Thackray Newsletter

Know Your Buy & Sells a Month in Advance

Published the 10th Calendar Day of Every Month
Volume 10, Number 12, December 2016

Written by Brooke Thackray

Thackrays 2017 Investors Guide -

Market Update

NOW AVAILABLE IN BOOKSTORES !

Special 48 Page Report

Its an upside down world !

Best 6 months of the year

Small Cap Strategy
New Strategies
Carnival Cruise Lines
Ryder
McDonalds
....plus many more

President-Elect Trump was supposed to bring weakness

to the stock market. Very few called for a strong rally the
day after the election. My own prognostications called for
initial weakness and then stronger markets as investors
gured out that his policies would bring stimulus to the
economy and stock market. I hardly expected the whole
cycle take place in less than a day.
Even with a Republican sweep, the strength of the rally
has surprised many, including me. There are so many uncertainties about the future: which policies will be implemented and which ones will be watered down. Although

S&P 500 Technical Status

The S&P 500 has had a breakout above its resistance level @ 2132. It is currently at the top of its trading channel.
If the S&P 500 were to correct, 2132 would act as support. A break below this level would be viewed as bearish.
Despite the strong move in the S&P 500 since the U.S. election, the S&P 500 is currently in the six month favorable
period for stocks and is expected to move higher over the next few months.

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Horizons Seasonal Rotation ETF (HAC :TSX)

Portfolio Exposure as of November 30th 2016
Symbol

Holdings
Canadian Dollar Exposed Assets

% of NAV

HXT

Equities
Horizons S&P/TSX 60 Index ETF

24.8%

HUN

Commodities
Horizons NYMEX Natural Gas ETF

2.6%

United States Dollar Exposed Assets

HXS
XLI
XLK
XLY

Equities
Horizons S&P 500 Index ETF
Industrial Select Sector SPDR Fund
Technology Select Sector SPDR Fund
Consumer Discretionary Select Sector SPDR Fund

42.6%
14.4%
9.5%
5.6%

US Dollar Forwards (December 2016) - Currency Hedge **

0.0%

Cash, Cash Equivalents, Margin & Other

0.5%

Total ( NAV $191,992,784)

100.0%

** Reflects gain / loss on currency hedge (Notional exposure equals 34.4% 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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tax cuts and deregulation can be implemented with shortterm inuence, infrastructure will more than likely take a
while to go from planning, vetting to shovels in the ground.
Despite the strength of the rally, there is probably more to
go. The S&P 500 has broken above 2200 and has strong
momentum....it can keep going. In a momentum market,
it usually takes a catalyst for it to change direction. Right
now it is Trump promises that are driving the stock market. His promises cannot be reality fact checked at least
until he is inaugurated on January 20th. Generally, U.S.
Presidents are given a 100 day honeymoon period before
they are strongly judged. Trump will probably have policies lined up to be enacted fairly fast, which should aord
him the honeymoon grace period. Investors are piling into
the stock market to try and take advantage of this period.
The hot sectors of the stock market have been the cyclicals, and sectors of the market that benet from lower
corporate tax rates. The major losing sectors of the stock
market have been the bond proxies the sectors of the
stock market that attract investors because of their high
yields or dividends, such as consumer staples, REITs and
utilities. As the Trump policies have forced up the yields
on government bonds, both bonds and bond proxies have
been hit hard.
The bad news for bonds and bond proxies are that from
a seasonal basis, they do not perform well from January
into April. Sure, bond proxies will probably perform well
intermittently, nevertheless, it is still expected that they
will underperform over the next few months.
If it really is the end of the bond bull, bonds and bond
proxies could suer for an extended period of time. Over
the last few years, investors piled into these safe sectors as they lived on the premise that there is no alternative (TINA). Investors did not necessarily want to be in
the stock market and they did not want to be in ultra low
paying bonds either so they compromised, buying stocks
with a high dividends or payouts. Given how much money went into the TINA stocks, it is going to take a while
for it to come out. If bonds and bond proxies keep falling
in value investors are not going to start piling into bonds,
at least not initially.
Low interest rates are low interest rates! The average investor does not see much of a dierence between 0% and
1%. Both numbers are close to zero or zero. Investors
will probably not rush back into bonds until they feel that
bond prices have stabilized. Currently, the medium-term
expectation is for bond yields to rise and subsequently
for bonds to fall in price. The world of falling bond and
stock prices has not existed for a long, long time. Bond
yields are still low compared to historical standards and

investors probably still have time to enjoy the favorable

conditions for equity markets.
Enjoy the rally while it lasts.
Short-term market risk:
The stock market has already baked (priced) in a 25
bps rate rise by the U.S. Federal Reserve on Wednesday December 14th with an expected probability of
95% (http://www.cmegroup.com/trading/interest-rates/
countdown-to-fomc.html). What is important is the
Federal Reserves speech afterwards. The Federal Reserve has to be concerned about the rising value of the
USD and the recent spike in bond yields. At this point,
a dovish statement is probably in order, decreasing the
expectations of future rate increases. If this happens,
then the result is a possible reverse ow on a temporary
basis from the cyclicals back into the defensive sectors
of the market. This would have the eect of taking the
air out of some of the sectors of the stock market that
have outperformed recently, such as the nancial sector.

What the HAC is going on?

HAC has been partaking in the rally, being fully invested in the stock market for the Trump rally. HAC held a
large position in the S&P 500 poised to take advantage of
the seasonal sectors. HAC was already in the industrial,
consumer discretionary and transportation sectors before
the election. HAC was not positioned in three sectors of
the stock market that have had a strong rally since the
election: nancials, metals and mining and small caps.
Unfortunately, the Trump bump occurred prior to their
seasonal periods, leaving very little opportunity for HAC
to establish positions. The metals and mining sector has
just started its seasonal period and the nancial and small
cap sectors are just about to start their seasonal period.
There is still a lot of time left for these seasonal trades.
The USD has a period of strong seasonal period relative
to CAD in October and November. As a result, HAC held
a long position in the U.S. dollar in that time period. The
Canadian dollar tends to have a strong seasonal period in
the last half of December. As a result, HAC moved from
a long U.S. dollar position to a full currency hedged position in early December.

Seasonal Opportunities
Natural Gas - firing higher, but set to end soon !
Natural Gas Seasonal Long Periods
Sep. 5th to Dec. 21st & Mar. 22rd to Jun. 19th

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Since early November, natural gas has roared higher from

Henry Hub spot price of just over $2.60 MMbtu to over
$3.60 MMbtu. Although natural gas has roared upwards
recently, the seasonal period ends shortly.
There are two types of seasonal exit strategies, a soft exit
and a hard exit. A soft exit allows for the position to be
held past its seasonal period on a display of strong momentum. In this case the position could be exited up to
four weeks later using a trailing stop.
A hard exit is an exit from a seasonal position at the end
of a seasonal period, regardless of momentum or relative
strength. A hard exit is used when, on average, there tends
to be a denitive seasonal exit date as the following period tends to be strongly negative.
Natural gas, has a hard exit from its seasonal period that
nishes on December 21st. The period from December
22rd to December 31st tends to be strongly negative for
natural gas as reners in the southern states tend to dump
natural gas onto the market in order to avoid inventory
taxes (see page 47, Thackrays 2017 Investors Guide).
My Call: Natural gas will probably start to underperform soon and seasonal investors should consider exiting the position in the near future before December
22nd.

Industrials - Outperforming but may pause soon

Industrials Seasonal Periods
Oct. 28th to Dec. 31st & Jan. 23rd to May 5th

The industrial sector is a core holding at this time of the

year. The sector received a bump from Trump, and is still
performing well.
There are two seasonal legs to industrial sector trade. One
from October 28th to December 31st and the other from
January 23rd to May 5th. In most cases, when the sector
has strong momentum after the rst seasonal leg, it makes
sense to maintain a position into the second leg. In other
words, not to sell at the end of December 31st and re-buy
for January 23rd. Nevertheless, the industrial sector has
on average not performed well in the period from January 1st to January 22nd (see Thackrays 2017 Investors
Guide, page 177). Investors should at least be cognizant
of the sectors weaker interim performance. More nimble
investors should consider rolling back from the industrial
sector to the S&P 500 during this weak interim period.
For the rst two-thirds of January, investors try to establish the leading sectors for the new year. In this process
the cyclical sectors tend to lag the market. Of course,
if there is strong momentum in a sector it is possible to
bridge the two seasonal legs that often occur towards the
end of the year and late in January.
My Call: The industrial sector will continue to
perform well until the end of the year. It will then
resume is strong performance in late January, but
finish its seasonal period early, in late Apirl.

Transportation- Second shot coming up

Transportation Sector Seasonal Periods
Oct. 10th to Nov. 13th & Jan. 23rd to Apr. 16th

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My Call: The technology sector will probably perform

slightly above market in its second seasonal period.

The transportation sector has a short seasonal period from

October 10th to November 13th and then another seasonal
period from January 23rd to April 16th. The rst seasonal
period was successful. HAC held a position in the transportation sector and held the sector past the end of the
seasonal period as the sector was continuing to perform
well. The sector was subsequently sold on weakness.

U.S. Materials - Outperforming but may pause

soon

The next period of seasonal strength starts on January

23rd next year and lasts until April 16th (see Thackrays
2017 Investors Guide, page 145). This sector is expected
to perform well as investors are expecting the economy
to improve.

The U.S. materials sector has beneted from the Trump

Bump, but not by as much as some of the other cyclicals,
such as the industrials sector. The sweet spot for the U.S.
materials trade is the second leg of the trade, from January
23rd to May 5th.

U.S. Materials Seasonal Periods

Oct .28th to Jan. 6th & Jan. 23 to May 5th

My Call: The transportation sector will start its seasonal

period of outperforming the S&P 500 in late January,
but will nish its seasonal period early.

TechnologyTechnology Seasonal Periods

Oct. 9th to Dec. 5th & Dec. 15th to Jan. 17th
In the rst part of its seasonal period, from October 28th to
the beginning of December, the technology sector underperformed the S&P 500. Recently, the sector has picked
up its performance. The technology sector is still in a relative downward trend but is showing signs of improving.

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My Call: The U.S. materials sectors will probably perform slightly at market until the end of the year and then
outperform strongly in the second seasonal leg from
January 23rd to May 5th.

Energy- Seasonal period arriving soon !

Energy Sector Seasonal Periods
Feb. 25th to May 9th & Jul. 24th to Oct. 3rd

Metals and Mining

Metals & Mining Sector Seasonal Period
Nov. 19th to Jan. 5th & Jan. 23rd to May 5th

The energy sector has its best seasonal period from February 25th to May 9th. Sometimes the energy sector can
start its run in January. Using technical analysis can help
to determine if the position should be entered early.
The metals and mining sector was already outperforming
the S&P 500 slightly before the Trump Bump. After the
U.S. election, the sector continued its strong trend of outperformance. Investors have been attracted to this sector
because of the perceived need that more commodities will
be required in the future to meet the infrastructure plans
of the government. To grasp the full magnitude of how
well this sector has performed, it is important to look at
the scale on the relative strength chart. Recently, on a relative basis, the sector has outperformed the S&P 500 over
100% since the beginning of the year. On an inter-day
basis the sector has become volatile, sometimes outperforming the S&P 500 by a large amount one day and then
underperforming the next day. This could be an indication
that the sector is at least looking to pause.
The sweet spot for the seasonal trade is from late January
until April. The sector could have a lot more to go.
My Call: The metals and mining sector will probably
mildly outperform the S&P 500 until the end of the year
and then resume its outperformance later in January.

The seasonal period for the energy sector is just around

the corner. Investors should be on the watch for an entry
opportunity into the energy sector in late January.
My Call: The energy sector will probably consolidate
for the rest of the year and then start to outperform late
in January into April.

Silver Silver Seasonal Period

January 1st to March 31st
For the last two years, towards the end of the year, I have
written about the seasonal opportunity in silver. This year
it is one of the rst strategies in my new Thackrays 2017
Investors Guide. The strategy has worked well in the last
two years, and it is setting up this year in a very similar
to the last two years. Like the last two years, this year we
are having a December correction. When a sector corrects
just before the start of its seasonal period, it often represents a good buying opportunity.

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After being held back for the last number of years, the
nancial sector has been on a tear since the election. U.S.
nancials have a seasonal period from December 15th to
April 13th. Despite a strong pre-seasonal run, the sector
still has potential to outperform the S&P 500 in its seasonal period.
My Call: Financials may take a breather, especially approaching the start of their seasonal period
when the banks are set to release their Q4 earnings.
Nevertheless, they are still expected to be higher by
the end of their seasonal period in April.

Small Caps- On fire...with strong seasonal period

starting shortly
Small Caps Seasonal Period
December 19th to March 7th
Last year, silver started to rally in the rst few days of
January. Very often, silver starts its run in the last couple
of days in December and investors should be monitoring
for an early opportunity to enter the sector.
My Call: Silver will probably continue to correct for
another two weeks. Look for it to rebound in the last
few days of the year, before performing well in the new
year.

Small caps took o like a rocket after the election as the

sector was poised to benet strongly from a proposed
corporate tax cut. The sector continues to outperform
the S&P 500 and has recently moved to all-time highs.
A higher U.S. dollar is also benecial for small caps as it
generates most of its revenue from domestic operations,
compared to large caps that generate a substantial portion
of their revenue from o-shore. The seasonal period for
small caps is from December 19th to March 7th.

Financials - Up...up...and up
Financials Seasonal Period
December 15th to April 13th

In my just released Thackrays 2017 Investors Guide, I

have introduced a special new section of the book that
includes an in-depth analysis of the small cap sectors
seasonal trend.
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Typically, the sweet spot for the small caps seasonal period occurs from December 19th to December 31st. The
sector has had a substantial run since the election, but
does this mean that the small cap sector is not a good opportunity during its seasonal period? The straight forward
answer is that the sector remains a viable seasonal investment despite performing strongly before the start of its
seasonal period. The ideal setup is for a sector to have
a strong correction before its seasonal period and start
its seasonal period with improving relative performance.
Strong performance before a seasonal period does not negate the seasonal trade. The small cap sector is still a viable seasonal trade.
My Call: The small cap sector will continue to perform well in its seasonal period, probably fading
out towards the end of its seasonal period.

Retail- Second time around....is often better

The good news is that the best retail seasonal trade is just
ahead and starts January 21st and lasts until April 12th.
Historically, this trade has been much more successful
than the autumn retail trade. I will follow up on this trade
in the January newsletter, but investors should be looking
to enter the retail sector in January.
My Call: The small cap sector will continue to perform well in its seasonal period, probably fading
out towards the end of its seasonal period.

Aerospace & Defense

Aerospace & Defense Seasonal Period
December 12th to May 5th
The seasonal period for Aerospace & Defense is from December 12th to May 5th. This sector was destined to
perform well regardless if Clinton or Trump was elected
as both were looking to increase spending in this sector.

Retail Seasonal Periods

Oct. 28th to Nov. 29th & Jan. 21st to Apr. 12th

Homebuilders
Homebuilders Seasonal Period
October 28th to February 3rd
Initially the retail sector started its October 28th to November 29th seasonal period by underperforming the S&P
500, but then started to outperform after the U.S. election.
The retail sector was underperforming the stock market
before the U.S. election, but quickly started to outperform
with the Trump bump. The problem with the autumn seasonal trade is that it is short...one month. By the time that
the retail sector started to outperform after the U.S. election, there was only two weeks left in its seasonal period,
making it a dicult seasonal trade to implement.

The homebuilders sector typically performs well from

October 28th to February 3rd. This year the sector started its seasonal period by underperforming the S&P 500.
At the time, investors were worried about the impact of
the U.S. Federal Reserve raising its discount rate. At this
point, investors seemed to have fully priced the aects
of a rate rise on the housing market. The sector has been
picking up momentum recently and still has a way to go
before the end of its seasonal period.

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Carnival Cruise Lines

Carnival Cruise Lines
September 8th to December 31st
Carnival Cruise Lines has been cruising to higher returns.
The seasonal period ends shortly and investors should
consider exiting the trade once momentum starts to fade.
CCL is a good seasonal trade as it starts in September,
much earlier than the seasonal six month period, which
allows investors to prot from market exposure when the
stock market is often negative in the month of September.

My Call: The small cap sector will continue to perform well in its seasonal period, probably fading
out towards the end of its seasonal period.

Canadian dollar
CAD/USD Seasonal Periods
Apr. 1st to Apr. 30th & Aug. 20th to Sep. 24th

McDonalds
McDonalds Seasonal Periods
Oct. 28th to Nov. 24th & Jan. 30th to Apr. 8th

The Canadian dollar is typically weak in October and November. It changes course and is often stronger for the last
part of December. And then once again, changes course
and heads lower as the U.S. dollar is stronger in January
against most currencies in the world. Given that the Canadian dollar is stronger in the last part of December, it is
typically best to maintain a full currency hedged position.

The seasonal period is over for McDonalds, as it powered higher in its seasonal period on an absolute basis and
outperformed the S&P 500. The next seasonal period for
McDonalds starts on January 30th and seasonal investors
should consider buying it once again.

New- select stocks in Thackrays 2017 Investors

Guide that are either in their seasonal period or
have just finished their seasonal period.
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forms that would ultimately allow the government to operate in a more ecient manner and allow for businesses
to operate in an environment of less red tape. The Italians
voted against the referendum and decided to stay with the
status quo. Prime Minister Matteo Renzi tendered his resignation when his proposals were voted down.
This really is the case of staying with the devil that you
know, or is it? The Five Star Party, lead by comedian
Beppe Grillo, is a euro-skeptic party that wants to see Italy separate from the EU and is gaining in popularity. After
the defeat of the referendum, the Five Star Party is set to
challenge the existing government in the 2018 election.
It is dicult to determine how much of the vote against
the referendum was a vote for the status quo, or a vote for
someone else to lead Italy in the future. Either way, the
sitting government does not have the badly needed mandate to x the economy and Italy will have to endure
at least a while longer under a torturously bureaucratic
political system.

Disney
Disney Seasonal Period
October 1st to February 15th

Italy is in trouble. Its main banks are close to bankruptcy

and they are being kept alive by band-aid solutions. The
banks are sitting on a huge amount of non-performing
loans that have very little likelihood of being repaid. Italians have watched this movie before in Cyprus and
Greece. They are starting to take their money out of the
Italian banks and deposit it in....German banks. Who can
blame them. One of the basic tenets of the ECB is a common currency which can be accepted by any European
bank. With low interest rates set by the central bank, the
bank is unable to award depositors with high rates of return. So, if you have a choice between two banks that pay
next to nothing and one is very secure and the other close
to bankruptcy, which bank would you put your money in?
In case you missed it, that was a rhetorical question. The
current interest rates in Italy are ridiculously low for the
amount of risk taken. For a general idea on the rates, see
http://italy.deposits.org/.

Disney started its seasonal period right on cue, at the beginning of October and has continued to outperform the
S&P 500. It is approaching resistance at $105. If Disney
is able to break above this level, watch for it to continue
moving higher January.

Brookes Rant
Kicking the can down the road Italian style
Last Sunday, in a referendum, the Italians decisively
kicked the can down the road in order to avoid political re-

If depositors continue to remove money out of the Italian

banking system, the banking situation is only going to get
worse. Sometime in the near future, the country is going
to have to pay the piper. The situation that Italy is in does
not x itself. The longer that Italy waits, the harder it is
going to be to x. I am of the mind that there is a high
likelihood that Italy may suer some sort of bankruptcy
or be dragged into purgatory like Greece (a form of bankruptcy).
Maybe the Italians know the inevitable and by voting
against the referendum, they see this as one last party before they have to address their issues. One more glass of
Italian wine before the sun sets.

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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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