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. 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. 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 su.er 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, di.erent sectors of the stock mar.ket tend to perform well at di.erent 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 descendingtriangle 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. 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. 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: 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). 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 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. 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. My Call: The technology sector will probably start to
underperform in the near term. Better opportunities may be ahead in late December.
U.S. Government Bonds So many have been calling for the bond market to implode. It
hasnt happened yet. U.S. government bonds have been on a steady rise since late
2016 and have performed well since their start of their seasonal period in May. 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. 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 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 The U.S. materials sector typically performs
poorly in sector has been underperforming the S&P 500 since late September and for
most of October. So far, the sector is 2016. performing at market and is in its
trading channel. Cur.rently, a short sell position in the U.S. materials sector
should be given some berth, as it continues to perform at market. My Call: The U.S.
materials sector will probably under-perform the S&P 500 up until mid-October.
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) The problem is that the moves in the VIX and the stock market have been
muted. After the missile launch that soared over Japan, the VIX did increase and
the stock market did decline, but the moves were soon reversed. So, unless Jung Un
is a master trader with impeccable timing, he probably has not made money trading
the VIX. Lets hope that Jung Un has lost interest in trading the VIX. Disclaimer:
Comments, charts and opinions o.ered 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
o.ered 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
e.orts 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
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