Thackray Market Letter
— Know Your Buy & Sells A Month In Advance —
Published the First Monday of Every Month
VOLUME 2, NUMBER 6, JUNE 2008
MARKET MUSINGS
The Battle of 1400
In last month's newsletter I stated that there would be a
battle at the 1400 mark in the S&P 500. The market has
not failed to provide "entertainment" at this level: up then
down and then up again. The market failed to get through
the important 200 day moving average. It is currently at
the 1400 and more "entertainment is expected. On the
negative side– the MACD has turned down. On the plus
side– the market has broken through the down trend line,
although it has recently had a pullback. The same forecast
from last month's newsletter stands with investors remain-
ing cautiously in the market.
Last month in my newsletter I was purporting the position
that the risk reward profile of oil and gold stocks favoured
the downside, based upon their negative seasonal trends at
this time of year. A few days later on a BNN TV interview
I put forth the same position. It is a difficult position to
stand behind such a position when it seems almost the
whole world is calling for oil to reach "infinity and
beyond" (Toy Story, Disney Movie). It is also very diffi-
cult to call a top when a sector is in a "parabolic" move. At
alphaMountain Investments — www.alphamountain.com
written by Brooke Thackr ay
this stage of the curve it can go high very fast, but the price
is driven mainly by speculation, at least at the margin.
Despite oil rising further in May, the occasional analyst or
hedge fund manager is acting as a siren, calling for a cor-
rection in oil prices. Most notably George Soros has
recently stated in a Daily Telegraph interview, that oil
prices are in a bubble and expects a correction when the
economy enters a recession. Like almost everyone else I
am still a long-term oil bull as demand is still expected to
outstrip supply, but I believe in the tenets of seasonal
investing: overweight in a favorable seasonal period and
underweight in an unfavorable period. Right now we are
in an unfavorable period as we work through the shoulder
season to the next favorable season at the end of July. Yes,
oil may go up further, but the seasonal odds are for a pull
back at this time.
Investing in oil stocks during the
month of June has typically not
proven to be a profitable venture.
On an average basis the Oil XOI
index has produced an average gain
of -0.06% and has been positive
42% of the time from 1984 to 2007.
Looking at the energy sector perfor-
mance in June from 1984, it is dis-
cernible that oil stocks have not
been a good investment during the
month over the long-term, except
the last few years of the raging
energy bull. There have been a cou-
ple of exceptions with returns
greater than 1%.
The first exception was in 1987
when the market was running into a speculative peak that
crashed in October. As a side note, the broad market often
peaks when commodity prices are escalating over a pro-
tracted period of time. The theory behind this that expan-
sion of the economy increases demand of commodities to
the point of causing rapidly rising prices; unacceptable
rising inflation prompts the central banks into raising
interest rates, which in turn stymies economic growth,
 S&P 500 −June % Gain
4
2
0
−2
−4
−6
−8
−10
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
10
8
6 XOI (Oil) −June % Gain
4
2
0
−2
−4
−6
−8
−10 XAU (Gold) −June % Gain
10

−5

−10

−15

−20

1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

S&P 500 1.7 1.2 1.4 4.8 4.3 -0.8 -0.9 -4.8 -1.7 0.1 -2.7 2.1 0.2 4.3 3.9 5.4 2.4 -2.5 -7.2 1.1 1.8 0.0 0.0 -1.8

XOI (Oil) -1.9 -0.1 -1.8 5.0 -3.3 -1.3 -3.0 -5.1 -5.6 -3.1 -1.8 -3.6 0.3 3.0 -1.4 0.6 -6.1 -6.4 0.5 0.5 5.4 7.5 5.0 3.1

XAU(Gold) -9.0 -2.4 -8.0 -4.4 0.8 6.7 -5.5 9.5 4.7 4.8 -4.2 0.2 -16.9 -8.4 -4.0 10.0 2.7 -6.8 -15.2 7.1 -3.9 7.8 0.7 -2.7

June % Gain by Year 1984-2007

XOI - Amex Oil Index - An index designed to represent a cross section of widely held oil corporations
involved in various phrases of the oil industry. For more information on the XOI index, see www.cboe.com
XAU - PHLX Gold and Silver Index is listed on the Philadelphia Exchange. It consists of 12 precious
metal mining companies.

which finally decreases company earning forecasts and
stock prices. The peak in the market in the year 2000 was
totally different: it was a speculative technology peak with
weak commodity prices. At the time the increase in eco-
nomic growth was being sopped up with increases in pro-
ductivity, relieving inflationary pressures. Over the longer
term we are most likely in the classic scenario of increas-
ing commodity prices putting a cap on the market. Up to
this point the Fed's position has been very accommoda-
tive, allowing inflation forces to increase. The situation
will become more dangerous when the Fed decides to take
a more hawkish stance.
The other exception of note when oil stocks provided pos-
itive returns (greater than 1%), was in 1997. This is a case
of a “rising tide lifts all boats.” Anytime the market is
extremely strong all of the sectors in the market get a

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boost. In the years 1997, 1998 & 1999 the market was fers. With Hillary Clinton’s demise appearing inevitable,
very strong (except during the Asian currency contagion) the health care issue has less likelihood of affecting stock
and helped lift all sectors. In periods of very strong market prices.
performance seasonality still works. In 1997, 1998 and
Despite its poor product pipeline in the pharma sector,
1999, the S&P 500 outperformed the oil sector and would
health care stocks may provide an attractive investment in
have been a better place to invest.
the near future. The one area of the health care sector
In the last few years the oil sector has produced strong which is affected relatively less by the election is biotech-
positive performances in June. The performances in this nology. This is a result of the government not wanting to
month, although positive, are not an anomaly in the sense stifle product development, but rather the cost of provid-
that oil has been in a very strong bull market over the last ing health care.
few years. During very strong sector bull markets, sectors
Looking at the biotechnology sector relative to the S&P
go up regardless of the season. What makes this year dif-
500, the sector tends to outperform from June 23rd to Sep-
ferent? Yes, we are in a bull market for oil, but oil has been
tember 13th. The outperformance has been persistent,
driven largely by speculators. The result has been a para-
even during the election years.
bolic curve. When nobody thought that oil would hit
$100, it hit $100. When nobody thought that oil would hit
$115, it hit $115 and so on. From a graph perspective, the
result has been a parabolic curve. Although an investor
can make a lot of money when an investment is going par-
abolic, it is usually best to stay away because the down-
side is swift and fierce: remember the tech bubble? During
a parabolic period it is usually best to follow the rules of
seasonal investing.
Gold tends to be more volatile than oil and has bigger
down and up June months. It has produced an average
return of -1.5% and has been positive 46% of the time. Its
returns over the years have been larger both on the upside
and downside during the month of June. Like oil, gold’s
next positive seasonal period starts towards the end of
July. The XAU is currently in a consolidating range, as per
previous market letters, and from a seasonal perspective
the opportunity will come at the end of July.

SECTOR STRATEGY
Usually during the summer months (particularly in the
late summer) health care stocks tend to do well. The two
basic reasons for this outperformance. First, investors
look for defensive sectors during the summer to decrease
their risk in the markets during times when the market can
fall sharply. Second investors want to be in the health care
sector ahead of the health care conferences that take place
in autumn. After a spectacular run in the 1990’s, health
care stocks have performed relatively poorly. This has
been in large part because of the lack of blockbuster drugs There are five biotechnology ETFs – XBI, BPE, IBB,
introduced into the market. FBT and BBH. They all have different concentrations and
During federal election years in the U.S., health care risk profiles. The chart below is based upon the XBI,
stocks have not performed as well as they typically do in which holds over 30 stocks and is based upon the S&P
the summer time. The reason is that health care often Biotechnology Select Index.
becomes a political football and with greater uncertainty
surrounding government intervention, performance suf-

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 INDEPENDENCE DAY - TRADE
2 MARKET DAYS BEFORE JUNE
MONTH END TO
5 MARKET DAYS AFTER

Right now (end of May) we are in the middle

of the Memorial Day Trade outlined in my
Independence Day Trade book “Thackray’s 2007 Investor’s Calendar”.
So far it is successful. The trade ends this Fri-
day.
The next short-term trade coming up is the
Independence Day Trade. It has worked well
in the past, as illustrated by the graph above
and the table to the left. This short-term trade
starts 2 market days before the end of June
and lasts 5 market days after Independence
Day (Entry- End of day Thursday June 26,
Exit- Friday July 11).
Let’s hope the market celebrates once again
with fireworks.

Disclaimer: 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 infor-
mation presented is for educational purposes and is not investment advice. Historical
results do not guarantee future results
Portfolio Management Information: For more information on historical performance
and portfolio policies, refer to www.alphamountain.com reference and archives page.
Mailing List Policy: We do not give or rent out subscriber’s email addresses.

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