Thackray Newsletter

Know Your Buy & Sells a Month in Advance

Published the 10th Calendar Day of Every Month
Volume 11, Number 9, September 2017 Written by Brooke Thackray

Market Update
New Ticker Symbol for the stock market - PTFE,
which really is the abbreviation for Polytetrauoroeth-
ylene....which is commonly known as Teon.
And in case you were wondering, the diagram to the
left is the chemical structure for Teon.
This stock market is currently in a Teon state. No
matter what gets thrown its way, it plods along, There
has been the occasional dip, but investors have seen all
minor dips as major buying opportunities.

S&P 500 Technical Status

S&P 500 is currently sitting close to its all-time high. Over the last few months the S&P 500 has been trading in a
range between 2400 and 2480. Although it is possible that the stock market could drift upwards, a strong rally in
September would be rare from a seasonal basis, given that there is not a strong possibility of a large stimulative event.
The current level of support is 2400. It is also a line of concern. If the S&P 500 breaks below this line, the probability
of downside momentum increases. The risk-reward relationship at this time favors caution, especially since, on aver-
age, we are in the weakest month of the year (September). Caution advised.

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 Horizons Seasonal Rotation ETF (HAC : TSX)
Portfolio Exposure as of August 31st, 2017
Symbol

Holdings % of NAV
Canadian Dollar Exposed Assets
Fixed Income
HFR Horizons Active Floating Rate Bond ETF 16.3%
HBB Horizons CDN Select Universe Bond ETF 11.5%
PSA Purpose High Interest Savings ETF 10.7%

Commodities
HUG Horizons Gold ETF 10.5%

United States Dollar Exposed Assets

Fixed Income
HTB Horizons US 7-10 Year Treasury Bond ETF 20.4%
HUF.A Horizons Active US Floating Rate Bond (USD) ETF 9.6%
Equities
HXS Horizons S&P 500 Index ETF 10.1%
IBB iShares Nasdaq Biotechnology ETF 3.2%
GDX VanEck Vectors Gold Miners ETF 2.2%
IYT iShares Transportation Average ETF -5.1%
XLB Materials Select Sector SPDR Trust -5.2%

US Dollar Forwards (September 2017) - Currency Hedge ** 0.6%

Cash, Cash Equivalents, Margin & Other 15.3%

Total ( NAV $210,335,709) 100.0%

** Reects gain / loss on currency hedge (Notional exposure equals 35.2% 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 sea-
sonal 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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Recently, the possibility of a confrontation with North
Korea has provided investor angst, but every missile
launch and every dip has been treated as another buying
opportunity.
Despite the feeling of euphoria that is stoking investors,
most stock markets in the world, including the U.S. and
Canada have not rallied strongly in the summer months.
Since May 5, the start of the unfavorable six-month pe-
riod for stocks, the S&P 500 has increased by approxi-
mately 2.5% (at the time of this writing). This is nothing
to sneeze at, but lags behind the average performance of
the stock market in favorable six-month period (October
28th to May 5th), in both the short and long-term.
Recently, some people have accused me of being bearish
on the stock market. Although a lot of my comments on
the stock market have had a bearish tone, as I have said
before, I am neither a bear, nor a bull. I am seasonal. In
the unfavorable six-month period from May 6th to Octo-
ber 27th, it is generally a good idea to decrease risk and
the returns tend to be minimal and the volatility high. This
summer, the returns have been small so far, but volatility
has remained low. For most investors, it is the returns that
matter. Why take outsized risks when the expected returns
are low?
Many pundits, look at the minimal returns that are often
produced in the unfavorable six-month period and state
that a small gain was made so therefore reducing equity
exposure during the six-month unfavorable period was
not successfully. The pundits do not take into account
the excessive risk that was taken in order to generate the
small gain. The unfavorable six-month period is replete
with large corrections, much more so than the favorable
six-month period. From a seasonal point of view, it makes
sense to avoid the periods when large corrections occur.
So far, investors that have stayed in the stock market in
the six-month unfavorable period have been rewarded
with a small return.
Although the stock market is less than two months away
from the start of its favorable six-month period, a season-
al entry strategy makes sense. When the stock market has
corrected sharply in the summer months, late September
is often a good time to start stepping into the stock mar-
ket. On the other hand, if the stock market does not suer
a substantial correction in the summer months, it is often
best to be patient entering the stock market, and delay en-
try until later in October.
The current situation supports the strategy of delaying
entry into the stock market until late October.
Aside from a broad market strategy based upon the six
month seasonal cycle, dierent sectors of the stock mar-
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ket tend to perform well at dierent times of the year.
Currently, there are sectors of the stock market that are
in their seasonal period and performing well. As we ap-
proach the six-month favorable period for stocks, there
is an increasing number of sectors that are entering their
seasonal periods. Lots of seasonal opportunities...but in-
vestors need to be patient.
What the HAC is going on?
In the month of August, HAC was largely invested, in-
cluding bonds and short-term income instruments. Nev-
ertheless, for most of the month, the price of HAC did not
stray too far up or down. Looking at only its price move-
ment, an investor could have been fooled into thinking
that the fund was all in cash.
HACs diversied approach maintained a balance. As one
investment was increasing in value, another was decreas-
ing.
Towards the end of the month, the value of HAC started
to increase as most of its holdings started to rise in value.
The main positive drivers were increasing values in gold
bullion, gold miners and U.S. government bonds. All of
these investments are currently in their seasonal period.
The seasonal period for these investments either end later
this month or early October.
Starting later in September, a large number of equity sec-
tors start their seasonal period.
Seasonal Opportunities
Gold miners breakout from bearish descending
triangle
The gold miners sector started to form a bearish descend-
ing triangle early in the year. When it entered its seasonal
period (starting July 27th), it was still in its descending
triangle pattern. Shortly afterwards, it broke above the
downward trend line. This was a positive development.
Despite this bullish development, the seasonal period for
gold miners ends on September 25th. It should be noted
that gold miners typically perform poorly in October.
Consideration should be given to exiting gold miners
upon weakness.
So far the move of gold miners relative to gold bullion
has been nominal compared to past rallies when both in-
vestments have performed well. Nevertheless, this is not
a reason to hold the position past its seasonal period.
 My Call: Gold bullion will probably continue to per-
form well for the next few weeks, but start to turn down
at the beginning of October.

Energy
The energy sector has been hammered this year. It has
risen periodically, only to fall once again. Currently, the
sector is at the top of its trading range, but it has not bro-
ken out yet. Ditto for the sectors relative performance
compared to the S&P 500.
The big problem is that the sector has a seasonal weak
period starting in early October. So, even if the sector has
a breakout at this point, it may not be an attractive propo-
sition.

My Call: Gold miners will probably perform well until

late September and then start to turn down in October,
underperforming the S&P 500.

Gold Bullion
Gold bullion broke out of its consolidation pattern when it
broke above $1300. It had previously tried twice this year
to break the $1300 level...and failed. The current target
for gold bullion is $1375.
Like gold miners, gold bullion typically does not perform
well past its seasonal period in early October. Consider-
ation should be given to exiting the position before the
end of gold bullions seasonal period if it starts to under-
perform.
My Call: The energy sector will probably underperform
in the period from September until November and po-
tentially lead to a buying opportunity towards the end
of the year.

Natural Gas
The seasonal period for natural gas has just started (Sep-
tember 5th). Currently, natural gas is tracing out a bearish
descending triangle. When this happens, it is often best to
wait for a breakout above the downward trend line (spot
$3.10 mmBtu), or wait for a consolidation at a lower lev-
el.
In my September Weekly Update Video on Septem-
ber 5th, I discussed the current technicals of natural gas
(http://bit.ly/2eHNvdO).

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My Call: Natural gas will probably start to consolidate
at slightly lower prices, build a base and then perform
well into December.
Canadian Banks
It seems that everyone in Canada loves their banks. There
are all sorts of reasons to own the banks. Canadian banks
are like comfort food for a Canadian portfolio. They
make investors feel good. They are good strong compa-
nies, paying a good dividend, growing their earnings over
time...etc, etc.
Recently, the price action of Canadian banks has not been
all that healthy. They have been underperforming the TSX
Composite since July and recently heading into earnings,
they backed o in price. When they announced strong Q3
earnings, the banks as a group did not rally. When the
BoC raised its target interest rate (twice), the banks once
again did not rally. In theory, they should have benetted
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from an increase in higher BoC rates because of a better
net interest margin. The reason that banks did not rally is
largely based upon the fear that sliding house prices in
Canada will negatively impact bank earnings in the fu-
ture.
Technically, as a group, the sector is showing signs that
it may establish negative momentum, as it has broken its
rising trend line.
The Canadian banking sector has a seasonal strong period
that starts in October. It might be best to wait.
My Call: Canadian banks will probably underperform
heading into their strong seasonal period in October.
They will probably perform at market at the start of
their seasonal period.
Technology
The technology sector has been on a roll since late last
year, strongly outperforming the S&P 500. Technically, it
is still strong and has not broken down.
Watch Apple for clues on the health of the technology sec-
tor, as it often sets the tone. Apple is expected to launch
its next iPhone model in the next few days.
Recently, Barrons wrote a piece based upon analysis from
Ned Davis Research, which stated that historically, inves-
tors have been wise to take advantage of Apples price
move coming into iPhone launches by exiting before
the latest and greatest phone is actually launched (http://
www.barrons.com/articles/apple-you-should-already-
have-taken-iphone-prots-says-ned-davis-1504731665).
The article basically states that it is best to buy the rumor
and sell the news. Most of the run-up for Apple occurs
before the product announcement, as investors pile into
the stock waiting for positive news. When everyone gets
in it is often best to get out.
It is interesting to note that seasonal investing is based
upon the same premises of capitalizing on human behav-
ior. It is often best to get into a sector before an event such
as earnings releases or conferences etc., and then exit just
before the actual event. I have always said that seasonal
investing really is behavioral investing.
The technology sector starts its seasonal period on Octo-
ber 9th. The problem is that the sector has performed so
well before its seasonal period has even started. In this
case it is often best to be patient before entering the sector.

My Call: The technology sector will probably start to

underperform in the near term. Better opportunities
may be ahead in late December.
The seasonal period for Canadian bonds nishes at the
U.S. Government Bonds beginning of October.
So many have been calling for the bond market to implode.
It hasnt happened yet. U.S. government bonds have been My Call: Canadian bonds will probably have mediocre
on a steady rise since late 2016 and have performed well performance until the end of September.
since their start of their seasonal period in May.
Agriculture

Warning.... bonds often start to turn down at the begin-

ning of October, particularly if the stock market start to
get some traction.

My Call: U.S. government bonds will probably perform

well until the end of September and then start to per-
form poorly in October.
Canadian Bonds
Canadian bonds were performing well in their seasonal
period until Poloz started hiking rates. Each rate hike has
turned bonds down.
The agriculture sector has created a heart beat pattern...
relative to the S&P 500. In other words, it has been per-
forming at market. This is often a good pattern coming
into the beginning of a seasonal period. The seasonal pe-
riod for the agriculture sector starts August 7th, but the
real sweet spot for the trade starts in late September.

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 My Call: The agriculture sector will probably set up
for a strong seasonal trade starting in late September or
early October.

Consumer Staples
The consumer staples sector is often considered a boring
sector because of its low growth portfolio. Nevertheless,
it can be attractive because of the stable nature of its earn-
ings relative to the S&P 500. So far this year the sector
has been underperforming the S&P 500.
Typically, the best time for the consumer staples sector are
the two transition months, May and October. The month
of October is often volatile, despite the S&P 500 being
positive on average since 1950. As volatility often picks
up, investors favor the consumer staples sector.

The transportation sector is starting to show some stabil-

ity and could come out of its funk before the end of its
weak seasonal period. Consideration should be given to
closing a short sell position if the sector starts to outper-
form the S&P 500.

My Call: The transportation sector will probably start to

outperform the S&P 500 in late September.

U.S. Materials

With volatility currently low and the consumer staples

sector starting to stabilize, the sector is setting up well for
an October trade.

My Call: The consumer staples sector will probably

outperform the stock market in October.

Short Sells- for pair trades

Transportation
The transportation sector typically performs poorly (good
for short sells), from August 1st until October 9th. The
sector has been underperforming the S&P 500 since late The U.S. materials sector typically performs poorly in
2016. September and for most of October. So far, the sector is
performing at market and is in its trading channel. Cur-

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rently, a short sell position in the U.S. materials sector The problem is that the moves in the VIX and the stock
should be given some berth, as it continues to perform at market have been muted. After the missile launch that
market. soared over Japan, the VIX did increase and the stock
market did decline, but the moves were soon reversed. So,
My Call: The U.S. materials sector will probably under- unless Jung Un is a master trader with impeccable timing,
perform the S&P 500 up until mid-October. he probably has not made money trading the VIX. Lets
hope that Jung Un has lost interest in trading the VIX.
Brookes Rant (Sarcasm)
In my last newsletter, I described the danger of investors
not fully appreciating the conuence of risk with algo-
rithm trading funds, risk parity funds and a persistently
low CBOE Volatility Index (VIX). The situation has not
changed. Some investors have tried to go long the VIX
in order to hedge their portfolios against a market correc-
tion. So far, they have largely been unsuccessful, as the
stock market has continued to trade at the top end of its
trading range and the VIX has remained stubbornly low.
There is one individual that has insider information and
has an advantage to trade the VIX long: Kim Jun Un.
He has an unique opportunity to fund his nuclear missile
program by proting from VIX moves. Buy VIX calls,
launch a missile, sell VIX calls. Buy VIX calls, test an H-
bomb, sell VIX calls. With large enough VIX bets, Jung
Un, could not only fund his missile program, but he could
make enough money to feed all of North Korea (sarcasm)

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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 frequent-
ly 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 ag-
gressive investment risk and price volatility risk. Such risks are described in the ETFs prospectus. The pro-
spectus 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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