Thackray Newsletter. Know Your Buy & Sells a Month in Advance. Published the 10th Calendar Day of Every Month

Size: px

Start display at page:

Download "Thackray Newsletter. Know Your Buy & Sells a Month in Advance. Published the 10th Calendar Day of Every Month"

Leslie Wilcox
6 years ago
Views:

1 Thackray Newsletter Know Your Buy & Sells a Month in Advance Published the 10th Calendar Day of Every Month Volume 11, Number 10, October 2017 Written by Brooke Thackray Market Update Hold your nose! (Not an official finance term) Sometimes you have to hold your nose and proceed. The stock market has not corrected in its six-month unfavorable period from its all-time highs, and yet the six-month favorable period for stocks is fast upon us (starts October 28th). The fact that the stock market has not corrected does not mean that a correction is imminent. Following an investment discipline is important. Just because you feel the stock market S&P 500 Technical Status Currently, the S&P 500 is overbought based upon the RSI and Full Stochastic Oscillator (FSO), which does not necessarily mean that a correction will ensue. Nevertheless, it indicates that the stock market is susceptible to a correction. In the diagram below, I have outlined the occurrences of the S&P 500 being overbought based upon the FSO having a reading above 90 and then turning down below 80. In the majority of cases a short-term pull-back occurred with the exception being December 2016 and the current rally (so far). The S&P 500 is currently overbought based upon RSI and FSO readings. Caution advised in the transition into the favorable six-month period for stocks (starts Oct 28th).

2 Symbol Horizons Seasonal Rotation ETF (HAC : TSX) Portfolio Exposure as of September 30th, 2017 Holdings Canadian Dollar Exposed Assets % of NAV Fixed Income HFR Horizons Active Floating Rate Bond ETF 20.7% PSA Purpose High Interest Savings ETF 10.8% HBB Horizons CDN Select Universe Bond ETF 6.7% Commodities HUN Horizons Natural Gas ETF 2.9% United States Dollar Exposed Assets Fixed Income HUF.U Horizons Active US Floating Rate Bond (USD) ETF 9.1% Equities FHC First Trust AlphaDEX U.S. Consumer Staples Sector Index ETF 2.5% XLP Consumer Staples Select Sector SPDR Fund 2.5% US Dollar Forwards (October 2017) - Currency Hedge ** -0.7% Cash, Cash Equivalents, Margin & Other 45.4% Total ( NAV $208,173,905) 100.0% ** Reflects gain / loss on currency hedge (Notional exposure equals 13.9% of current NAV) The objective of HAC is long-term capital appreciation in all market cycles by tactically allocating its exposure amongst equities, fixed 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

It could be different this year, but historical probability favors the six-month favorable period for stocks. The consumer staples sector is currently at support.

3 is overvalued should not influence your investment decisions. Emotions should always be separated from the investment process. From a seasonal investment perspective, the six-month period from October 28th to May 5th has historically produced much larger returns more often for stocks than the other six-months of the year. It could be different this year, but historical probability favors the six-month favorable period for stocks. The consumer staples sector is currently at support. It has also been declining into October, which sets the sector up well for a bounce in its seasonal sector. Seasonal investing is not about fundamentals, it is not about being bearish or bullish. It is about making investments based upon when the stock market, or sectors tend to perform well and avoiding times when they tend to perform poorly. Yes, technical analysis can play a roll in helping make entry and exit decisions and fundamentals can help with allocation decisions, but it is ultimately the seasonal trends that drive the process. So, where does that leave seasonal investing? Sometimes, you have to hold your nose and increase investments despite fundamentals or over-priced markets or previous positive performance. What the HAC is going on? In the month of September, HAC was conservatively positioned including a large amount of cash or equivalents. During the month, HAC did hold a number of positions, including gold, U.S. government bonds, Canadian bonds, biotech, natural gas and others. Overall, during the month, HAC s price stayed in a fairly tight range as performance of different investments balanced against each other. Seasonal Opportunities Consumer Staples seasonal, but not loved Seasonal period from October 1st to October 31st Investors up until recently seem to have lost interest in the consumer staples sector as it has not matched their risk appetite. To top it off, last week Costco announced that it wanted to go into the on-line grocery delivery business in the U.S. Investors were less than thrilled as they saw it being a me-too business in a highly competitive market. Costco s drop in price affected the consumer staples sector as it a major holding in consumer staples ETFs. My Call: The consumer staples sector will probably bounce off support and outperform the S&P 500 in the month of October. Technology More than Apple Seasonal period from October 9th to December 5th There is nothing negative that can be said about the price action of the technology sector. On a relative basis compared to the S&P 500, the sector has had some dips over the last few years, but it has managed to get back on its track of outperformance. The consumer staples sector typically performs well in the month of October as investors seek the comfort of companies that have a more stable earnings base compared to most sectors in the S&P 500, but in a low volatility market, investment preferences have been elsewhere. Nevertheless, the consumer staples sector can provide diversification benefits, particularly if the stock market starts to go sideways, or negative. 3

Most recently, the sector has suffered on the launch of Apple s new iphone.

Although this time may be different, the overall relative trend is still intact.

Natural gas is still in a consolidation period. It appeared that natural gas was going to break out of its consolidation range to the upside, but so far it has failed to do so.

4 Most recently, the sector has suffered on the launch of Apple s new iphone. The price of Apple s stock often rises into the launch of its latest phone in September, corrects on launch, only to resume its upward trend a short-time later. Although this time may be different, the overall relative trend is still intact. My Call: The technology sector will probably slightly outperform the stock market until the beginning of December Natural Gas Not firing yet Seasonal period from September 5th to December 21st Natural gas is still in a consolidation period. It appeared that natural gas was going to break out of its consolidation range to the upside, but so far it has failed to do so. Natural gas is extremely volatile and could break out at any time to the upside or downside. The US Northeast has been benefitting from some very unseasonably warm weather recently. A sudden cold snap could help move investors sitting on the sidelines to buy natural gas. My Call: The consumer discretionary sector will probably start to outperform the S&P 500 before the start of its seasonal period. Retail Bounce from the Amazon Effect? Seasonal period from October 28th to November 29th The retail sector has been underperforming the S&P 500 since Recently it has shown signs of at least forming a basing pattern relative to the S&P 500, or breaking out. My Call: Natural gas will probably consolidate in the short-term, before breaking out to the upside. Consumer Discretionary Beaten up a bit, but well setup technically Seasonal period October 28th to April 22nd The consumer staples sector has been in a trading range for most of 2017 and is currently just below resistance. The sector has underperformed the S&P 500 since April which has set it up for a possible bounce. Although the retail sector has suffered from consumers choice to favor e-commerce over bricks and mortar stores, it does not mean that investors can never again invest in 4

the sector. The sector can still provide value, particularly in its seasonal periods. Currently, the retail sector is showing signs of breaking out on an absolute basis and relative basis.

Transportation Recent rally makes this sector not so appealing yet Seasonal period from October 10th to November 13th. The transportation sector rallied strongly ahead of its positive seasonal period.

My Call: The Canadian financial sector will probably outperform during its seasonal period, at least up until their Q4 earnings announcements start to be disseminated in late November.

5 the sector. The sector can still provide value, particularly in its seasonal periods. Currently, the retail sector is showing signs of breaking out on an absolute basis and relative basis. My Call: The retail sector will probably start its seasonal period on time and outperform the S&P 500 in the month of November. Transportation Recent rally makes this sector not so appealing yet Seasonal period from October 10th to November 13th. The transportation sector rallied strongly ahead of its positive seasonal period. It is currently overbought and showing signs of weakness. As a result, it is probably best to wait before entering the sector. My Call: The Canadian financial sector will probably outperform during its seasonal period, at least up until their Q4 earnings announcements start to be disseminated in late November. Agriculture Starting to grow Seasonal period-september 26th to November 11th The agriculture sector has generally been performing at market over the last two years, with a few ups and downs along the way. The sector is still in its trading range and is currently starting to show signs of strength relative to the S&P 500. My Call: The transportation sector will probably continue to pull back in the short-term, before starting to outperform the S&P 500 later in its seasonal period. Canadian Financials Rallying Seasonal period from October 10th to December 31st The Canadian financial sector tends to perform well starting October 10th. Recently, the sector has rallied and is breaking out, making it attractive. On a relative basis compared to the TSX Composite it has been forming higher lowers...which is a bullish signal. My Call: The agriculture sector will probably outperform the S&P 500 in its seasonal period. 5

Industrials Showing signs of strength Seasonal Period- October 28th to December 31st The industrials sector, relative to the S&P 500, has been moving in a stair-step fashion: performing at market,

The ideal setup would be for the sector to be at the bottom of its trading range just before the start of its seasonal period. The materials sector typically performs poorly in the month of September.

My Call: The materials sector will probably perform at market in the near-term, but outperform later in its seasonal period. U.S.

6 Industrials Showing signs of strength Seasonal Period- October 28th to December 31st The industrials sector, relative to the S&P 500, has been moving in a stair-step fashion: performing at market, outperforming briefly, performing at market and then jumping again. Currently, the industrial sector is at the top end of its relative trading range. The ideal setup would be for the sector to be at the bottom of its trading range just before the start of its seasonal period. The materials sector typically performs poorly in the month of September. This time around, the materials sector outperformed as generally the economic reports were stronger than expected. My Call: The materials sector will probably perform at market in the near-term, but outperform later in its seasonal period. U.S. Government Bonds Finished seasonal period update Seasonal period- May 5th to October 3rd (Finished) The seasonal period for U.S. government bonds is finished. The sector has been breaking down since late September. There is not a seasonal justification to be long U.S. government bonds at this time. My Call: The industrial sector will probably perform at market in the near-term, but outperform later in its seasonal period. Materials Seasonal period approaching Seasonal period - October 28th to January 6th Gold Finished seasonal period update Seasonal period July 12th to October 9th The seasonal period for gold is finished. Gold performed well in its seasonal period. Currently, gold has moved back into its trading range between $1200 and $1300. Investors should note that October tends to be a weak month for gold bullion. 6

CAD/USD Seasonal trend favors USD until mid- December The Canadian dollar rallied strongly against USD from May into September. Recently, USD has been making back lost ground.

The strongest seasonal period for oil is from late February until early May. The sector does have a less prominent seasonal trend from late July until early October.

Investors should note that the last part of October and November tend to be weak for oil and energy stocks.

7 CAD/USD Seasonal trend favors USD until mid- December The Canadian dollar rallied strongly against USD from May into September. Recently, USD has been making back lost ground. Investors should note that seasonal trends favor the USD until mid-december. Oil (WTI) Finished seasonal period update Seasonal period July 27th to October 3rd The seasonal period for oil is finished. The strongest seasonal period for oil is from late February until early May. The sector does have a less prominent seasonal trend from late July until early October. In this seasonal period, oil and energy stocks have performed well. This seasonal period is finished. Investors should note that the last part of October and November tend to be weak for oil and energy stocks. Brooke s Rant 1990 s - Deja vu In recent months I have noticed increasing occurrences from investors that make me feel like I have been transplanted back to the 1990 s. For those of you that were not investing at the time; there was a feeling of euphoria that everyone could make money in the stock market...it was easy, Over time, more and more people got caught up in the investing vortex. If you weren t making money trading, there was something the matter with you. Investors who had no experience with stocks became day traders. 7 Although there are many stories of individuals day trading stocks for a living, until it all went wrong, the one that sticks in my mind is Barbra Streisand, who in 1999, slowed down her singing career so she could concentrate on day trading. In fact, she took a million dollars from a friend of hers so she could help her make money from day trading. If I recall correctly, her strategy was if I see red, I sell quickly. Although today is not as hyped as the 90 s and there is not astronomical gains in the market, there are some similarities. Yes, I have ridden in a few taxis where the driver was talking about the latest company and a few people who I have known for a long time have started to trade stocks. What really hit me the other day is when my wife and I

had dinner with friends of ours, who said that when they arrived home, their twenty-four year old son was reading a copy of my latest book, Thackray s 2017 Investor s Guide.

8 had dinner with friends of ours, who said that when they arrived home, their twenty-four year old son was reading a copy of my latest book, Thackray s 2017 Investor s Guide. When his parents asked him why he was reading the book, he said that he was going to become a day trader because a few of his friends had become successful day traders. In the 1990 s the speculative fever was built upon the potential of the internet dramatically changing the way businesses run and increasing their productivity. Productivity gains were real. Companies cut costs, improved information flow, reduced manufacturing times etc. It was difficult to determine the total future impact from increasing productivity, but once the internet started to be implemented and companies such as Cisco talking about how they were reducing the operating costs by 20% by using the internet internally, investors started to see the real potential. Today, we have a very different situation. Although world growth appears to be picking up, the current investor feeling of euphoria does not have the same justification to propel the markets higher with record low volatility. I have argued in the past as many others have, that the current stock market is richly valued. I have also argued that the high valuations make the stock market susceptible to a correction, but not that a correction will necessarily take place. The stock market has not had a correction, and has moved higher. What is moving the stock market higher? It is not the prospect of substantially better S&P 500 earnings in the future. Although global growth has improved, U.S. growth is quite tepid. There is not an underlying cause for the expectation for substantial better growth as there was in the 1990 s: we do not have a key catalyst such as the introduction of the internet to businesses to increase productivity. According to BLS, the U.S. productivity rate declined in The economy is not showing signs of substantial improvement. One of the reasons that U.S. productivity growth is abysmal is that companies have not been investing in their companies, but rather have decided to institute a policy of buying back their shares. Money is needed to increase productivity, it does not happen on its own. So what is driving this market higher, what is creating a market with record low volatility that is fostering a new set of day traders? Not much. Some investors are crediting the possibility of new Trump tax plan. Reducing taxes will help growth (if they tax plans actually become legislation), but the proposed tax plan probably does not justify the magnitude of the S&P 500 gains and its current valuation levels. In the end it is the central banks of the world that have probably created a heightened sense of euphoria. Conditioning investors to believe that they will always have their backs, that they will prop up the markets if things start to go wrong. The other day, Richard Thaler of Chicago University was awarded the Nobel Prize in Economics for his nudge theory that postulates that people should be nudged towards doing what was good for them. The Federal Reserve has used the nudge principle to encourage investors to invest in the stock market with the policy of artificially low interest rates. The problem is that central banks have either started to tighten their monetary policies or are close to the inflection point, which could cause problems in the future. Further, reflecting back to the 1990 s, I can remember the days when the burgeoning internet caused investor irrational behavior. Initially, investors pushed up almost any company that said that they were going to create an online business (it seems ridiculously funny now). It was not uncommon to see a stock jump 30% in one day when they put out a press release that they were going to create a website. Really, what were investors thinking? Today, almost every company has a website. If they don t, they can build one in a few hours for a few hundred dollars, or less. Last week, I tweeted (@BrookeThackray), an article from Bloomberg stating that a biotech company had its stock price jump 50% because it was going to change its name to Riot Blockchain... Deja vu. 8

9 Disclaimer: Comments, charts and opinions offered in this report are produced by com and are for information purposes only. They should not be considered as advice to purchase or to sell mentioned securities. Any information offered 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 reflected 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 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 subscriber s addresses. Subscribe or Unsubscribe to the Thackray Market Letter: Please visit alphamountain.com. 9

Thackray Newsletter. Know Your Buy & Sells a Month in Advance. Published the 10th Calendar Day of Every Month

Thackray Newsletter. Know Your Buy & Sells a Month in Advance. Published the 10th Calendar Day of Every Month Thackray Newsletter Know Your Buy & Sells a Month in Advance Published the 10th Calendar Day of Every Month Volume 12, Number 8, August 2018 Written by Brooke Thackray Market Update Is the US stock market