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Top Picks from Brooke Thackray

OilRig
Tags: Market Call

Brooke Thackray, research analyst, Horizons ETF Management Canada

Focus; Technical Analysis & Seasonal Investing

MARKET OUTLOOK:

The S&P 500 started the year on a weak note as investors worried about the new regime of the U.S. Federal Reserve raising interest rates and a slowdown in global economic growth. Repeated headlines in the media have laid the blame of falling stock prices on the falling price of crude. Although there has been a positive correlation in their price movements as the price of West Texas Intermediate Crude dropped below $40, the long-term correlation between the stock market and oil has been negative. Currently, a weak oil price is causing a negative effect in the high yield bond market, which indirectly affects the stock market, but this does not account for the strength of the positive correlation between oil and the S&P 500. It is a matter of time before this “psychological” correlation breaks down. A lower oil price translates into lower gas prices, which in turn translates into more money for consumers to spend. Ultimately, this should give a boost to the economy and help the stock market. Now that the earnings season is largely over, stocks are largely reacting to economic numbers being released. Recently, economic numbers have overall been better than expected. As long as the numbers are not too strong, which will increase the chances of the Federal Reserve increasing interest rates, the stock market should move upwards over the next two months.

Top Picks:

SPDR S&P Retail ETF (XRT)

Purchased on February 12 at $39.32.

In the fourth quarter of 2015, retail stocks underperformed as companies announced less than stellar earnings. In January, the tide changed as retail sales increased by 0.2 percent from the previous month versus an expected 0.1 percent. On a seasonal basis, the retail sector tends to perform well from Jan. 21 to April 12. In this period, from 1990 to 2015 the retail sector (S&P GIC sector) has produced an average gain of 8.5 percent, been positive 77 percent of the time and outperformed the S&P 500 81 percent of the time. So far this year, the retail sector has been performing well in its seasonal period. There is still a substantial amount of time for the sector to continue its seasonal trend of outperformance.

First Trust NASDAQ Global Auto Index Fund (CARZ.O)

The year 2015 was a strong year for U.S. car sales. U.S. auto sales slide 0.4 percent in January as winter storms hampered auto buying in the northeast part of the U.S, which should lead to increase purchases in February and March. The auto sector typically performs well from Feb. 24 to April 24th. In this time period, from the years 1990 to 2014, the auto and components sector (S&P GIC sector) has produced an average gain of 8.5 percent and has been positive 76 percent of the time.

Crescent Point Energy (CPG.TO)

The price of Crescent Point Energy has fallen substantially since the summer of 2014. Previously, Crescent Point has cuts its dividend, stopped its dividend reinvestment program and slashed its capital expenditure program. Given that it currently has some breathing room with one-third of its 2016 production hedged at $83, an investment in Crescent Point Energy could perform well if the price of oil is able to gain traction in the strong seasonal period for the energy sector that lasts from February 25 to May 9.

Disclosure:

Personal

Family

Portfolio/Fund

XRT

N

N

Y

CARZ

N

N

N

CPG

N

N

N

Past Picks: December 15, 2015

iShares Russell 2000 ETF (IWM)

Sold Jan. 14 at $101.77.

The small cap trade started on positive note in December, but started to deteriorate in January. At the time, investors had become risk averse and preferred large caps and defensive sectors. Recently, the small cap sector has started to show increasing relative performance compared the S&P 500. This is a good indicator and is positive for the overall market.

  • Then: $112.71
  • Now: $102.73
  • Return: -8.85%
  • TR: -8.46%

PowerShares QQQ ETF (QQQ.O)

Sold Jan. 14, 2016 at $104.07.

The Nasdaq-100 trade typically lasts until the third week in January. This year investors shied away from the Nasdaq-100 in January as the U.S. stock markets corrected and as a result, the trade finished early.

  • Then: $112.31
  • Now: $102.50
  • Return: -8.73%
  • TR: -8.45%

Financial Select Sector SPDR ETF (XLF)

Sold Jan. 28 at $21.31.

U.S. financials typically outperform leading into their full year fiscal reports that are typically released in mid-January and then continue to perform well into mid-April. U.S. financials underperformed in January mainly because investors rejigged their expectations of the U.S. Federal Reserve increasing interest rates to incorporate the stance of lower rates for longer. In addition, U.S. banks suffered from the creditworthiness of European banks coming into question as European banks performed poorly.­

  • Then: $24.04
  • Now: $21.09
  • Return: -12.31%
  • TR: -11.74%

Disclosure:

Personal

Family

Portfolio/Fund

IWM

N

N

N

QQQ

N

N

N

XLF

N

N

N

 

 

 

 

 

 

 

Total Return Average: -9.55%

Fund Profile

Horizons Seasonal Rotation ETF (HAC:TSX)

Performance as of: Dec 31, 2015

1 Month: Fund -5.2%, Index* -1.2%

1 Year: Fund 1.5%, Index* -9.9%

3 Year (Annualized): Fund 5.9%, Index* 3.4%

* Index: S&P/TSX 60 Index

* Performance is net of fees and includes reinvested dividends

Top 5 holdings and weightings:

Horizons S&P/TSX 60 Index ETF (HXT) 41%

Horizons S&P 500 Index ETF (HXS) 34%

Horizons BetaPro S&P 500 Bull Plus ETF (HSU) 10%

S&P/TSX Capped Energy Index ETF (HXE) 10%

SPDR S&P Retail ETF (XRT) 5%

Twitter: @BrookeThackray

Website: www.horizonsetfs.com/HAC

[Editor's note: An earlier version of Brooke Thackray's disclosure on his top picks and past picks contained errors.]

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