THACKRAY SEASONAL TRADE

EXTENDED VERSION
April 27, 2015

Authored by: Brooke Thackray

Stock Markets are in for a Cold Summer!

Introduc on
It is a good thing that collec vely people are generally op mis c about the future
it makes life more enjoyable. Some mes, our propensity for op mism causes us to
ignore possible dire outcomes that might lie ahead. There are countless examples of
people living in the shadow of volcanoes, on earthquake fault lines and at sea level.
A volcano, an earthquake and flooding are not inevitable. There is no surety that
these events will happen. There are only probabili es that they may occur. Given that
these events may happen some me in the distant future, we tend to behave as if the
events will not occur. Miami, Florida is a thriving city, and yet it is in dire danger of being submerged in the future. Currently, nearly half of Miamis popula on is living four
feet above sea level or lower. By 2060, it is es mated that sea level along Floridas
coastline could rise between 9 inches and 2 feet1. The problem with a rising sea level
is not just that Florida will one day be submerged, but that Florida is fast becoming
more suscep ble to flood damage in the not too distant future. Miami is not alone, as
many major ci es are facing an increased risk of flood damage from a rising sea level,
including New York.
...condi ons in the stock
market at this me make it
suscep ble to a correc on

...one kicker that pushes

the probability of a correc on
to the pping point - a weak
six month seasonal period
from May 6th to October
27th.

Just as people tend to ignore the probabili es of increasing risk when a nega ve
event is more likely to occur, investors tend to ignore condi ons that make the stock
market more suscep ble to a correc on. Our ac ons are not much dierent than a
frog who is placed in a pot of water that is slowly brought to a boil. Just as the frog
does not react to incremental changes in temperature and the inevitable happens,
investors tend not to see the incremental changes that make the stock market more
suscep ble to a correc on, and therefore do not take ac on.
The condi ons in the stock market at this me make it suscep ble to a correc on as
the stock market is overvalued, has li le poten al addi onal support from central
banks, corporate earnings that are star ng to fade, and a looming period of weak seasonality. Inves ng in an overvalued stock market that lacks support can s ll be fruitful, as the market can con nue to move up on strong momentum for a long period
of me. The potent cocktail of less than desirable ingredients measuring the stock
markets valua on has one kicker that pushes the probability of a correc on to the
pping point - a weak six month seasonal period from May 6th to October 27th.
The stock market does not always correct in its unfavorable six month seasonal period which historically has fewer large gains and more large losses than the other six
months of the year (the favorable period from October 28th to May 5th). If there is
one me of the year that makes sense for investors to lower the risk in their por olios, it is the approaching six month unfavorable period for stocks. This is especially
per nent this year as there is a lack of catalysts to propel the market higher. A six
month period of reduced risk is not a forever alloca on. It may be a cold summer
for the stock market ahead, but there is warmer shelter elsewhere. All is not lost, as
there are investments that tend to perform well in the six month unfavorable period,
including certain sectors of stock market and fixed income.
1

h p://southeas loridaclimatecompact.org/pdf/Regional%20Climate%20Ac on%20Plan%20FINAL%20ADA%20Compliant.pdf

Stock Markets are in for a Cold Summer

Current Bull Market is Long in the Tooth

Historically, since 1929, S&P
500 bull markets have averaged 31 months and have
produced an average gain of
107%.

The length of a bull market does not tell an investor if a stock market is going to correct in the next month or two. A bull market can keep going a lot longer than investors an cipate. Despite the lack of immediate predic ve power, the length of a bull
market can s ll provide a sense of whether the stock market is suscep ble to fading
in strength.
Historically, since 1929, S&P 500 bull markets have averaged 31 months and have
produced an average gain of 107%. The current bull market that started with the
bo om on March 9, 2009 has so far been running for seventy-three months and has
produced a gain of 211%. Both measurements have approximately doubled the longterm averages. The only three bull markets that have produced greater gains are the
1949 to 1956, 1982 to 1987 and the 1987 to 2000 bull markets.

Exhibit 1: S&P 500 Bull Markets (20%+) % Gains and Length (months) 1929 - 2015

Even compared to the more

recent bull markets since
1949, the current bull market
has grown long in the tooth
and is suscep ble to a correcon.

Although the current bull market stands out against the average since 1929, the
results are not quite so stellar when compared to the average bull market since 1949,
but s ll above average. Post WWII, on average, bull markets have lasted longer and
produced greater returns. There are a host of reasons of why this phenomenon may
have occurred, including: the rapid rise of U.S. industry, technological advancements,
the advent of the do-it-yourself investor and Federal Reserve suppor ve ac ons for
the stock market. Even compared to the more recent bull markets since 1949, the
current bull market has grown long in the tooth and is suscep ble to a correc on.
Exhibit 2: S&P 500 Bull Market (20%+) Performance Since 1929

Length Avg. (months)

% Gain Avg.

1929 to 2015
31.2
107%

1929 to 1948
9.6
67%

1949 to 2015 Current Bull Mkt

54.7
73
154%
211%

Source Data: Bloomberg

April 27, 2015

Stock Markets are in for a Cold Summer

Stock market valua on stretched on the upside

There are many ways to slice and dice the value of the stock market. Valua on models can produce results that can vary significantly, with some models poin ng to an
undervalued market and others an overvalued market. Everyone has their favorite
models. At this me, I am having trouble finding any models that point to the stock
market being undervalued. Most investors would agree that either the stock market
is either fairly valued or it is overvalued. And in the la er group, most investors would
agree that the stock market is on the rich side.
A er all, it was Wall Streets
job to forecast the earnings,
so they should know (sarcasm
intended).

Stock market valua on metrics should not be used for short-term market ming:
some stock market measurements can be undervalued/overvalued for years. Nevertheless, the indicators do have value in indica ng that the market is suscep ble
to a rally/correc on, especially at the extremes. When the indicators are at extreme
overvalued levels, they imply that returns over the long-term are either going to be
miniscule compared to past averages, or even nega ve. They do not provide informaon on when the markets may turn down, just that long-term expecta ons should be
reduced.
Pre-1990s, the price to earnings ra o (P/E) was a favorite indicator of many investors
to determine if the stock market was undervalued/overvalued. Investors measured
the trailing twelve month price of the S&P 500 to its earnings and compared it to the
long-term average. In the late 1990s investors became frustrated with this measurement as the P/E resided for an extended period of me, at a much higher value than
its long-term average. At the end of December 2014, the trailing twelve month P/E
ra o was 20 (Exhibit 3), which is not significantly above its long-term average of 15.3
(since 1880), but nevertheless is s ll above average.
Wall Street has managed to convince investors that the forecasted twelve month
P/E is more relevant than the historical earnings. A er all, it was Wall Streets job to
forecast the earnings, so they should know (sarcasm intended). Even the forecasted
twelve month forward P/E has lost favor as investors have been unable to envision its
usefulness and do not fully trust the abili es of Wall Street analysts to forecast based
upon informa on from the companies they are covering.

More recently, the Shiller Cyclical Adjusted Price to Earnings ra o (CAPE) has a racted
a en on. The ra o uses smoothed real per share earnings over a ten year period and
helps to adjust for cyclical eects. It is an indicator that helps to value the likelihood
of stock markets returns over the long-term. The higher the ra o, the more likely that
the next ten year returns in the stock market will be lower and vice versa. The ra o
does not predict impending stock market crashes, but in the past, high P/E values
have coincided with major stock market correc ons.
April 27, 2015

Stock Markets are in for a Cold Summer

...according to the Bue

indicator, the stock market is
extremely overvalued and is
suscep ble to a correc on

Professor Shiller made his mark with the investment community a er he wrote a
book published in March 2000, tled: Irraonal Exuberance. The book hit the bookstores just as stock markets were peaking. The tle of the book was an echo of irra onal exuberance statement that the Federal Reserve chairman Alan Greenspan
made in late 1996, as he commented on the valua on of the stock markets at the
me. Coincidentally, Professor Shiller has just released the third edi on of his book
(revised and expanded) in January 2015, claiming that stock markets in the U.S. and
other countries are overvalued once again, just not to the same degree as the me
when his first edi on was released. In addi on, Shiller has also been credited with
correctly predic ng that house prices were too high before the 2007 crash.
A er a string of Shiller correct major predic ons, investors have been paying more
a en on to the recent high values of the Shiller P/E ra o. Looking at the data since
1880, the Shiller P/E is currently at an all- me high, except for the 1929 and 2000 bull
market peaks (Exhibit 4) and it is significantly above its 1 standard devia on range.
Accordingly, the indicator is poin ng to an overvalued stock market.
Many investors respect Warren Buet for his successful common sense approach to
inves ng. In 2001, Warren Bue revealed his favorite stock market valua on indicator as the stock market capitaliza on to GDP ra o. If the ra o is significantly below
the long-term average, then it reflects that the stock market is cheap to buy and vice
versa. At the macro level, it makes sense that the U.S. stock market should not have a
substan ally high value rela ve to GDP (value of all of the goods and services produced in the U.S.). As of March 2015, the indicator was registering 1.2, represen ng
a stock market valua on of 120% of the economy (Exhibit 5). Since 1970, this is the
highest level other than the year 2000. In other words, according to the Bue indicator, the stock market is extremely overvalued and is suscep ble to a correc on.
So why are investors s ll in the game pushing the stock market up when they realize that the stock market is not a bargain? It mainly comes down to fear the fear of
missing out. The music is s ll playing and there is s ll some dancing to be done. With
interest rates around the world at record lows and o en at nega ve rates, investors
feel they have no alterna ve but to invest in the stock market. This group think has
produced stock markets that have reached giddy levels and the party goes on.

...one indicator that is registering extreme over op mism

is the level of real investor
debt margin

It is important to note that stock market valua on metrics used above should not be
used as market ming tools. They are broad trend indicators that can stay overvalued
or undervalued for a long me, much longer than what most investors would expect.
Nevertheless, they do have value by indica ng if the stock market us suscep ble to a
correc on or rally. When the valua on metric is stretched to the extreme upside, the
stock market is suscep ble to a correc on.
There are dierent ways to measure investor enthusiasm for the stock markets, but
one indicator that is registering extreme over op mism is the level of real investor
debt margin. Exhibit 6 shows the posi ve rela onship of real margin debt to real S&P
500 levels from 1985. The real margin debt level is at its highest level in the last thirty
years. Low interest rates can explain part of this extreme level, as investors can borrow money cheaply to invest, but it does not account in total for the extreme level.
The problem is that if investors are already borrowing heavily to invest, where are
addi onal funds going to come from for inves ng? It is true, that the average person
is not ac vely inves ng in the stock markets like they were in the late 1990s, but
they may not be coming into the stock market this me around. The stock market has
bought some me, with corpora ons buying their stock back at higher than average
levels. Companies with extra cash have not been using it for expansion, but instead
having been buying back their own stock. This can keep going on for a while, but it is
hard to keep a stock market supported on this ac on.

April 27, 2015

Stock Markets are in for a Cold Summer

In the end it is hard to argue

that profit margins can be sustained at the current historic
levels over the long-term.

One of the reasons that corpora ons have been able to buy back their own stock has
been the extremely high profit margins that U.S. corpora ons have been earning.
Exhibit 6 shows that profit margins are at the highest level since 1945. Although, it is
possible that the high profit margins are some what derived from structural changes,
there is no ques on that the ra o is at elevated levels.
Expanding profit margins have been able to support an expanding P/E ra o. Many investors argue that profit margins tend to regress to their mean over me. When and
if profit margins regress to their mean, the eects would nega vely impact the P/E
ra o and consequently stock prices.
In the end it is hard to argue that profit margins can be sustained at the current historic levels over the long-term. A lot of the profit margin growth has been driven by
aggressive cost cu ng, something that is not sustainable over the long-term.

Corporate Earnings Star ng to Fade?

Corporate earnings have been strong in the most recent bull market, quarter a er
quarter. Companies have slashed their costs and increased their profit margins to
record levels (Exhibit 7) and have maintained a pa ern of earnings expansion. For the
first me since 2009, Q1 earnings for 2015 are expected to contract 2.9% (Thomson
Reuters April 10). If earnings con nue to contract, this will not be a good backdrop for
a rising stock market.

With U.S. corporate profit margins above 10% and well above their standard devia on
range, they are poised to correct and move back to their long-term average. There is
no reason for U.S. corpora ons to make substan al profit margins above their average over the long-term. Nothing has changed over the last few years for this to be
jus fied. In fact, over me, it would be expected that compe on would bring down
profit margins to adjust for the proper risk adjusted returns for owners of businesses.
The very high levels of profit margins are temporary and have been largely driven by
cost cu ng, share buy-backs and low interest rates.

No Help from Central Banks

Bull markets are o en driven by some fundamental factor of improvement, such as
the 1990s bull run which was driven by improvements in technology and increasing
produc vity. The most recent bull market has been powered by the Federal Reserve
s mula ng the economy through loose monetary policy.
April 27, 2015

Stock Markets are in for a Cold Summer

Given that the s mulus that has been driving the current bull market is now being
removed and the Federal Reserve is trying to prepare investors for a possible rise in
interest rates, it is dicult to envision the bull market roaring higher. Some may argue
that the s mulus has done its job, and the economy is picking up on its own voli on,
but this is debatable.
In the current bull run, when the stock markets corrected severely, the Federal Reserve stepped in to rescue the economy/stock markets, par cularly in the summers of
2011 and 2012. In both of these years the Federal Reserve stepped in with, or rumors
of quan ta ve easing programs.

The best investors can hope

for is for the Federal Reserve
to con nue to push out its
interest rate increase.

At this juncture, it is going to be dicult for the Federal Reserve to step in with a
quan ta ve easing program. The best investors can hope for is for the Federal Reserve to con nue to push out its interest rate increase date further into the future. As
me goes on, and investors become desensi zed to the topic of rising interest rates,
pushing out the fearful date will have less of an impact. Also, once the date gets too
far in the future, it will not register on the investors psyche. Does it really ma er if the
poten al date is nine months or a year into the future? The end result is that the Federal Reserve has a very limited arsenal to step in and help the stock market if it gets
into trouble. The days of the Federal Reserve stepping in to save the day are fading...
and fast.
In more recent years, the ECBs monetary policies have had an impact on providing
support for stock market rallies. Ironically, it was more of the promise to do whatever it takes, rather than the ac ons themselves that helped to drive the stock markets
higher. Mario Dhragi the president of the European Central Bank seemed to get away
with avoiding the quan ta ve easing programs of the U.S., at least up un l recently
when the ECB announced a quan ta ve easing program to the tune of 60 billion
euros per month.
Like the U.S. Federal Reserve, the ECB is also in a dicult spot to release another
major quan ta ve easing program. It would be dicult to jus fy another ini a ve
when one has just been released. The excep on to this would occur if Greece were to
default on its bond payments and the stock market reac on got out of hand. Under
this scenario, most investors would understand this ac on to be congruous to the
circumstances.
The last two central banks that have the power to move the stock markets reside in
Japan and China. Japan has been constantly been implemen ng itera ons of loose
monetary policy. Although they have had a posi ve impact on the stock markets
around the world, the marginal eect of the latest itera ons have been decreasing
and somewhat ephemeral. The Chinese economy has been struggling and on April
20th, China reduced the banks reserve ra o by 1% (the biggest cut since December
2008) in order to s mulate the economy. The ac on had a posi ve impact on world
stock markets....for a day.
Overall, despite loose monetary policy from China and Japan, investors should not
expect their ac ons to drive the global stock markets significantly higher.

Stock Markets Vulnerable in Six Month Unfavorable Season

May 6th to October 27th
In recent years, Sell in May has become a hot topic, par cularly in 2011 and 2012
when the S&P 500 corrected sharply in the summer months. A lot of investment gurus do not really understand the significance of the six month unfavorable period for
stocks that lasts from May 6th to October 27th.

April 27, 2015

Stock Markets are in for a Cold Summer

Exhibit 8: S&P 500 Avg. % Cumula ve Yearly Gain

Exhibit 9:
S&P 500 Unfavorable vs.
Favorable Period
Performance (1950-2014)

1950/51
1951/52
1952/53
1953/54
1954/55
1955/56
1956/57
1957/58
1958/59
1959/60
1960/61
1961/62
1962/63
1963/64
1964/65
1965/66
1966/67
1967/68
1968/69
1969/70
1970/71
1971/72
1972/73
1973/74
1974/75
1975/76
1976/77
1977/78
1978/79
1979/80
1980/81
1981/82
1982/83
1983/84
1984/85
1985/86
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14

Unfavorable
Period
May 6 to
Oct 27

Favorable
Period
Oct 28 to
May 5

8.5 %
0.2
1.8
-3.1
13.2
11.4
-4.6
-12.4
15.1
-0.6
-2.3
2.7
-17.7
5.7
5.1
3.1
-8.8
0.6
5.6
-6.2
5.8
-9.6
3.7
0.3
-23.2
-0.4
0.9
-7.8
-2.0
-0.1
20.2
-8.5
15.0
0.3
3.9
4.1
0.4
-21.0
7.1
8.9
-10.0
0.9
0.4
4.5
3.2
11.5
9.2
5.6
-4.5
-3.8
-3.7
-12.8
-16.4
11.3
0.3
0.5
3.9
2.0
-39.7
17.7
1.4
-3.8
3.1
9.0

15.2 %
3.7
3.9
16.6
18.1
15.1
0.2
7.9
14.5
-4.5
24.1
-3.1
28.4
9.3
5.5
-5.0
17.7
3.9
0.2
-19.7
24.9
13.7
0.3
-18.0
28.5
12.4
-1.6
4.5
6.4
5.8
1.9
-1.4
21.4
-3.5
8.9
26.8
23.7
11.0
10.9
1.0
25.0
8.5
6.2
-2.8
11.6
10.7
18.5
27.2
26.5
10.5
-8.2
-2.8
3.2
8.8
4.2
12.5
9.3
-8.3
6.5
9.6
12.9
6.6
14.3
7.1

April 27, 2015

Oct28May5>
May6Oct27
YES
YES
YES
YES
YES
YES
YES
YES

YES
YES
YES
YES
YES
YES

YES
YES

YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES

In past presenta ons, I have shown the average seasonal performance of the S&P
500 (Exhibit 8), and asked the audience their thoughts on inves ng in the favorable
seasonal period (shaded grey) and the unfavorable seasonal period. A large por on
of the audience o en responds that the unfavorable season has on average produced
a flat return and so why not just hold the market during this me and benefit from
the next strong seasonal period.
This is not the best way to look at this seasonal trend as it does not reflect the true
risk/reward rela onship between the favorable six month period for stocks from
October 28th to May 5th compared to the unfavorable six months. It is not a matter of whether the stock market is posi ve on average in the unfavorable six month
period (since 1950, the S&P 500 has been posi ve 63% of the me in the unfavorable
period), but rather how much risk is incurred during this period.
In the same presenta on, I would then go on and show the table in the side bar,
Exhibit 9, (from Thackrays 2015 Investors Guide, page 57) and ask: if you could only
choose one six month period in which to invest, which period would you choose? I
would then give the audience a few minutes to analyze the data and discuss the results amongst themselves. The answer is almost unanimous, as they would choose to
invest in the six month favorable period.
The audiences viewpoint on inves ng during the year changed when they had to
make a decision between two alterna ves. They were forced to include risk into their
analysis. Average buy and hold investors do not have to make the decision about
being in or out of the stock market. They are already in the stock market and ra onalize why they should stay invested. The bias is the result of investors fearing that they
will miss out on large returns if they exit the stock market during the unfavorable six
month period.
So what did the six month seasonal numbers from Exhibit 9 reveal? The most obvious
metric is that the favorable seasonal period outperforms the unfavorable seasonal
period more than half the me; in fact 70% of the me (number of YESs in far right
hand column). Not as easily seen, but important are the other metrics:
The unfavorable seasonal period produces an average geometric loss of 0.6%,
compared to the average geometric gain of 7.8% in the favorable period (Exhibit
10).
The frequency of losses equal to or greater than 10% is substan ally higher in
the unfavorable period versus the favorable period, 10.9% and 3.1% respec vely
(Exhibit 11).
7

Stock Markets are in for a Cold Summer

The frequency of gains equal to or greater than 10% is substan ally less in the unfavorable period versus the favorable period, 12.5% and 42% respec vely (Exhibit
12).
...the favorable period on
average produces more gains,
bigger gains more o en,
fewer losses and fewer large
losses

In the end, it is easy to see why the audience of the presenta ons would choose the
six month favorable period over the six month unfavorable period in which to invest,
as the favorable period on average produces more gains, bigger gains more o en,
fewer losses and fewer large losses.

Technically, the S&P 500 is sound, but it is stretched to the Upside

It is hard to say anything nega ve about the price ac on of the S&P 500. It has been
a series of higher highs and higher lows and is currently trading above at the top end
of its trading channel between 2000 and 2100 (at the me of wri ng this report). The
market can move higher from this point and may in fact do so, but as we transi on
into the six month unfavorable season for stocks, the likelihood of a strong rally will
fade.
Exhibit 13: S&P 500 Technical Price Ac on

...as we transi on into the six

month unfavorable season
for stocks, the likelihood of a
strong rally will fade

At the me of wri ng this report, the 200 day moving average for the S&P 500 is
2022. A lot of traders track the movement of the S&P 500 rela ve to the 200 day
moving average and if the S&P 500 falls below the 200 day moving average, there is
a good chance that the 2000 level will be tested. If the S&P 500 breaks below 2000,
especially on heavy volume, the stock market will have turned and will have a bearish
bias.

April 27, 2015

Stock Markets are in for a Cold Summer

Prac cal strategies for the unfavorable six month period

The stock market can rally in the unfavorable six month period, par cularly in a strong
bull market. Seasonal investors should adjust their por olios to reflect the increased
risk to reward ra o at this me. At this me of the year, seasonal investors should be
looking to follow the Seasonal 3 Rs.

(1) Reduce Equi es

This summer rally, tends to
be ephemeral and it would be
wise for seasonal investors to
use ght stops on their posions.

It is fairly standard in the investment industry to operate a por olio with an Investment Policy Statement (IPS) that states a percentage range for dierent asset classes,
depending on risk tolerance and other factors. The overall equity alloca on to the
stock market, typically has a 10-20% range around a specified target value in an
investment por olio. Based upon seasonal trends demonstra ng lower expected risk
adjusted returns in the unfavorable six month period for stocks, seasonal investors
may want to lower their equity holdings within their risk parameters and equity alloca on range for their por olios.
Within the six month unfavorable seasonal period for stocks, there are shorter-term
opportuni es in the broad stock markets for more ac ve investors. For example, the
stock market tends to rally from the end of June, into the first half of July (see Thackrays 2015 Investors Guide, page 43 and page 73 for details). This summer rally,
tends to be ephemeral and it might be wise for seasonal investors to use ght stops
on their posi ons.

(2) Reduce Beta

At mes of expected lower returns, generally it makes sense to reduce risky investments. If the market corrects, riskier investments tend to correct more, especially if
the market suers a major correc on.

(3) Reallocate into Seasonally Strong Sectors

There are other sectors of the

market that tend to perform
well in the six month unfavorable period for stocks

Not all sectors are seasonally equal. Some sectors perform be er at certain mes
of the year. In fact, seasonal inves ng is primarily a sector rota on strategy, favoring
dierent sectors at dierent mes of the year when they tend to outperform. Although the unfavorable six month period may not be kind to the broad stock markets
on average, some sectors tend to underperform and others outperform. To state the
obvious, investors should favor the sectors that tend to outperform. In general, it is
the defensive sectors that tend to outperform in the six month unfavorable period for
stocks, including the health care, u li es and consumer staples sectors. The defensive
sectors have dierent seasonal periods within the unfavorable period (see Thackrays
2015 Investors Guide for details). Naturally, if the stock market has a major correcon, the defensive sectors will s ll be expected to correct, but typically not by as
much as the cyclical sectors.
There are other sectors of the market that tend to perform well in the six month
unfavorable period for stocks, such as gold and the agriculture sector. Both of these
sectors tend to perform well at dierent mes within the unfavorable period, based
upon supply and demand rela onships within their sectors.
Investors also have the op on to invest in government bonds from May 6th un l the
beginning of October. Government bonds tend to perform well at this me of the
year as investors look for a place to park their money during the six month unfavorable period for stocks. For more informa on see Thackrays 2013 Investors Guide,
page 55.

April 27, 2015

Stock Markets are in for a Cold Summer

Conclusion
No one can tell you if the stock markets are going to go up or down this summer no
one! That is true for all forecasts, as they are only forecasts based upon probability.
Dierent investment methodologies assign dierent probabili es to dierent events
in order to forecast an outcome. This is true, even for fundamental analysts.
Seasonal analysis looks at historical trends in the market over the long term in order
to develop an investment strategy. Exogenous events can have an impact on any well
founded investment strategy, both posi vely and nega vely. Seasonal analysis is not
immune from these eects. Currently, this year, there is a lack of apparent catalysts
to drive the stock market higher during the six month unfavorable period for stocks:
the bull market is long in the tooth, the stock market is richly valued, central banks
have limited ability to increase liquidity and corporate earnings are fading. Given the
nega ve backdrop over the next six months (from May 5th to October 27th), stock
markets are probably in for a cold summer.
All the best seasonal inves ng.
Brooke Thackray

Disclaimer: Brooke Thackray is a research analyst for Horizons ETFs (Canada) Inc. All of the views expressed herein
are the personal views of the author and are not necessarily the views of Horizons ETFs (Canada) Inc., although any
of the recommendations found herein may be reected in positions or transactions in the various client portfolios managed by Horizons ETFs (Canada) Inc. HAC buys and sells of securities listed in this newsletter are meant to highlight
investment strategies for educational purposes only. The list of buys and sells does not include all the transactions
undertaken by the fund.
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
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Contact: For further information send an email to brooke.thackray@alphamountain.com
April 27, 2015

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