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Brooke Thackray is research analyst at Horizons ETFs (Canada) Inc. His focus is technical analysis and seasonal investing.

Top Picks:

Consumer Staples Select Sector SPDR Fund (XLP-N)

As investors become concerned about the stock market outlook, they are attracted to companies that have stable earnings, including the consumer staples sector. Although the consumer staples sector has a relatively high P/E (20) for a slow growth sector, investors are generally willing to pay for the higher multiple in times of uncertainty. It should also be noted that if the stock market did suffer a major correction, the consumer staples sector would also correct, but typically not as much.

iShares 1-3 Year Treasury Bond (SHY-N)

The seasonal period for government bonds starts May 9 and lasts until October 3. Currently, government bonds are still correcting. A good holding position until longer term bonds start to show strength is in shorter term U.S. government bonds, such as the iShares 1-3 Year Treasury Bond ETF (SHY). The current expectation is for the Federal Reserve to raise interest rates in September. Government bonds should get relief if the Federal Reserve once again pushes out its date for raising rates to December.

*Short* SPDR® S&P® Homebuilders ETF (XHB-N)

The home builders sector (S&P GICS®) typically performs well from October 28 to February 3. Currently, the sector has just entered a seasonal period of weakness which lasts from April 27 to June 13. In this time period, from 1990 to 2014, the home builders sector has produced an average loss of 4% and has only been positive 29% of the time. With the weak economic reports that have been published recently, shorting this sector is an attractive investment, especially when it is paired up with a long position of a better performing investment.

Past Picks: March 23, 2015

Consumer Discretionary Select Sector SPDR ETF (XLY-N)

The consumer discretionary sector has had a strong run in its seasonal period that started on October 28. From the macro viewpoint, low interest rates have supported consumers spending momentum, helping the sector to perform well. Technically, the sector has started to flatten out and is now performing at market. From a seasonal perspective, the sector underperforms over the next six months and investors should consider returning to this sector once again in October.

Then: $76.64; Now: $75.71 -1.21%; Total return: -1.21%

Horizons S&P 500 Index ETF (HXS-T)

As the stock market is in the last stages of the six month unfavourable period (October 28 to May 5), very often it is wise to start selling off the sectors that are underperforming and reallocate the proceeds into the broad market. For example, this year the industrials sector started to weaken relative to the S&P 500 in March making it a good candidate to reallocate into the S&P 500. Generally speaking, investors should be favouring seasonally strong sectors versus broad market positions over the next six months.

Then: $47.21; Now: $45.20 -4.26%; Total return: -4.26%

Sysco (SYY-N)

In March, Sysco looked attractive from a technical as it was down to its support level a few weeks ahead of its seasonal period. In April, Sysco broke through support as the pending lawsuit by the FTC, regarding Sysco's merger with U.S. Foods proved to have a larger than expected negative impact. More recently, Sysco's earnings underperformed expectations. At this time, it is best to look for other investment opportunities.

Then: $38.66; Now: $36.12 -6.57%; Total return: -5.83%

Total return average: -3.78%

Market outlook:

There is a fairly large number of different market valuation indicators showing the stock markets to be at least fairly valued, if not overvalued. The models showing that the stock markets are overvalued include the Shiller P/E (CAPE) and the Warren Buffett Indicator, both with current measurements well above their long-term averages (1880 and 1971, respectively), demonstrating an overvalued market. These indicators are not good market timing tools, as the market can stay overvalued for an extended period of time. Nevertheless, they do point to a market that is susceptible to a correction. Given that corporate profits are at all-time highs, while earning growth is slowing, and that there is little hope for new quantitative programs to be announced from central banks, other than what is currently in play, there is not a lot to drive the stock markets higher at this time. To top it all off, the stock market is entering the six month unfavourable period which lasts from May 6 to October 27. From 1950 to 2014, the six month unfavourable period has had losses of 10 per cent or more 10.9 per cent of the time, and gains 10 per cent or greater, 12.5 per cent of the time. This compares to the other six months, the six month favourable period, which has had losses of 10 per cent or greater, only 3.1 per cent of the time and gains 10 per cent or greater 42.2 per cent of the time. In other words, the six month unfavourable period has produced larger losses more frequently and fewer big gains. Given the backdrop of a "richly" valued stock market, a lack of catalysts to drive the stock market higher and a weak seasonal period, investors need to be cautious investing in the stock market at this time.

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