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Top Picks from Brooke Thackray: Technology Select Sector SPDR ETF, United Technologies, BMO S&P/TSX Equal Weight Banks Index ETF

Tags: Market Call

Brooke Thackray, research analyst, Horizons ETFs Management (Canada) Inc.
FOCUS: Technical Analysis and Seasonal Investing

MARKET OUTLOOK:

The S&P 500 corrected sharply in August and for most of September and then rallied at the end of September as portfolio managers adjusted their portfolios for quarter-end. The stock market continued to rally in October on the expectation of strong earnings. The stock market continued its rally as earnings started to come in better than expected and with some companies beating their expectations by a large margin. The stock market was given an additional boost as China cut its interest rates once again and favorable comments by ECB President Mario Draghi about negative interest rates and the possibility of more quantitative easing. Although the rally has stretched the stock market to the upside on a short-term basis, technically the S&P 500 is on solid footing, as it has been able to break above a major resistance level of 2000. Breaking above this level was particularly significant as the price action was also a breakout above a short-term double bottom, which typically provides a good base for a rally and it also broke above its 50 day moving average at the same time. From a seasonal perspective, the stock market has just entered its six month favourable period, which should help the S&P 500 reach its May high of 2135 by year-end.

Top Picks:

Technology Select Sector SPDR ETF (XLK)
Purchased on October 26th at $43.66
Information technology has been outperforming the S&P 500 since early July. Recently, it has performed particularly well based upon the stronger than expected earnings of key companies in the sector. The information technology sector typically outperforms in the month of November. From 1990 to 2014, the information technology sector has produced an average gain of 2.6 percent and has been positive 68 percent of the time in November. Information technology’s strong performance is the result of investors buying into the sector to benefit from increased technology purchases at this time of the year by consumers and companies.

United Technologies (UTX.N)
United Technologies has performed poorly so far in 2015, producing a loss of 14.0 percent up until October 27. Earlier in the year, it overpromised and did not deliver on the high expectations that they set. On a year-over-year basis, its recent earnings lost ground, but it managed to beat analyst forecasts. It also announced a large share buy-back program and upcoming rationalization of operations. The industrial sector tends to perform well up until year-end and given the positive announcements by United Technologies, it is expected to perform well for the remainder of the year.

BMO S&P/TSX Equal Weight Banks Index ETF (ZEB.TO)
For quite some time, there has been discussion about the possibility of housing prices in Canada correcting. So far, the decline has not materialized. With energy companies losing value with the drop in the price of oil, Canadian banks have suffered because of the possibility of loan losses. In addition, because of the previously mentioned factors, U.S. hedge funds have been shorting Canadian banks, putting downward pressure on their prices. Despite negative influences, recently Canadian banks have been performing well and are expected to continue to perform well. Canadian banks typically perform well in October into year-end, as investors tend to push up the bank’s stock prices around the fiscal year-end reports which typically come out late in November and early December. Investors should be cautious after the year-end reports are published, as sometimes the relative performance of the sector can fade, particularly if the banks have had a strong rally.

Disclosure:

Personal

Family

Portfolio/Fund

XLK

N

N

Y

UTX

N

N

N

ZEB

N

N

N

Past Picks: September 16, 2015

Horizons NYMEX Natural Gas ETF (HUN.TO)

  • Then: $8.14
  • Now: $6.63
  • Return: -18.55%
  • TR: -18.55%

Consumer Staples Select Sector SPDR Fund (XLP)

  • Then: $48.05
  • Now: $50.44
  • Return: +4.97%
  • TR: +5.66%

Cash

Total Return Average: -4.30%

Disclosure:

Personal

Family

Portfolio/Fund

HUN

N

N

N

XLP

N

N

N

CASH

 

 

 

 

 

 

 

Fund Profile

Horizons Seasonal Rotation ETF (HAC.TO)

Performance as of: Aug 31 2015

Fund Index*

1 Month -1.10% -4.00%

1 Year 10.00% -8.70%

3 Year 9.10% 8.30%

* Index: S&P/TSX Composite

* Performance is net of fees and includes reinvested dividends

Top 5 holdings and weighting:

HXS Horizons S&P 500® Index ETF (HXS) 30.0%

Technology Select Sector SPDR (XLK) 10.0%

Horizons S&P/TSX Capped Financials ETF (HXF) 10.0%

Industrial Select Sector SPDR (XLI) 10.0%

Consumer Discretionary Select Sector SPDR (XLY) 10.0%

Twitter: @BrookeThackray
Website: www.horizonsetfs.com/HAC

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