short side from May 30th to October 27th.
Eastman Chemical has been consolidating on a relative
basis compared to the S&P 500 since November, setting
up well for its seasonal trade. It has also recently had a
breakout on an absolute basis.

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My Call: It looks like Eastman Chemical could be starting its seasonal period early as its relative performance
compared to the S&P 500 is starting to improve. Eastman Chemical will probably start its seasonal period
early and outperform the S&P 500 during its seasonal
period.

Disclaimer: Comments, charts and opinions oered in this report are produced by www.alphamountain.
com and are for information purposes only. They should not be considered as advice to purchase or to sell
mentioned securities. Any information oered in this report is believed to be accurate, but is not guaranteed.
Brooke Thackray is a Research Analyst with Horizons ETFs Management (Canada) Inc. (Horizons ETFs).
All of the views expressed herein are the personal views of Brooke Thackray and are not necessarily the views
of Horizons ETFs, or AlphaPro Management Inc., although any of the opinions or recommendations found
herein may be reected in positions or transactions in the various client portfolios managed by Horizons ETFs,
including the Horizons Seasonal Rotation ETF. Comments, opinions and views expressed are of a general
nature and should not be considered as advice to purchase or to sell mentioned securities. Horizons ETFs has
a direct interest in the management and performance fees of the Horizons Seasonal Rotation ETF (the ETF),
and may, at any given time, have a direct or indirect interest in the ETF or its holdings. Commissions, trailing
commissions, management fees and expenses all may be associated with an investment in the ETF which is
managed by Horizons ETFs Management (Canada) Inc. The ETF is not guaranteed, its values change frequently and past performance may not be repeated. The ETF may have exposure to leveraged investment techniques
that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the ETFs prospectus. The prospectus contains important detailed information about the ETF. Please read the prospectus before investing.
While the writer of this newsletter has used his best eorts in preparing this publication, no warranty with
respect to the accuracy or completeness is given. The information presented is for educational purposes and is
not investment advice. Historical results do not guarantee future results
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