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guided wisdom that the market has risen too far too fast and therefore must correct. This statement is fundamentally incorrect as the market can keep rallying. Investors should never sell just because the market has had a strong rally. If they do, more often than not, they will nd themselves being left behind. According to the Relative Strength Index (RSI), the marCont....page 3
Horizons Seasonal Rotation ETF (HAC :TSX) Portfolio Exposure as of February 28th, 2013 Symbol ZEB HFR Holdings Canadian Dollar Exposed Assets Equities BMO S&P/TSX Equal Weight Banks Index ETF Fixed Income & Currencies Horizons Active Floating Rate Bond ETF United States Dollar Exposed Assets SPY DVY XLI XLF IWM XRT XLY SMH XLE XOP OIH XLB Equities SPDR S&P 500 ETF Trust iShares DJ Select Dividend Index Fund Industrial Select Sector SPDR Fund Financial Select Sector SPDR Fund iShares Russell 2000 Index Fund SPDR S&P Retail ETF Consumer Discretionary Select Sector SPDR Fund Semiconductor Market Vectors ETF Trust Commodities & Energy Energy Select Sector SPDR Fund SPDR S&P Oil & Gas Exploration & Production ETF Market Vectors Oil Service ETF Materials Select Sector SPDR Fund Copper Future March 2013* Fixed Income & Currencies Horizons Active U.S. Floating Rate Bond ETF US Dollar Forwards (March 2013) - Currency Hedge ** Cash, Cash Equivalents, Margin & Other Total ( NAV $91,727,267) 16.7% 11.1% 10.3% 9.7% 9.6% 8.9% 3.5% 2.1% 5.2% 3.9% 2.9% 2.0% 0.0% 0.3% -0.2% 4.1% 100.0% % of NAV 6.9% 3.0%
HUF.U
* Actual exposure reects gain / loss on future (Notional exposure equals 2.3% of current NAV) ** Actual exposure reects gain / loss on currency hedge (Notional exposure equals 84.2% 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. 2 alphaMountain Investments - alphamountain.com
ket is NOT overbought as it is below 70 and rising. To set the record straight.....the term overbought is grossly overused. The fact that an investment is overbought is meaningless as any investment can stay overbought for a very long time. Investors should NOT try to time their buys and sells based upon whether an investment is overbought. There are some technical strategies that generate buy and sell signals based upon the RSI crossing certain levels, but that is another matter. In my last newsletter I raised the possibility of a threepeat, with the cyclical sectors underperforming in the spring time, for the third year in a row. The cyclical sectors tend to outperform at this time of the year and when they dont, it is a sign of a market that is becoming more defensive. To be clear, as I stated in my last newsletter, this does NOT mean the market is set for a major correction. It does mean that investors should be more selective in choosing their seasonal sectors. This year, the deep cyclicals (commodity based) have had their troubles. In my last newsletter I described the metals and mining sector as a canary in the coal mine for the deep cyclical sectors. In February and March, the metals and mining sector cracked as it started to substantially underperform the S&P 500. Its underperformance points to possible further weakness in the deep cyclical (commodity) sectors. If the metals and mining sector is able to sustain a strong rally, this would be a very bullish scenario for the market. In very recent days the metals and mining sector has had a bounce, but investors should not get too excited as these bounces are common in a corrective action. Although it is possible that the metals and mining sector does put in a strong performance, the risk-reward relationship currently favours avoiding this sector. The poor performance of the metals and mining sector and the commodities is being largely driven by the extremely strong performance of the U.S. dollar. From a seasonal perspective, on average the U.S. dollar performs well until the end of March and then falters. If the U.S. dollar does correct on its seasonal que, it is possible that we could have a strong month in April for the deep cyclicals. This will be addressed in more detail in the next newsletter. Just as the metals and mining sector was used to forecast a weakening condition in the deep cyclicals, the U.S. nancial sector can be used to help determine if the S&P 500 is in a topping process. As I have written before, generally when the U.S. nancial sector is performing well, it indicates that the S&P 500 is on solid footing. If the sector cannot perform well during its seasonally strong period,
then this often indicates that the market is close to a topping process. After an early seasonal run, the sector is performing slightly better than the market. So far all is good. Investors should remember that the period of seasonal strength for the nancial sector lasts until April 13th.
Against a basket of world currencies, the USD has bounced off its support level just above 78 and broken through the resistance level (now support) of 82. The next resistance level is 84, at which the USD may stall. If the USD is turned back at 84 and falters, this could breathe life back into the commodity sector. From a seasonal basis the USD tends to stumble at the end of March. A weaker dollar would also help boost the S&P 500.
triangle pattern). I also stated that investors should consider exiting the position if silver fell below $30. HAC reduced its silver position earlier in the month and sold the remaining position when silver fell below $30.
In my last newsletter, I stated that if gold fell through $1650, support on the base of a descending triangle, it would likely go to $1550. Shortly after my newsletter was distributed, gold broke $1650 and fell to $1550. I did not expect the process to be so quick, but that is the way of the market. Gold may have a bounce at these levels, but there is no seasonal justication to hold it. HAC does not hold gold bullion or gold stocks.
Platinum has been sucked down in the wake of golds fall in price. Despite a recent fall, its price is still above its starting point at the beginning of January. It is possible for it to bounce at these levels but it suffered in the last few weeks. HAC exited its platinum position in February.
Although gold and silver can very often trade together because they are precious metals, at times silver trades more based upon its industrial metal properties. In my last newsletter, I stated that silvers trading patterns were being greatly inuenced by gold and if gold broke down, silver would probably follow (it also had a descending 4 alphaMountain Investments - alphamountain.com
Last month I described the consumer discretionary sector as the top seasonal sector for both February and March, based upon frequency of outperforming the S&P 500. An overweight position in this sector at this time should be a core seasonal position. The sector has been outperforming the S&P 500 and is expected to continue its outperformance. HAC added to its consumer discretionary position in February.
TJX
So far this trade has been disappointing this year, but there is still some time left. The end of the seasonal period for TJX is at the end of March. HAC did not enter the TJX seasonal trade this year. So far this trade has worked well. As I mentioned in my previous newsletter, the nancial sector very often acts as a market indicator. As long as this sector is performing well the chances of the broad market performing poorly are reduced. HAC increased its holdings in XLF in February.
Industrials
The industrial sector has been outperforming the S&P 500 since October. Recently, it has been performing at market. Nevertheless, it is still in its seasonal period and is a core part of the seasonal portfolio at this time. If the market continues higher, this sector should outperform. HAC held a position in XLF in the month of February. 3M typically starts its seasonal outperformance at the beginning of March. This year 3M started to outperform at the end of October. It paused mid-November until the beginning of January and outperformed until the end of February. Given its recent outperformance, it is possible that it pauses here until the end of March, before resuming its outperformance once again. The sweet spot for the 3Ms seasonal trade is the month of April.
GE Powering higher?
GE has long been considered a bellwether stock for the broad stock market. Given GEs diversity, there is no question that there is a relationship. The seasonal period 6 alphaMountain Investments - alphamountain.com
for GE starts March 5th and ends April 6th. From 1990 to 2012, GE has outperformed the S&P 500, 74% of the time and has produced an average return of 6.6%. At this time we can expect GE to once again outperform. If it does falter at this time, it will indicate a weakening market.
ing the S&P 500 until May 5th. It is important to note that the U.S. materials sector is vastly different compared with the Canadian materials sector. The U.S. sector is over 60% chemical companies, versus the Canadian sector which is over 60% gold mining companies. The analysis in this newsletter pertains to the U.S. materials sector. HAC held a nominal position in the month of February.
Dupont has a very distinct seasonal period starting January 28th and lasting to May 5th. The sweet spot for this trade starts at the beginning of March and lasts into midApril. On average Dupont starts to underperform the S&P 500 at the beginning of May. The underperformance lasts until the end of the year, which is a very long time. If you are going to own Dupont, now is the season.
After a successful rst seasonal leg from the end of October to the beginning of January, the materials sector has started out of the gate slowly for its second leg. It is only since the last week of February that the sector has started to outperform. It is too early to determine if the trend is going to persist, but the trend is looking favourable. The materials sector has a strong track record of outperform-
index was rising. It is totally possible that we see the same action this year, especially given that the metals and mining sector performed so poorly in February. So far a positive sign is that the oil stocks have been holding up well relative to the declining price of a barrel of oil. HAC, in January, started to accumulate positions in the oil services sector, oil exploration and production and the overall sector in Canada and the U.S.
The energy sector started its seasonal outperformance early this year, in January. Recently, it has pulled back as the ofcial season started. Last year the energy sector did not perform well in its seasonal period as the deep cyclicals were performing poorly and the overall market
The discounted western Canadian oil, along with its higher production costs is in effect leveraged to higher oil prices. Higher oil prices provide a greater margin expansion for Canadian operations, compared with other nations that have lower production costs. As a result, if the Canadian energy sector does start to outperform the market and the U.S. energy sector, this will be bullish for the overall energy sector. This would be good news.
down to 7.7% in the US after a strong jobs number of 236,000 was released on March 8th. Everything seems to be going swimmingly and investors are responding by coming back to the market. After a fractured result in the Italian election, with the comedian Bepe Grillo and his 5 Star Movement gaining a much larger percentage of the vote than expected, and the negative implications of a possible further election, the market only dipped briey before moving higher. Grillo is advocating leaving the euro and returning to the lire. Despite the dire consequences of what is happening in Europe, the market has shrugged off the negativity and has moved higher. Bad news is being digested well and the market is moving higher. We are still in the favourable six month period and this is not the time to be running from the markets just because the market has had a strong rally. Guessing when the market might turn down in the favourable seasonal six month period is counterproductive. There is still opportunity in the market and investors should be concentrating their efforts in the sectors that are responding well.
Disclaimer: Brooke Thackray is a research analyst for Horizons Management Inc. All of the views expressed herein are the personal views of the author and are not necessarily the views of Horizons Management Inc., although any of the recommendations found herein may be reected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc. HAC buys and sells of securities listed in this newsletter are meant to highlight investment strategies for educational purposes only. The list of buys and sells does not include all the transactions undertaken by the fund. While the writer of this newsletter has used his best efforts 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 Mailing List Policy: We do not give or rent out subscribers email addresses. Subscribe to the Thackray Market Letter: To subscribe please visit alphamountain.com. Unsubscribe: If you wish to unsubscribe from the Thackray Market Letter please visit alphamountain.com. Contact: For further information send an email to brooke.thackray@alphamountain.com